The Real Work Begins As Private Equity Era Draws To a Close for Jimmy Choo
Jimmy Choo, the UK’s trendsetting stiletto brand made famous by Sarah-Jessica Parker’s Carrie Bradshaw character in US sitcom “Sex and the City”, has been hitting private equity homeruns for the best part of a decade. Now that the brand is in the hands of Labelux, a luxury goods specialist founded in Germany in 2007, Euromonitor International reports on what ought to change in its strategic development.
Buy-out specialists play ‘pass-the-parcel’ with Jimmy Choo
Private equity firms, the buyout kings of 21st century capitalism, are not renowned for their long-term commitment to brands. Theirs is a deadpan business model that typically leverages a brand to the hilt before squeezing it for every last drop of profit over a short-term time frame. When the strategy works, the equity upside for a brand can be spectacular. When it tanks, a brand can sink into oblivion (defunct UK retailers Borders and Threshers are a case in point). Jimmy Choo has been one of the success stories of private equity (and there are few in the luxury goods industry), repaying handsomely the initial investments of three different firms since 2001. It is a measure of the brand’s powerful trendsetting credentials. And that is thanks in no small measure to the fictional character Carrie Bradshaw.
The latest private equity owner, TowerBrook Capital, sold the brand to Labelux in mid-May in a deal valued at around £500 million (a little over US$800 million). That is almost three times the sum TowerBrook Capital paid when it bought a majority 83% stake in Jimmy Choo from Lion Capital in 2007. Lion Capital had, in turn, acquired the brand in 2004 from private equity peers Phoenix Equity Partners, forking out approximately £110 million. ‘Pass-the-parcel’ is common in private equity business culture because it aligns with short-term growth strategies. And ‘pass-the-parcel’ would have played on had Labelux not outbid acquisition rivals TPG Capital and Investcorp. It was almost certainly a close run thing.
Portfolio diversity and emerging market expansion will be key
Under its most recent private equity tenure, Jimmy Choo expanded international store penetration from 60 units in 2007 to 120 in 2010. It also segmented into handbags, eyewear, perfume and men’s shoes, as well as secondary (more affordable) collections for the likes of fast-fashion chain H&M. But, if Jimmy Choo is to eat significantly into the market share of the world’s biggest luxury goods brands, it is likely to need a more painstaking and tailored segmentation strategy, targeting the key growth categories of designer clothing, luxury jewellery, timepieces and luxury accessories.
The brand will also need to broaden its consumer base in footwear. That means more choices for men and, potentially, for children. And it will need to build much stronger positions in key emerging markets, above all in China and Brazil. That type of growth programme requires a long-term strategic commitment to the brand, which is beyond the normal remit of private equity firms. For that reason alone, Jimmy Choo’s exit from a cycle of private equity ‘pass-the-parcel’ was essential to the long-term development of the brand.
China and Brazil present big opportunities for Jimmy Choo
China is the big prize going forward. Between 2010 and 2015, its luxury goods market is forecast to generate some US$6.8 billion in incremental retail business, second only to the US (on US$8.1 billion) according to Euromonitor International. Jimmy Choo opened a speciality store in Shanghai in 2007 and another in Beijing in 2008. But, no other Jimmy Choo stores have opened in China in the interim three years. That has to be seen as an opportunity missed, given the growth curve of China’s high net worth individuals in its coastal cities. Equally, the brand’s prudent retail development in China is indicative of the type of investment cap private equity often puts in place due to the short-term pressure of its growth model.
It bodes well for Jimmy Choo that new owner Labelux already operates around 50 Bally stores in China (the company acquired Swiss-based Bally in 2008). Given the high difficulty factor of doing business in China, Bally’s local retail know-how will be invaluable to the Chinese growth trajectory of Jimmy Choo. And in May this year, Bally also opened its first online store dedicated exclusively to the Chinese market (bally.cn). That online initiative could also become an attractive platform for Jimmy Choo.
Brazil is identified as another ripe emerging opportunity for new Jimmy Choo investment. The brand is present in the famous Cidade Jardim Shopping Centre in Sao Paulo, but there is significant room for expansion. Between 2010 and 2015, Brazil’s luxury goods market is forecast to grow by around US$1.4 billion, according to Euromonitor International, and any luxury goods company worth its salt is looking for a bigger piece of the action. Burberry, for example, opened its second Brazil store earlier this year, and has four further Brazilian outlets in the pipeline.
Till death us do part?
By passing from one private equity suitor to the next, there was a danger that Jimmy Choo could start to lose some of its global potential, if not its direction. It is not easy, after all, to build new brand-owner relationships on such a frequent basis. At some stage, there is likely to be strategic fallout. While there is no guarantee Labelux will hold Jimmy Choo into the long term, it does seem likely that the company will adopt a much longer-term strategic agenda than its private equity predecessors. Critically, the type of portfolio segmentation and global expansion needed by Jimmy Choo to take it to the next level could take years to bear fruit. How Labelux sets out its Jimmy Choo stall over the year ahead ought, therefore, to shed a great deal of light on its future commitment. The stakes are reminiscent of Sex and the City’s Carrie Bradshaw’s relationship with Mr Big. It is about the quest for long-term stability.