Chinese companies pay up to invest in luxury brands

  • Business
  • Sunday, 15 Apr 2018

PARIS: Lanvin, France’s oldest surviving fashion house, is beset by plunging sales, mounting losses and management upheaval. That didn’t deter Chinese conglomerate Fosun International Ltd. from paying €100 million ($123 million) for a majority stake in the company earlier this year. 

Chinese investors shopping for luxury companies appear ready to pay up—even if the brands are showing losses or stagnant revenue. Whether it’s Swiss shoemaker Bally, French crystal maker Baccarat or Austrian lingerie company Wolford, many of Europe’s high-end labels have been attracting investments, sometimes at premium prices, from Chinese firms.

For these investors, that is the price of admission to a sector still largely dominated by a select group of European families, according to people involved in the transactions. China’s manufacturing has gained sophistication as more fashion brands have shifted production to factories there. But China lacks a roster of homegrown labels that can compete with the savvy of Louis Vuitton and Gucci.

These deals allow Chinese companies to acquire industry expertise that can be used to boost sales to Chinese consumers, who already account for a third of all global luxury-goods purchases.

Last year, Gansu Gangtai Holding , a Shanghai-based metals and jewelry company, paid about $283 million for an 85% stake in Buccellati, a high-end Italian jeweler that lost $16 million in 2016, according to the most recent records available. Gangtai outbid Swiss luxury giant Compagnie Financière Richemont and others, people familiar with the process said. In November, Buccellati opened a boutique Shanghai, the first of 88 sales points that Gangtai is planning for the brand in China.

“Chinese investors want to acquire brands for the business but also for the know-how, to bring that back to China,” said Dario Spinella, a Milan-based attorney at Simmons & Simmons who represented Gangtai in the Buccellati transaction.

“It doesn’t mean in the short-term they are looking for a return,” another person involved in the transaction said.

Gangtai didn’t respond to a request for comment.

These high-end acquisitions can saddle Chinese investors with challenging turnaround projects in a sector where they generally have little experience with crucial functions like marketing, communications and stores.

Lanvin’s financial troubles were so deep that the fashion house was having trouble paying employees under its previous ownership, which included majority investor Shaw-Lan Wang, of Taiwan, according to people familiar with the company’s situation. Lanvin lost $22 million in 2016, the most recent year for which figures are available, and even more in 2017, these people said.

Fosun bought its controlling stake in February and in March dismissed the label’s top designer, Olivier Lapidus, marking the most recent in a series of management shake-ups at the label. In all, Lanvin has gone through three designers in three years, the kind of upheaval that can destroy the cachet of a couture brand.

“The customers are not going to come back that quickly. It’s not like turning on a switch,” said Elsa Berry, managing director at Vendôme Global Partners, an advisory firm that specializes in luxury deals.

Fosun and Lanvin didn’t respond to requests for comment.

Fosun’s other fashion brands include retailers Tom Tailor and Folli Follie, and a high-end Italian menswear label, Raffaele Caruso. When Fosun invested in Caruso in 2013, paying $18 million for a 35% stake, it said the plan was to introduce the brand to luxury-crazed consumers in China.

“Fosun will leverage its own competitive advantages to help Caruso expanding in the China market,” said Fosun founder Guo Guangchang, a Chinese billionaire who has compared himself to Warren Buffett.

Five years later, however, Caruso does almost no business in China. Fosun has paid little attention to the label as it has grappled with executive turnover in its own fashion group, a person close to Caruso said.

Caruso Chief Executive Marco Angeloni said the brand’s presence in China is “very limited, at the moment but we are now drawing plans to expand Caruso’s presence in this strategic market.”

Mr. Guo himself was detained by Chinese authorities in late 2015, disappearing from public view for weeks and rattling Fosun’s investors. He later said he was assisting the authorities in an anticorruption probe.

In November, Fosun injected more capital into Caruso and now owns a 75% stake, according to the person close to the company. Without that infusion and a restructuring of its bank debt, the brand risked running out of cash, this person said.

The decision to sell can present a dilemma for families that have built a luxury brand over decades. Some worry that a Chinese investor could start producing their brand more cheaply in China, diluting its heritage in Europe’s ateliers. After all, the phrases “Made in France” or “Made in Italy” are core to these brands, and without them customers might wonder what they are paying for.

Yet some families decide the Chinese premium is incentive enough to sell, particularly for a business that has become a financial albatross.

So far, Chinese buyers haven’t yet snagged one of the blockbuster luxury brands. Mr. Spinella said they are gaining expertise with smaller deals before attempting an acquisition of more than $1 billion. “They will go after the giants once they are confident it will work,” he said. - WSJ

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