c.2013 New York Times News Service
c.2013 New York Times News Service
With his red-carpet gowns, lush cashmere sweaters and jet-set shoulder totes, Michael Kors has influenced fellow designers across the globe.
These days, though, Kors is inspiring the fashion world not only with his “affordable luxury” merchandise, but also with the extraordinary success of his initial public offering nearly two years ago.
On Wednesday, Marc Jacobs announced his departure from Louis Vuitton to focus on an IPO of his own brand. Last year, Diane Von Furstenberg set off speculation about a stock offering when she hired a top-level fashion executive in a push to expand her business. And while Tory Burch has denied any near-term interest in an IPO, there are persistent whispers of a Wall Street debut.
Call it the Michael Kors effect.
When a company receives such an exuberant reception from stock investors, bankers say, it naturally causes similarly positioned businesses to think: Why not me?
“You might not see these designers filing for an IPO tomorrow, but they have all had discussions with advisers and are positioning themselves to go public,” said a senior executive at a large investment bank who requested anonymity because of his involvement in some of those private conversations.
“And you can be sure,” he added, “that the Kors juggernaut looms large in these talks.”
Shares of Michael Kors Holdings have more than tripled since their December 2011 offering, making the IPO one of the most successful in recent years, as the company continues to turn in exceptional financial results and torrid growth.
Now, it has a stock market of value of $15.3 billion, recently surpassing the $15.2 billion market capitalization of Ralph Lauren, one of the most storied brands in the history of the apparel business that has been a public company since 1997. The blazing performance of Michael Kors stock has created extraordinary wealth for its namesake, a Fashion Institute of Technology dropout who rose to fame as a judge on the fashion television show “Project Runway.”
Kors, 54, has sold shares in his company totaling about $700 million and still holds stock valued at roughly $330 million.
His financial backers and senior executives have also cashed in.
Sportswear Holdings, a private equity firm controlled by Silas K.F. Chou and Lawrence S. Stroll, has disposed of about $3 billion worth of its shares. John D. Idol, the chief executive of Michael Kors, has sold more than $400 million of his holdings.
Although they have not received nearly the attention of blockbuster technology offerings like Facebook’s debut last year and Twitter’s pending deal, fashion IPOs are in vogue on Wall Street.
Vince, a luxury apparel brand owned by Kellwood, filed last month to sell stock to the public and separate from its parent. In Europe, Prada, Salvatore Ferragamo and Bruno Cucinelli have listed shares in the last couple of years.
U.S. design houses have had a mixed record as publicly traded companies. The capriciousness of shoppers’ taste can often lead to volatile stock performance, which is anathema to investors who typically prefer more reliable stocks that show steady, consistent growth.
Kenneth Cole, the purveyor of shoes, bags and apparel, took his company private in February 2012 after years of poor share performance. At that time, Cole explained that the pressures of the public markets had caused the company to focus on short-term earnings at the expense of fashion innovation.
In the 1990s, several fashion companies disappointed as publicly traded stocks, most glaringly the highly publicized offering by Donna Karan. Karan’s business faltered early on as a public company and its stock struggled for years. Ultimately, though, she made huge personal profits selling her business to the European conglomerate LVMH.
Traditionally, Wall Street favors the stocks of companies with diverse portfolios of brands and more reliable earnings, like the VF Corp. and the Jones Apparel Group, over ones with their fortunes tied to a single designer. An exception is Ralph Lauren, an enduring business whose success has largely depended on the taste and image of the company’s founder.
But today, bankers and analysts say, investors are clamoring for “pure plays” instead of companies with multiple brands. For instance, Fifth & Pacific, formerly known as Liz Claiborne, has been trying to sell slower-growth lines like Lucky and Juicy Couture to concentrate on its hottest brand, Kate Spade.
“What investors crave is a high-growth story, and if it has ‘star power,’ even better,” said John Berg, chief executive of the investment bank Financo. “The potential for these brands to grow extremely quickly holds great appeal on Wall Street.”
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Diane Von Furstenberg and Tory Burch are two of those brands. Although both have sloughed off suggestions that IPOs are imminent, each has raised eyebrows with recent business moves. Von Furstenberg last year hired Joel Horowitz, the longtime business partner of Tommy Hilfiger and an architect of the designer’s success.
“We are at the perfect stage for even greater worldwide growth,” Von Furstenberg said when announcing the hiring of Horowitz, who was named co-chairman of the company.
In January, Burch disclosed minority investments from two private equity firms, BDT Capital Partners and General Atlantic. Those backers told The New York Times in August that their investments obviated the need for Tory Burch to raise money in an IPO. Yet private equity firms typically seek to exit their stakes after several years, often through a stock offering.
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The news that Jacobs was readying his own brand for an IPO had industry players drawing comparisons between him and Kors.
Like Kors, Jacobs, 50, has aggressively opened stores internationally and marketed lower-price collections. Both also have ties to LVMH, which once had a minority interest in Kors’ business and employed Kors as creative director of LVMH’s Celine line.
LVMH has owned a majority stake in the Marc Jacobs brand for the last decade, and Jacobs has also served as creative director of the company’s Louis Vuitton brand. On Wednesday, LVMH’s chairman, Bernard Arnault, said that the growth of the Marc Jacobs business had accelerated in recent years, with sales nearing $1 billion.
Berg, the Financo chief executive, said that a brand like Marc Jacobs could prove alluring to investors. But he warned that the fickleness of fashion made deals like these tricky propositions.
“The problem with these trendy brands and high-growth stories is that the markets love you when you’re hot,” he said. “But once you lose your luster, Wall Street is unforgiving and moves right on to the next story.”