woensdag 30 oktober 2013

Richemont's Lancel: a luxury brand business struggling – Private Equity expected to come in

Richemont's Lancel: a luxury brand business struggling – Private Equity expected to come in Potential buyers of Lancel see reviving the loss-making leather goods maker as a high-risk gamble that could take at least 6-8 years to pay off, sources said. Facing a struggle to offload the business, it is believed that Swiss parent Richemont would be ready to pay for two years of losses - up to an estimated € 20 million- to entice bidders. So far private equity firms Change Capital and Lion Capital have expressed interest while Asian group Swire is looking to team up with a private equity firm to make a bid, sources said. People close to the talks say the bidding process for Lancel, which had already been going on for months, could last several more weeks. Lancel's difficulties come as the luxury sector as a whole remains resilient despite a slowdown in China, continuing to grow, although at a slower pace than in previous years. PRIVATE EQUITY The relationship between private equity and fashion brands can be difficult because the typical 3 to 5-year investment horizon may be too short to turn a label around. Private equity deals are usually financed by debt, which puts pressure on the fashion brand when it needs to invest in marketing and new shops. Lanvin, acquired by Taiwanese media magnate Shaw-Lan Wang from L'Oreal in 2001, took more than seven years to become profitable. TPG struggled for nine years to restructure the leather goods brand Bally before selling it in 2008. Industry executives say Lancel was making margins higher than Louis Vuitton - today's market leader - when Richemont bought it in 1997. Lancel has not expanded internationally or creatively as its rivals did and makes more than 80% of its sales in France. It is estimated that in the year to end June, it had an operating loss of €10 million on revenues of € 135 million, sources close to the matter said. Analysts say Lancel needs to enter the accessible segment of the luxury market, alongside Coach, Michael Kors and Longchamp with handbags costing 200-800 euros. Lancel lost credibility at the high end of the luxury market by offering excessive discounts and putting out staid, old-fashioned designs, such as the Brigitte Bardot bag in 2010 - a 1970s style version of the bucket bag - and the document holder Isabelle Adjani bag in 2008. Lancel clearly thinks it can make it as a luxury brand. A few months ago, it introduced an ostrich leather "L" bag costing 4,500 euros, emulating Gucci and Louis Vuitton's recent efforts to move upmarket. To rebuild its name in the crowded accessories market, experts say Lancel should do some ready-to-wear, as Longchamp did, to stimulate traffic in shops and rejuvenate itself. http://www.reuters.com/article/2013/10/28/richemont-lancel-idUSL5N0IF2HF20131028

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