The consignment market in fashion has long been a mysterious and brutal game of musical chairs.
Last year’s rush of big-time consumer initial public offerings — from Warby Parker to Albords to Rent a Runway — took private brands that wanted to connect with buyers and cash.
But the music has now stopped, and sellers still greatly outnumber buyers.
WWD reported this month that Proenza Schouler, Kite and ALC have either tested the market or are still looking today. According to a Bloomberg report, Foreign Voices is said to be considering a sale. The company did not immediately return questions on Monday.
Also said to be on the market are Ghani, Isabel Marant and others, while the strongest and highest profiles are more likely to connect with buyers who are at least willing to listen, as Tom Ford appears to have done in reported talks with Estee Lauder Cos. Inc., the brand’s beauty licensee. Ford is said to be seeking a deal worth about $3 billion to the company.
But it’s not enough to be a promising brand in clothing – sellers also need to find the right buyer.
Veronica Beard, for example, is said to have gently tested the buying market earlier this year, but could not find a buyer willing to pay the price for the growing brand.
This will allow the company to bide its time, continue to grow and monitor the IPO market down the line, the source said.
A representative for Veronica Beard declined to comment, but that would position the brand as part of the next wave of fashion IPOs — when Wall Street is willing to take another look at the industry. There are others waiting to go public, most notably Rihanna’s Savage x Fenty.
But the most unprepared of Wall Street’s luminaries are in a tough spot — a small group of buyers who must prove themselves in uncertain times.
“There is a renewed focus on sustainable profitability,” said David Munchinsky, managing director of Firelight Capital Partners. “There are agreements to be made before the end of the year, but I guess, multiple [earnings before interest, taxes, depreciation and amortization] 2023 shows uncertainty about where to go.
“What you’re seeing now is widespread recognition for investors selling through Covid, particularly in the direct-to-consumer space.[-19] — online sales, marketplace sales, online wholesale — are unsustainable,” Munchinski said. “Of course it was COVID.[-19] whiplash”
That is very important because purchases and purchases are paid for with a lot of income and – sometimes – sales.
But there is no firm basis on which to base prices, with the market seeing last year’s business as an anomaly in the pandemic.
So Munczinski said the deal is on hold until the third quarter as buyers and sellers grapple with valuations.
In a normal economic landscape, prices can be set on next year’s earnings estimates – if the risk of a recession in 2023, ongoing war in Europe, skyrocketing inflation isn’t a big question mark. High and the world is still reeling from the pandemic.
“Let’s assume there’s a downturn, things will continue this way,” Munchinski said of the deal market. “Let’s assume there is no recession, you still have to clear inventory in retailers and now in brands. That needs to be done. The next shoe that leads to the working capital issue for many is the inventory situation, so it will be the next area for investors to monitor.
After all – unusually strong sales last year, this year’s economic collapse and next year’s uncertainty – there is another key factor limiting the buying and selling of fashion companies. Who will finance and take a small to medium fashion business opportunity?
Years ago, there were big strategic players like Liz Claiborne Inc. or Jones Apparel Group looking for apparel businesses to build, but they disappeared. VF Corporation is still buying He will sign a $2.1 billion contract for Super through 2020 – but he’s not looking to rebuild in the sportswear. PVH Corp. Under CEO Stefan Larsson, he seems focused on replenishing the Tommy Hilfiger and Calvin Klein brands. Capri Holdings CEO John Idol is looking to buy, but he is looking at luxury and especially European businesses that have sales of at least $500 billion and can grow to $1 billion.
And many of the fashion-savvy and big-money private equity players are well aware that there are few ready buyers and therefore less interest in investing in the space.
In addition, it is still difficult to build successfully in a customer-driven industry with a short attention span.
“In the current environment, it is more challenging for small to medium-sized fashion brands to attract quality buyers, especially if they do not show growth, strong profits and strong consumer relations,” said founder Elsa Berry. Vendôme Global Partners. “Many financial buyers are finding that owning fashion companies can be financially challenging, as today’s consumers are changing rapidly and becoming more flexible.
It’s the area that separates the winners from the losers – those who hope to save some extra money and actually want to spend money.
“Strong brands with quality management survive 2020, thrive in 2021 and go into overdrive in 2022,” said William Sussman, managing director of Threadstone Advisors. Investors are hesitant to reinvent fashion, but I believe in the best. – Class companies can execute agreements.