Decisions Ahead at Tory, Stella
Both fashion brands face contractual clauses that might potentially lead to big or small changes in their ownership.
Both Tory Burch and Stella McCartney seem to be finding their fabulous fashion lives punctuated by the legal realities of contracts with their investors.
The designers each struck deals to bring on partners who helped them grow their names into significant global brands. But the agreements came with provisions that could lead them to now bring in new investors or pony up the funds to buy out existing stockholders.
For Burch, it’s her 2009 deal to sell a minority stake to Mexican private equity firm Tresalia Capital, which sources said has the right to exit its position, and is currently weighing its options. The key question is, if Tresalia does decide to exercise that right, what price will it get. A 2015 stock sale that saw bigger investors buy out smaller stakeholders, was said to value the company at $3.5 billion, although many observers expect the valuation has dipped with the broader market since then.
McCartney finds herself in something of a similar situation with her brand, which was set up in 2001 as a 50/50 joint venture with the company now known as Kering. According to a shareholder agreement set out in 2013, McCartney has an option to repurchase Kering’s stake, excercisable through March 31 of this year. After that date, McCartney will have put options on the companies she owns with Kering, excercisable at dates specified contractually.
In both cases, the status quo might reign.
Tresalia could decide to hold on for a while longer for a bigger return from better
days ahead. And McCartney could stay with Kering, where her brand has flourished.
The fact that both companies are facing these cross roads at the same time highlights a catch-22 that can ensnare successful designers. They can start their brand and bring in money and assistance that will build it into a powerhouse. But they find that, the money and help needs to be paid back. And the bigger the company grows, the larger the bill.
Building an empire is hard, keeping it just for yourself is even harder.
Burch has thus far successfully threaded the investor needle as she pushed her business forward.
Tresalia, led by María Asunción Aramburuzabala, was the first big investor, buying what was reported as 20 to 25 percent of the company in 2009, when the valuation on the firm was seen as closer to $1 billion. That investment held until 2012, when the business side of the acrimonious split between the designer and her ex-husband, Chris Burch, was ultimately settled with BDT and General Atlantic coming in at a valuation of $2.25 billion. (Burch herself held 28 percent of the company’s shares at the time.)
Whatever the valuation is today, Tresalia is set up to see the greatest gains of the institutional investors since it bought in first. Others might also be contemplating an exit although some sources noted the company has a very strong and dedicated shareholder base that has seen some turnover before and gotten through it just fine.
Still, some change might well be in the air eventually.
“Tresilia is sort of in the lead, they have more options [than the other investors],” one source said. “How this shakes out, no one knows.”
Despite the general weakness in retailing, Burch’s business was seen as strong in 2017 with a good start and solid wholesale orders so far this year and more room to grow in global markets.
Burch still has a tremendous amount of power at the company, in no small part because she’s chief executive officer and has her name on the front door. The company was once seen as a natural for an initial public offering — a move that helped catapult Michael Kors Holdings into a giant — but Burch has avoided the public markets, which are not as receptive to fashion brands these days.
McCartney has her own calculations to do. Kering and McCartney have stressed their commitment to each other, saying in two separate statements that as customary between stakeholders, “there are regular discussions about the future of the partnership. Any significant change to the current relationship would be made public at the appropriate time.”
As a publicly listed company, Kering would have to report any major changes to the Paris stock market.
It’s been a long and fruitful relationship since the two companies formed their joint venture. Kering — then known as PPR, owner of Gucci Group — fully supported McCartney’s vegetarian, no-fur and sustainability strategies, and even worked them into its own DNA, announcing a no-fur policy for Gucci last fall and partnering with London College of Fashion in the sustainability arena.
Last week, Kering and LCF revealed the creation of the first open-access digital course in luxury fashion and sustainability called “Fashion & Sustainability: Understanding Luxury Fashion in a Changing World.” McCartney’s was also the first company at Kering to undertake an environmental audit, measuring the impact of her business on the environment. Kering now does a similar, company-wide audit each year.
That said, McCartney has always been an independent spirit, and a designer and entrepreneur very much in control of her own destiny. When Gucci Group was busily snapping up majority stakes in companies such as Alexander McQueen, Bottega Veneta, Sergio Rossi and Boucheron during the mergers and acquisition boom years in fashion and luxury, she insisted that her new company be formed as a 50/50 joint venture, calling in a hardball legal team to make sure that happened.
Kering also has some clear ideas about how it sees the partnership going forward. Asked by WWD earlier this month whether it would make sense for Kering to be a minority shareholder in Stella McCartney’s company, François-Henri Pinault said absolutely not. Either they remain 50/50 partners, or Kering will sell its stake completely.
Their partnership has flourished. According to documents filed last September at Companies House, the official register of U.K. businesses, turnover at Stella McCartney rose 31 percent to 41.7 million pounds in the 12 months to Dec. 31, 2016. Profits in the period were up 42.5 percent to seven million pounds.
Those numbers refer solely to Stella McCartney’s U.K. business and worldwide licensing revenue. They do not take into account wholesale sales or turnover from the brand’s directly operated stores outside the U.K. Kering does not break out the full financial statements for its individual businesses.
In addition to a string of flagships worldwide, the company also has partnerships with Adidas for a sports line, Coty for fragrance and Kering for eyewear. The company has recently inked a partnership ISA SpA, the Italian textile manufacturer, for swimwear and lingerie.
At the end of April, the brand will continue its international flagship rollout with the opening of a Bond Street store. As reported, McCartney will shutter her flagship on Bruton Street in Mayfair and move to nearby Old Bond Street in the former Joseph space.
On Monday evening, McCartney took a break from fashion to celebrate the benefits of meditation. Alongside her old friend Liv Tyler, the designer hosted an event at Wellington Arch in London to mark the launch of Bob Roth’s new book “Strength in Stillness: The Power of Transcendental Meditation.”
Asked about how her relationship with Kering would evolve, McCartney declined to comment.
“The only way is up when it comes to the brand’s future,” McCartney said, adding that she is focused on preparing for her fall 2018 show, which takes place in Paris next Monday. She said she’s meditating her way out of the stress that shows bring.
While the bonds remain strong between Kering and McCartney, depending on her personal and professional ambitions, she might decide to go it alone. She certainly wouldn’t want for backers. Investors have already begun to circle and are clearly eager for a piece of the McCartney action.
Earlier this week, Roberta Benaglia of Style Capital, which just took a minority stake in MSGM, posted a photo of herself sitting with McCartney, and said: “Me and Stella McCartney! So cold yesterday in London, but meeting you warmed my heart.”
McCartney, with her cool collections, eco-ethics and diversified business model, is no doubt warming the hearts of many others — potential investors, too.
And Burch, might well find herself on the circuit with the same investors.