A Sea Change in Luxe: Tough Market Favors Buyers Over Sellers

When sales of luxury products were riding high, it seemed just about any designer was ripe for acquisition. But now it's a buyers' market.

Like Stroll and Chou, Jayson isn’t letting the dismal economy put a damper on Dickson’s plans. "We believe this is an excellent time for investment in select businesses," he said.¿"We are poised buyers with a strong cash position and well respected within the financial community based on our conservative operating philosophy and years of positive financial results and continued growth. While the world is clearly going through a challenging retail cycle, we have a long-term optimistic view about quality products that offer fashion and style."

While this is a buyer’s market, companies still aren’t giving away their secondary brands for nothing. "We’ve seen a couple of businesses that people paid $200 million for that are worth 20 percent of that now. These are companies that are not worth a lot of money. They’re going to attempt to sell a lot of these brands. The question is, ‘Who are the realists [in terms of asking price]?’" Howard wondered.

One investment banker who looked at Jil Sander about a year ago concluded that Prada Group "paid way too much money for that company and invested a huge amount of money in Jil Sander stores. It’s probably worth less than it was worth in the beginning."

Jil Sander wasn’t the only one with a hefty price tag. Like the dot-com industry, when venture capitalists funded start-ups basing their investment decisions on little more than a ceo’s hypothetical vision, fashion titans believed they could breathe life into a luxury business and virtually spin wool into gold. At one particularly frenzied moment, Prada and LVMH joined forces in 1999 to buy 51 percent of Fendi for $545 million, which valued the company at more than $1 billion.

Of course, the "great brands," as Stroll calls them, are probably not going to end up on the selling block. A company would be foolish to dispose of its strongest assets. Then again, everyone’s definition of great is different and a brand that is languishing at one company because its resources are being directed elsewhere could be nurtured and grown under a different owner.

Not surprisingly, fund groups are taking a safer path than entrepreneurial folks like Stroll and Chou, who successfully built Tommy Hilfiger into an industry giant.
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