Posh’s fashion empire hanging on by a thread
FOR A woman whose idea of elegance used to be his and hers leather catsuits, she had come a very long way. And at the British Fashion Awards in London’s Coliseum two years ago, Victoria Beckham was about to celebrate her emergence as a force in the fashion industry.
The recipient of the Best Brand trophy, she was being feted by fellow guests, including Christopher Bailey, chief executive of super-luxe label Burberry, and Anna Wintour, the editor of American Vogue. Her move into the fashion business looked like a huge commercial and critical success.
Just a couple of months earlier, she had been chosen as entrepreneur of the year by Management Today magazine. The business publication gushed at her achievement in creating a company that was “both real and wildly successful”.
Few would have guessed at the reality behind the veneer.
Technically, her fledgling fashion business, Victoria Beckham Limited (VBL), was registering only a small profit. Of course, most new companies don’t make a huge profit from day one. It only scraped into the black thanks to millions of pounds channelled through its books from her husband’s lucrative post-football career.
Indeed, beneath the ultra-successful facade, the truth was that her fashion business would have made a near £4 million (R88 million) loss without the money flowing in from deals cashing in on the David Beckham name.
None of this was apparent until recently, when the 2014 accounts were finally lodged in London.
Perhaps embarrassingly for Victoria, who first shot to fame singing about Girl Power 20 years ago, her career as an entrepreneur has been built on support from two wealthy and powerful male backers: her husband and Spice Girls svengali Simon Fuller.
Although her “business acumen” is portrayed as an integral part of Brand Beckham, it is David’s millions, earned from lending his name to a variety of products from drinks to watches, that provide the vast bulk of the family wealth.
Her company is expected to make another loss for 2015 because it is investing for the long term, including opening a new store in Hong Kong last week. She is also hiring more staff to work at her studio in Battersea, South London.
“She is creating jobs and paying UK taxes,” says one associate.
“She is investing for the long term and doesn’t need short-term profitability. Over time she will prove her critics wrong.”
The financial losses at Victoria’s business may not create any hardship chez Beckham, but it is a rare instance when the family Midas touch has not delivered instant millions.
Not only did her company make a loss in 2014, it was also heavily in debt: its borrowings doubled to more than £17m. Most of the increase was due to a sum of £7m owed to other parts of the Beckham business empire.
Part of the explanation is that she is investing heavily in building her company. Like many an ambitious business owner, Victoria has lavished money on her flagship premises, though in her case this has been on a truly grand scale.
She hired world-renowned Iranianborn architect Farshid Moussavi, 50, to design her first shop on Dover Street in Mayfair. The floors are concrete and the ceiling is covered in mirrored stainless steel.
A 4m-wide flight of stairs leads up to a plain white wall that is used as a backdrop for projected images of the collections. Garments are not crowded together on common-or-garden rails, but instead are hung on “blonde gold” chains suspended from the ceiling.
Shoppers have to pay by iPad, as Victoria considers tills an eyesore. Naturally, none of this comes cheap. Under the 10-year lease signed in 2013, the annual rent is £650 000.
By the end of 2014, she had spent £4.28m on the website and store, including fixtures, fittings and computers. Only one thing is missing from the three-storey temple to fashion: customers.
They are reported to be thin on the ground.
Victoria’s team have denied there is a lack of clientele. But as others who have tried to make their name in luxury fashion have found to their cost, it is a hard market to crack.
For example, financial difficulties were cited as one of the possible reasons for the suicide of Mick Jagger’s designer girlfriend, L’Wren Scott, and former Jimmy Choo tycoon Tamara Mellon recently saw her latest business venture fall into bankruptcy.
Fortunately for Victoria, she is not dependent on her fashion business to maintain her lifestyle.
She controls a large stake in the main holding company for her and David’s business ventures, Beckham Brand Holdings (BBH).
Ownership of the firm is split equally between Victoria, David and Fuller’s company XIX Management.
BBH contains Victoria’s fashion business along with another branch of the couple’s complex financial empire, DB Ventures Ltd, whose raison d’etre is to license and profit from the David Beckham brand.
A spokesman from BBH said: “The group performance so far is strong and to plan.
“Sales at Victoria Beckham Limited are up 30 percent and DB Ventures had one of its best-ever years.
“We are very excited about the potential of VBL and will continue to invest in the business to build a British luxury fashion brand with long-term value.”
Profits at BBH rose to £12.6m after tax in 2014, from £1.54m the previous year, thanks to David’s earning power.
The company paid out more than £30m in dividends – £9m during the 2014 financial year and £21.6m after the year end – meaning payments of £10.2m each for David, Victoria and Fuller.
On top of that, Footwork, a separate company also set up to cash in on David’s IN THE KNOW: David Beckham, centre, sits in the front row next to Anna Wintour, right, his son, Brooklyn, left, and daughter, Harper. name and image, made £9.8m profit after tax in 2014. It paid a dividend of £6.5m to David, who appears to be the sole shareholder.
As one leading accountant says: “Just being David Beckham is a licence to print money.
“He has generated millions of pounds of revenue, and virtually all is profit. There have been tens of millions of profits and dividends – while Victoria has lost under £4m. All in all it is not bad business for them.”
No one disputes that Victoria’s elegant and stylish clothes have won deserved praise in the notoriously bitchy world of fashion.
Even her fans, though, concede she has no formal design credentials, unlike rivals such as Stella McCartney, who benefits from being on the celebrity circuit thanks to her father Paul, but graduated from the respected Central St Martins College of Art and Design in the mid-1990s.
Harold Tillman, former head of Jaeger and chair of the British Fashion Council, says: “I am a very big fan of Victoria’s in terms of her ability to create a business out of her own taste, with no training or expertise.
“She has done it by sheer force of will, and my belief is that she is now taken very seriously. It isn’t just a case of keep the wife happy, let her open a boutique’.”
He adds that making a loss is “fairly normal” in the growth phase of a business.
“I would call it a ‘development cost’. Her quality is superb and she doesn’t cut corners in any way.”
More cynical observers have wondered about the exact nature of Victoria’s contribution to the clothes.
There has been speculation that fashion designer Roland Mouret, another star from the Fuller stable, was the real creative genius behind the brand.
Both she and Mouret have denied this, but he has acknowledged that he helped Victoria with advice and contacts, including an introduction to Melanie Clark, her head designer.
What is for certain is that her creations have been worn by celebrities including actresses Gwyneth Paltrow, Cameron Diaz and Kate Beckinsale.
Sales revenues for 2014 are healthy, with a rise of 34 percent to £34m. Unfortunately, her costs also rose, and profits after tax fell slightly to £1.23m.
As the accounts note: “The company has made a loss in respect of continuing operations.”
The loss would have amounted to £3.8m if £5.2m from so-called discontinued operations had not been injected.
The £5.2m is understood to be income from deals that cash in on David’s brand. These cash flows have subsequently been transferred to DB Ventures.
The move is part of a restructuring exercise so that, in future, Victoria Beckham Ltd will focus purely on her fashion operations.
“I wouldn’t say there is anything sinister going on here,” said one accountant. “They are just simplifying the business.
“But what is clear is that he is the major earner in this marriage – her fashion company is yet to break through to significant profitability and she still seems to be in the investment phase.”
Her £3.8m loss is small change to a couple whose vast joint wealth was estimated last year to be £470m and rising.
Supporters of Victoria point out that as a motherof-four and the wife of one of the richest men in Britain, she has no need to work at all and could instead recline in the family’s grand West London townhouse enjoying a life of leisure.In her foray into the world of commerce, she has advantages most entrepreneurs could only dream of, and she may ultimately turn her brand into a world-beater. For the moment, however, Victoria Beckham Ltd still has more style than substance. – Daily