The Take: Is Victoria’s ‘loss’ actually her gain?
TEN YEARS IN, Victoria Beckham’s fashion brand is yet to make a profit, so will a new £ 30 MILLION FUNDING deal change all that?
if victoria beckham’s sparkly new £515 ‘Dorothy’ pumps have you reaching for your credit card, you’re in good company. From Kerry Washington to Saoirse Ronan, Victoria’s designs are regularly spotted on A-listers, on fashion influencers – Instagram’s Eva Chen no less – and, yes, of course, on the woman herself.
As a relative newcomer to the market at only 10 years old, the brand’s profile is remarkable – her runway shows are among the most hyped at New York Fashion Week, attended by top editors and buyers – and its distribution is equally impressive, with 400 stores across the globe stocking the line.
So it may come as a surprise to learn that Victoria Beckham Limited is yet to turn a profit. In fact, it would have made a £3.8 million loss in 2014, were it not for a £5.2 million investment, believed to have been from husband David. But while, jointly, the couple are worth £500 million, Brand Beckham has not underwritten Victoria Beckham Limited.
Instead, like many entrepreneurs, she has sought investment from a venture capital firm. Last week, it was announced that Victoria had received a £ 30 million injection from Neo Investment Partners in exchange for a minority stake. This, in itself, is an indication that the brand is on a path to serious growth.
‘I am incredibly excited about what the future holds, now that I have a new business partner in Neo,’ Victoria, 43, tells Grazia. ‘ Their investment will allow me to set in motion our plans for brand expansion.’
Victoria, David and their business partner Simon Fuller – who famously managed the Spice Girls – remain majority stakeholders after this vote of confidence from Neo, which is helmed by David Belhassen, the man who brought the Paul bakery chain to the UK. The company works mostly with founder-led businesses and understands that fashion is a long game.
What few people outside the industry realise is it can take years – and a lot of financial support – for a luxury brand with global ambitions to shift into the black. Saint Laurent only started to become profitable in the final year of Hedi Slimane’s tenure as creative director. And Vetements axed its Paris Fashion Week show because showing and manufacturing ready-to-wear is a loss-making activity.
‘ Today, shows have nothing to do with clothes any more,’ Vetements’ CEO Guram Gvasalia said in June. ‘Most of the looks are not even produced and therefore never get to the shop floor. Shows are there merely to sell a dream that, at the end of the day, will sell a perfume or a wallet in a duty-free store.’
Making a luxury fashion brand profitable is uniquely challenging. Take, for instance, the cycle of outgoing and incoming funds. A designer must pay manufacturers up front, but typically won’t get paid in full by boutiques and department stores until around six months after the collection has been on the shop floor (often brands must buy back unsold merchandise, too). To manage that time gulf, brands need significant financial backing in order to stay afloat, let alone grow.
Quality manufacturing also requires deep pockets, particularly for Victoria, whose designs are all made in the UK. ‘She can say that her garments are British made, which is very rare,’ says Fflur Roberts, head of luxury goods at Euromonitor International. ‘Even at a brand like Burberry, which celebrates being British, only a very small portion of products are actually made in the UK. From that point of view, the quality control is much higher, but the cost of making each garment is much higher.’
The luxury experience is critical, too. ‘A huge amount of investment goes into the actual stores themselves,’ Roberts explains. ‘In order to be successful as a brand, you have to be in the right location.’ Certainly, Victoria’s Dover Street store in London is said to cost around £650,000 a year in rent, and that’s before she hired architect Farshid Moussavi to design the space. Roberts calls this ‘retailtainment’ – ‘People who go to the store to see the architecture may be inspired to buy a pair of sunglasses.’
Similarly, the endorsement of the right retailer can help expose a fledgling brand to the right audience. When Victoria’s first dresses went on sale at stockists including Selfridges and Net- A- Porter, she was showing the world that she had won the seal of approval from the most important and discerning fashion buyers.
While sources say Victoria will continue to nurture those wholesale relationships, expanding into shop-in-shops, she will also invest in more standalone stores, as well as e- commerce, which she calls her ‘flagship’. This ‘direct-to- consumer’ channel is not only more profitable, but will insure her against what industry experts are calling the ‘retail apocalypse’: the decline of traditional department stores in favour of e-commerce platforms like Amazon and Farfetch.
‘[ Neo’s] investment will mean we can take our digital presence to new heights, enhancing the website, while expanding our retail network, opening more stores and spaces where my customer can really see the brand through my eyes,’ Victoria tells us. ‘ There’s so much I want to do!’
The new funding will likely pay off accumulated debt, and sources say Victoria’s goal is to make the brand profitable within the next two to three years.
Victoria is not alone in seeking funding. Earlier this year the fiercely independent Giambattista Valli sold a minority stake to Kering parent company Artémis, and streetwear favourite Supreme recently sold a minority stake to The Carlyle Group. Terms for the deals were not made public. The designer Jonathan Anderson secured the future of his JW Anderson brand by allowing LVMH to take a minority stake. In turn, he was appointed creative director of LVMH house Loewe, lending the brand a much-needed dose of fashion credibility.
Brand partnerships are another lucrative strategy. Alexander Wang is said to have netted over $ 1m from his collaboration with H&M alone. He also has deals with adidas and Beats by Dre.
Victoria has taken a similar approach, designing a sell-out collection for US megachain Target earlier this year. She is now working on an activewear line with Reebok, which will hit stores in 2018. Her make- up collection for Estée Lauder, meanwhile, has been expanded after selling out worldwide – it is expected to make $30m this season alone.
If she is just as successful with her fashion line, she will have achieved something so few designers manage in this notoriously cut-throat industry.