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- 25 Apr 2013
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Luxury Brands: Investments of Passion

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Rahul Kapoor, co-founder of Excedo Luxuria, explains why investing in a boutique luxury label requires zeal and an understanding of the core values of the brand


The years 2011 and 2012 have been enthralling in the mergers and acquisitions market, especially because of the much-publicised hostile buy in of Hermès by LVMH and the more recent purchase of Harry Winston by Swatch Group. While both of them are financially astute acquisitions, they’re not meant for the passionate people like us.

I remember the time when I bought a stake in my first luxury brand. After weeks of discussions, a contract was signed and I was a proud shareholder of Petroveta, a boutique handbag manufacturer that started in the 1800s, and was known to create only five handbags every eight years.

The promoters of the brand owned little paperwork of the company, except for family records, as most were destroyed in an unfortunate fire at the family estate in the 1940s. The few that were saved described the family as silk traders and later leather tanners.


 Investing in or acquiring a luxury brand is risk that is taken by only those who are passionate about luxury 


To the dismay of my financial advisors and the company’s board members I went ahead with the deal without any product assessment or due diligence. The family and its founder had a dream of the brand’s products being carried by every luxury consumer in Russia. It was this dream that sold the brand to me. I started as a loyal customer and slowly moved on to become its co-owner.

From an economic perspective investing in or acquiring a luxury brand is risk that is taken by only those who are passionate about luxury. Only the best brands, with healthy net margins and a fabulous return on investment, attract rewarding investments. The successes of these brands are, however, based on an elusive irrational asset — one that is intangible.

In layman’s terms this is known as the ‘brand’ but the economists like to call it ‘brand equity’. Having said that, the glory of owning a luxury brand can be compared with a quintessential British picnic in the spring. Although you know a sudden downpour has the ability of ruining everything, you still proceed and enjoy every moment.

Well, at least the haute luxury brands do.


 Investing for passion is the only way to go about it for most luxury promoters 


Investing for passion is the only way to go about it for most luxury promoters — they invest based on their gut, instinct and buy into a brand that they themselves would be proud to be a consumer of. The few who invest for purely economic reasons aren’t in bad company either though.

For example, had you purchased US$2,000 worth shares in Ford, 20 years ago, today your value would be approximately US$4,600. However, the same amount invested in Porsche would have set you forward to US$31,000. (Source: FT Portfolio and SmartMoney.com).

Passionate investors often take economic considerations as second priority. The purchase of Escada by the Mittal family and Lanvin by Shaw–Lan Wang has been driven by an ‘opportunity of choice’. Similarly, our firm RRS Enterprise Investments (RRSEI) was started in 2006 with investment in a single brand.


 Passionate investors often take economic considerations as second priority 


Today, our investments and partnerships lie with over 30 brands. The philosophy was to create a low profile group that focuses on promoting haute luxury and boutique brands. It aims to bringing the best of craftsmanship, creation and exclusivity to the most discerning.

Investing in a brand that is boutique in nature has its own charm. It gives you entry into an elite circle of artisans who often consider themselves a league above bigger names like Louis Vuitton and Dior. Thus, while creating a portfolio of boutique brands or even if you are acquiring a single one you must consider more than just the balance sheet and potential financial growth. These investments are not made purely for business.

Management of boutique brands requires a personalised approach. Not only are its customers selective but also each item made by the brand is an extension of the existing owner’s vision and desire. In most cases they are the essence of the founder’s soul and spirit.


 Management of boutique brands requires a personalised approach 


Thus, as an investor it is highly important to assess if the brand fits in with your lifestyle and the image you project of yourself. Ask yourself if you will wear the brand; why it appeals to you; what the brand means to you. If you do not see yourself as a customer, your intention to invest in the brand is purely an economic decision. In such a situation it is a better idea to invest in a “masstige” brand rather than something that is so exclusive.

As the new owner of a brand you become its most important ambassador. In the future its products will begin to reflect you, too. When we acquired Petroveta, the brand only created handbags in eight styles, and was available in over 500 colours and finishes.

We believed that there was a potential to expand the range to include a men’s line. After a five-hour long brainstorming session we agreed to create the brand’s first ever men’s collection — eight styles in eight colours for 88 select customers, five of whom were listed among the world’s top 25.


 Margin on a £120,000 handbag can vary between £75,000 and £2,500 depending on the brand 


Numbers are of key importance in a boutique luxury brand and should not be ignored, though they should not be the first priority, either. Costs involved in maintaining such brands, and producing impeccable quality products, are high. However, the most valued resources and asset are the craftsmen. They are sometimes the most expensive resources too, rightly so some would say.

While financial analysts believe that EBITDA margins in “masstige” brands are often over 40 per cent, this isn’t too far off from those of some boutique brands. For example, margin on a £120,000 handbag can vary between £75,000 and £2,500 depending on the brand. This indicates that there are commercial benefits of investing in a brand, even if it arises purely out of passion.

As a general guideline, four things need to be studied in detail to assess the financial health, brand value and growth prospects of a boutique brand.


Debt: It is a given fact that an investor will assess the amount of debt the business holds based on its current assets and liabilities. However, does the founder or the current principal have his personal funds invested in the business? When a promoter believes in his brand he leaves the initial capital invested in the business as ‘future growth capital’. In some cases, though, the original funds are withdrawn and it is essential to understand why. This may indicate that the promoter is doubtful about the survival of the business.

Waiting List: A handful of boutique luxury brands have a waiting list for their products — either because of limited availability of skilled craftsmen or by choice. For example, Hayari Couture, Paris produces less than 50 gowns and evening dresses a year and Petroveta has a waiting list of over 25 years, which has generated sufficient working capital as well as contributed to growth capital.

Suppliers: It is worth checking if the brand’s suppliers are financially stable and if there exists a possibility to acquire the backward chain. Brands with heritage of over 50 years may have a long-term relationship with their suppliers, whom may also serve other brands giving you a increased opportunity.

Craftsmen: They are often not only the most critical but also the most expensive element of a boutique luxury brand. In many cases, including ours, they are integral to maintaining the brand’s quality. Assess the value of the craft and knowledge that these craftsmen hold. Be wise to see not just physical capability but also the mental frame of mind. If the craftsmen believe the brand as they own family, your future staff will be groomed by them also with a similar mindset. This intern will help create a strong loyalty and company moral.


For us at RRSEI, the personal benefit of investing in a boutique brand outweighs the commercial. Though, the group has commercially gained more than what our CFO and industry experts forecasted. The company has managed to use the brand to train people in a centuries old craft, forgotten by most. Through this craft we have been able to reignite the concept of “Haute Luxury” as we see it.

Despite all the changes and evolutionary processes, we have stayed true to the original dream without modernising the brand’s image — we still do not have a digital presence. Petroveta isn’t for everyone today, and will never be. It will always be available to a handful of consumers — those who aren’t obsessed about logos. Rather, prefer to invest in a timeless creation that is their own to cherish for the future generations.





To further investigate M&A on Luxury Society, we invite your to explore the related materials as follows:

- Qatar’s Growing Stake in the Luxury Industry
- Luxury M&A Goes Vertical
- The Latest Investments: Gucci, Printemps & Buccellati


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Rahul Kapoor is the co-founder of Excedo Luxuria, a brand that specialises in bespoke and haute luxury.

He is also a board member and founding partner of RRS Enterprise Investments. RRSEI invests in and aids the growth of exclusive and avant-garde luxury brands.

Rahul also serves on the board for a number of Luxury Brands around the world as well as Private Banks.

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