From micro to macro, the fashion industry learns everything it needs to know where buyer meets seller.
At the store, it’s all about the consumer, what they’re looking for, what’s hot, how they want to tell their own personal story and fill up their closets.
It’s much the same with fashion companies, which often look to grow by snapping up new brands. Acquisitions when made from a position of strength can signal who’s in ascent — and lately it’s the brand management companies doing the buying.
Just ask Vera Wang.
This week she agreed to sell her famed brand to WHP Global.
The deal was a reminder — if one were needed — of just how potent the business of owning intellectual property has become.
Already this year, WHP has cut deals for Rag & Bone and Express. Meanwhile, its still-bigger competitor Authentic Brands Group added Champion to its mammoth stable while Marquee Brands bought the intellectual property of Totes Isotoner.
Separating a brand from its operating structure is a business model that is still viewed somewhat skeptically by many in fashion, who wonder how sustainable the approach is and whether IP firms are ultimately something like the end of the line for distressed brands.
Yehuda Shmidman, cofounder, chairman and chief executive officer of WHP, disagrees and said the brand management firms are not in just the distressed business anymore.
“I know that that perception is out there,” Shmidman told WWD on Wednesday. “There’s been a sea change from the 1.0 version of this industry to where we are today, which is absolutely at a minimum 2.0 if not 3.0, 4.0.”
Yehuda Shmidman
Courtesy
Shmidman has lived and breathed that change, having started working at industry pioneer Iconix Brand Group almost 20 years ago.
“I was there and I was a part of it and I was working day and night in it,” he said. “The business model was centered around sort of going into graveyards, digging up distressed brands, dead brands, resurrecting them in sort of cheap and deep ways. That was the 1.0 model. There are many, many examples. You can go back in history 20 years and just look at the brands that were dumped into Kmart or wherever.”
That now is the province of liquidators, he said.
“The brand management space has become something completely different and it’s taken years, it’s taken several decades, but where we are today is we actually do not at all ever buy distressed brands,” he said of WHP. “The thesis of WHP Global is about investing in strong brands that were in companies that for a variety of reasons have decided that they have not yet been able to expand.
“We are not buying the Vera Wang IP because it’s distressed,” he said. “It’s the opposite. The Vera Wang brand is actually really, really strong.”
Shmidman said the top three brand management players — Authentic, WHP and Marquee — account for about $50 billion in retail sales today and are on their way to $100 billion in five years.
The sector has grown from $0 to $50 billion with a very specific step and repeat.
“We bought an Italian soccer brand called Lotto. We own the IP globally, we brought it to the United States. We did a big deal with Dick’s Sporting Goods. Lotto is now in Dick’s in every store,” Shmidman said.
While not exactly new, it’s an approach that’s gaining a lot of momentum.
David Shiffman, who is head of consumer retail at Solomon Partners and worked on the Vera Wang deal, said the investment bank has worked on numerous sizable deals with the brand management companies over the past several years.
“Historically, a lot of these businesses used to get sold to private equity firms. Private equity doesn’t play as much in the retail space anymore,” he said. “As such, the brand management companies have bought a number of these businesses. They’re not interested in holding inventory or having working capital. They own the intellectual property and then they seek to license it out by geography or by channel or by product category or by price point.”
And that is an approach that private equity is ready to get behind.
“It’s not a new business model, but it’s an innovative business model with great scale and reach,” Shiffman said. “You can get great synergies by continuing to bolt on more and more businesses. The combination of the ability to grow it, the high margins and free cash flow generation, the diversification as a result of owning a portfolio, I think that’s really interesting to PE.”
The big money is all over the sector.
WHP is backed by Oaktree Capital Management, Ares Management and BlackRock. Authentic is backed by General Atlantic, BlackRock, CVC Capital Partners, and Leonard Green & Partners. And Marquee is backed by Neuberger Berman.
That in turn means the companies have a lot of dry powder as they look for deals.
“The most sophisticated investors in the world have tuned in and given us the ability to deploy unlimited capital, essentially, into the strategy of growing amazing brands through the technique of licensing,” Shmidman said.
He described this as a kind of golden age for brand management.
“Right now is the time, though, right now you either have the platform or you don’t,” Shmidman said, noting the biggest players all do have big networks to leverage. “Brands are for sale. They’re not always for sale. They’re for sale right now. And you need capital, which is very hard to get. And we have it. Long story short, for the people who say, ‘I’ve seen the movie before,’ I say to them, ‘You guys keep worrying. We’ll keep winning.’
“I see it in my pipeline, there are so many brands for sale,” he said. “In fact, there are more brands than buyers. So we’re going to end up buying a few, our competitors are going to buy a few, we’re all going to win in 2025.”
It could be a trend that is not so much about fashion, but the broader world.
Scott Markman, who is CEO of branding agency MonogramGroup and has worked with private-equity owned brands for years, said: “Consolidation is in every major business sector in the world, in America, and this is not unique to fashion.
“Regardless of what Vera Wang thinks or doesn’t think or the retailers … or the supply chain … it’s going on across the entire economy. You either stiff arm it and say, ‘I’m not going to do this,’ or join the crowd. There’s no stopping this. It’s happened with food, it’s happened with cars.
“Five years from now, if I’m the next Wang, I’m probably already thinking about that exit. I just know this is coming.”
The Bottom Line is a business analysis column written by Evan Clark, deputy managing editor, who has covered the fashion industry since 2000. It appears every other Thursday.
