The Business of Fashion

Superfine and Diesel | Jean pool?

Is Diesel's Renzo Rosso on the prowl again?

Word on the street is that Rosso is in talks to acquire Superfine Jeans, the hot London-based premium denim brand, founded in 2003 by Lucy Pinter and Flora Evans. Superfine has become well known for its directional silhouettes and popularity amongst the global style A-list, including Kate Moss, Gisele Bundchen and Mary-Kate Olsen.

While Mr. Rosso has been acquisitive in the past, he has tended to focus more on the fashion end of things, acquring stakes in  Maison Martin Margiela, DSquared2, and most recently, Sophia Kokosalaki, through Diesel's Staff International subsidiary.

Fashion investing | Return of the strategic investor?

Apax Partners, the London-based private equity firm, has abandoned its bid to take a stake in Escada AG, the embattled German fashion company.  Citing deteriorating market conditions, Apax stated that

"the recent evolution of the stock price and the weakness of the international financial market do not give a basis for pursuing the project."

This is absolutely the right decision. Not only has Escada become somewhat of an industry basket-case in recent years, on Wednesday the company also revised its earnings projections for year ending October 31 downwards yet again. EBITDA margins are  expected to fall by about 25% compared to 2007. The company cited recessionary conditions in the USA and other key markets as the reason behind the revisions. Escada's shares fell by 10.8% on Wednesday to 14.35 euros.

Investment opportunity | Luxury stocks take unjustified beating

Our colleagues over at Savigny Partners released their regular newsletter today, demonstrating just how tough things have been for many luxury and fashion stocks in recent months and highlighting an investment opportunity for those who believe in the long-term fundamentals of the luxury market.

The Savigny Luxury Index (SLI) has plummeted by 29% since its peak in June 2007, underperforming the overall market as measured by the performance of the FTSE All World Index. But, longtime industry watchers will recall that the luxury industry was one of the first to bounce back after the post 9/11 economic malaise.

Escada | In private equity's crosshairs?

Not long after Valentino Fashion Group was acquired by Permira in 2007, Escada AG is the latest major European fashion company to find itself in the crosshairs of a private equity firm. The German newspaper Handelsblatt is reporting that Apax Partners is considering taking a stake in the the German fashion company -- and possibly looking to execute an outright takeover.

Escada's stock lost more than one third of its value in 2007, and another third of value was obliterated in the first few months of 2008, making it a very ripe target for acquisition. But any Escada-turnaround effort backed by private equity will not be easy, even if the price is cheap. Last week, Escada reported that its sales continued to slide in the first quarter of fiscal 2008: revenues across its Escada and Primera divisions dropped by more than 10% when compared to the same quarter in 2007, and EBITDA, a measure of profitability and cash flow, fell by almost 70%.

Tanner Krolle: Investor merry-go-round

Just the other day we were commenting on the importance of a good fit between a brand, its management and the underlying creative talent.

Today's WWD says that Tanner Krolle, the prestigious English leather goods brand is back on the block, after a falling-out between Albion Investors and its second creative and management team for Tanner Krolle. It's further proof that investing in fashion and luxury is not for the faint-of-heart or the short-of-luxury-experience (Albion's other investments include companies involved with shelter design and manufacturing, home healthcare services, solid waste services, and crude oil transportation services).

In the past year, the design aesthetic and creative vision of Tanner Krolle had been beautifully refined by Manuela Morin as a discreet luxury brand (perhaps  it is not surprising that she has experience at Bottega Veneta.)

Lululemon: Investor relations rollercoaster

Over the past year, Canadian yogawear brand and erstwhile stock market darling Lululemon Athletica has often been cited as proof of the market opportunity in new-age fashion concepts which pick up on psychographic and attitudinal shifts -- i.e. that people are looking for more from their clothing than just functional and aesthetic utility. Some people, it is argued, want healthy, ethically conscious, and environmentally friendly feel-good benefits as well. Lululemon was delivering this in spades, while also benefiting from a lifestyle craze centred around Yoga, building a business of close to $150m in revenues.

However, the news all over the North American press this week was dramatically different. The New York Times published a damning article suggesting that Lululemon's claims about the seaweed content in one of its clothing lines were patently false.  Through its seaweed content, the VitaSea line claims to reduce stress and provide anti-inflammatory, antibacterial, hydrating and detoxifying benefits to its wearers, but the New York Times' test showed no evidence of seaweed in Lululemon's clothing.

This  sent Lululemon's stock price on a rollercoaster ride. Previously, Lululemon had been enjoying stellar stock performance, reaching $60 a share after an IPO price of $25 in July. Yesterday the stock closed at $41.50.

Breaking News: TSM takes minority stake in Rachel Roy

Rachel Roy, the New-York based designer and wife of hip-hop mogul Damon Dash, has announced that TSM Capital has taken a significant minority stake in her eponymous business. According to WWD, Roy's business is generating $10m in wholesale revenues.

The Rachel Roy brand is carried in an impressive set of department store chains including Bergdorf Goodman, Saks 5th Avenue, and Neiman Marcus, and also in reputable international stores like Kuwait's Villa Moda and Moscow's Tsum.

With a respectable wholesale business in place, TSM says the capital injection will be used to open retail stores, spur expansion outside the USA, and expand into new categories, likely through external licensing deals. In an interesting twist that runs opposite to the flow of designers moving into the Contemporary segment, Roy's business had originally been positioned as a Contemporary brand, but it was subsequently repositioned as a Designer brand, which meant raising prices by 40%. This was a move that was generally lauded by buyer and editors.

Breaking news: Valentino is calling it quits

Following his blowout 3-day fashion fiesta in Rome earlier this summer, WWD is reporting today that Valentino and his longtime business partner, Giancarlo Giammetti, will both step down from their positions at Valentino after this season. Finally, the fashion industry's rampant speculation about Valentino's future role in the post-Permira world will come to an end. But, this will only make more room for the other question on everyone's lips: Who will replace Mr. Valentino?

Zac Posen and the designers behind Proenza Schouler (which was recently injected with $3.7m of funding from Valentino Fashion Group) are amongst the names being tossed around. Over at Fashion Inc the money is on Proenza Schouler. Others are saying that Alessandra Fachinetti, the former womenswear designer at Gucci, is at the front of the pack.

Peter Som: Rolling with NRDC?

The early stage fashion investment deals keep on rolling in.

A day after the announcement from Matthew Williamson, The Wall Street Journal is reporting today that Peter Som is close to finalising a deal with NRDC Equity Partners, further confirming a report from WWD back in February. NRDC is the firm behind the investment and turnaround of Lord & Taylor, the American department store.

It's an unconventional choice for Som whose savvy business partner, Elana Posner, has been driving the fund raising search for Som for over a year now. While other designers have been taking investments from upstream strategic investors (Sophia Kokosalaki and Staff International, Proenza Schouler and Valentino), this is the first deal in some years that comes from a retail partner whose expertise is more focused on retail distribution than on production and brand development.

Perhaps one reason for this choice is the unique structure of the deal.

Zandra Rhodes and Betsey Johnson: Fashion grannies rock on

Two legendary doyennes of the fashion world have been making news this week -- and not just for their colourful fashions.

Today, Betsey Johnson announced a majority investment in her business from Boston's Castanea Partners. Some observers are questioning Castanea's logic for investing in a 30 year old brand whose namesake is already a grandmother and whose high-profile days are long over.  On the contrary, the business  has a solid own-retail network of 51 stores and a respectable $200m in sales. This could provide a great platform for further growth, as long as Castanea doesn't dilute the brand's famous quirky irreverence, which is what is most appealing to its loyal fans.

Earlier this week British fashion icon, Zandra Rhodes, garnered yet another high profile article highlighting the resurgence of interest in her designs around the world. While she doesn't have a business on the same scale as Johnson, she is still finding news ways of capturing value from over 3 decades in the industry, using her iconic colourful style as the basis for a series of licensing agreements with MAC (for makeup), Pologeorgis (for furs), and the Dash Partnership (for jewellery).

So, why are the fashion grannies on the rise?