THE AREAS OF Via Montenapoleone, Via Andrea, Via Gesù, Via Borgospesso, Via della Spiga and Corso Venezia in the centre of Milan form what is known as the “Quadrangle of Fashion”. Alongside Saint-Honoré fashion district in Paris and New Bond Street in London, the top fashion streets of Europe have become ground zero in the shakeout of the global fashion business.
Starved of cash, one by one, some of Europe’s better-known private fashion houses have been falling like ninepins. On Feb 21, it was the turn of French label Sonia Rykiel. One of France’s last standalone, privately held fashion firms, it sold itself to Fung Brands, which acquired an 80% stake and kept the founder in charge of creative stuff and holding the remaining stake and vowed to put the destiny of the brand in the hands of affluent Chinese.
Fung who? While Fung may not be the size of publicly listed giants such as LVMH, which owns top fashion brands such as Louis Vuitton, Fendi, Givenchy, Celine and Donna Karan, or PPR (the former Pinault-Printemps- Redoute), which owns brands such as Gucci Group, Yves Saint Laurent, Bottega Veneta, Balenciaga, Brioni and Puma and half stakes in Stella McCartney and Alexander McQueen, it is actually no pushover.
London-based Fung Brands is actually the private equity arm of brothers Victor and William Fung, who run the Hong Kong-listed global supply chain giant Li & Fung. It is the ultimate outsourcer. And its model is vertically integrated. The firm designs, develops and sources consumer products for retailers such as Wal-Mart, Target and Macy. It relies on a network of more than 15,000 suppliers in 40 countries in Asia, Latin America, Africa and Europe. It also takes care of all the nitty-gritty in between — warehousing, transportation, repacking, customs brokerage and freight forwarding, you name it.
The secret sauce in Li & Fung’s recipe for success is managing the entire supply chain from factory floor to shopping malls, including trading, logistics and distribution. If you bought a pair of jeans or a fancy shirt recently, it doesn’t matter whether it was a top name label or whether you bought it from a department store, a discount store or a standalone boutique. Chances are that it probably passed through the sprawling octopus-like supply chain network of Li & Fung. The company either obtained the jeans made in China, Vietnam or Bangladesh, or bought the denim from Egypt or Sudan. Or it could have had it shipped, through its logistics chain, from wherever it was made to the store you bought it from, or owned the distribution rights for the product in Asia, or in many cases indeed owned and operated the franchised store where you bought it.
By buying more of the labels it works for such as Sonia Rykiel, the Fung group, including the listed Li & Fung, is just vertically integrating its entire operations some more. Nomura Securities Tanuj Shori forecasts Li & Fung will report US$758 million ($952.4 million) net profit on sales of US$22.3 billion this year.
A key cog in the supply chain wheel is retailing. Li & Fung has a huge footprint in Asia through Hong Kong-listed subsidiary Trinity Ltd, a retailer of premium menswear in Asia with more than 450 of its own stores. It also owns Circle K convenience stores, with more than 520 locations in southern China, and the Asian franchise for Toys “R” Us, with 125 stores across the region, as well as other retail businesses. Among other things, Trinity retails high-end to luxury men’s wear and accessories under brands such as Cerruti 1881, D’urban, Gieves & Hawkes, Intermezzo and Kent & Curwen. Through Trinity, Li & Fung actually owns
the Cerruti and Kent & Curven brands. So, it has end-to-end control of the supply chain — from the brand to design, and having the garments made, to controlling logistics such as transportation and actual wholesaling and distribution, all the way down to the local Cerruti 1881 or Kent & Curwen store run by Trinity employees.
Think of Li & Fung like you think of Apple Inc, which designs the iPhone, gets it made in China, develops the phone’s iOS software and then retails it at Apple’s own stores or through its online store. The end-to-end control of its supply chain and products is what gives Apple its huge margins. In some ways, that is exactly what the Fung brothers are trying to do with branded fashion through a listed Li & Fung, Trinity and, more recently, private- equity arm Fung Brands.
What else might Fung Brands be buying? Over the past few days, I have undertaken what can only be described as a wild goose chase trying to figure it out. Li & Fung in Hong Kong directed me to Fung Capital Europe Advisory in London. Giles Hefer, managing director of the firm, was out of town, so his office sent me in pursuit of Jean-Marc Loubier, former senior executive of LVMH and former CEO of Celine, through his French publicist.
Although I was unable to talk to either Loubier or Hefer, here is what I was able to gather. Fung Brands sees the current European sovereign-debt crisis as a great opportunity to buy distressed fashion assets from financially troubled owners. The firm is looking to invest in premium and luxury heritage brands.
Its major investments so far include Robert Clergerie, a French shoe brand; Delvaux, a Belgian luxury leather goods brand; and Hardy Amies. Fung Brands first major acquisition was in the aftermath of the global financial crisis in 2008, when it acquired the then financially strapped Hardy Amies, a British couture house and a dressmaker to the Queen. Over the last year or so, Fung has helped Hardy Amies expand its international footprint. Fung also bought French premium shoe brand Clergerie from its retiring founder a year ago. It is now strengthening the brand’s design and marketing as well as expanding its retail footprint across North America and Asia. Late last year, Fung Brands bought a controlling stake in Delvaux from the Schwennicke family and is now readying its global rollout. The formula is simple: Buy the brand, keep the designer/creator/ owner around, integrate its products into Li & Fung’s larger global supply chain, and expand its footprint in Asia, mainly China, where millions of new affluent have money to spend on global brands.
No comments:
Post a Comment