On the heels of Michael Kors Holdings Ltd.’s blockbuster Jimmy Choo buy last month, the Aldo Group confirmed its own game-changing purchase of Camuto Group this week.
The latest deal brings together the brainchildren of two of the shoe industries most storied names: the late Vince Camuto and Aldo Bensadoun.
Not to mention, it continues a trend that has become a persistent theme throughout retail’s rough patch: the big keep getting bigger.
“These [mergers] are emblematic of how difficult the market and environment are right now,” explained Canaccord Genuity Inc. analyst Camilo Lyon. “There are fewer and fewer companies that are doing well and that’s creating opportunities for those stronger players to strengthen and beef up their portfolios.”
Walmart’s aggressive digital-and-fashion shopping spree; Amazon’s Whole Foods buy; and QVC’s HSN takeover handily demonstrate this trend. Meanwhile, Steve Madden’s Schwartz & Benjamin deal, Marc Fisher’s Easy Spirit purchase and Caleres’ acquisition of Allen Edmonds illustrate the retail industry’s move toward partnerships as a survival mechanism.
However, that’s not to say that every shoe brand is attractive enough to be offered a lifeline by a better-positioned parent.
“There are a select group of companies that for one reason or another are attractive acquisition targets and Choo and Camuto [for example] are in that sweet spot,” B. Riley & Co. LLC analyst Jeff Van Sinderen noted. “I also suspect there is a heightened sense of urgency among potential strategic acquirers as the growth of their core/legacy businesses slow (especially in the U.S.).”
Some experts have also suggested that the Kors-Choo deal and Coach’s Kate Spade acquisition in May could portend a new kind of retail backdrop in which luxury brands must be part of a larger “house” to maintain relevance.
More generally, however, Lyon believes retail brands — as opposed to retailers — are more desirable as acquisition targets in the current landscape.
“Brands are more attractive in retail for obvious reasons [as companies] seek more opportunities to expand their reach — especially digitally,” Lyon said. “They’re just a more attractive hunting ground for buyers — especially brands that have a good cache or reputation with a particular consumer segment, but haven’t reached the full potential of what the brand can ultimately be.”
Where the shoe industry’s latest blockbuster deal is concerned, Lyon said he sees several key benefits for Aldo.
“This gives Aldo the benefit of a better presence in wholesale,” he said. “Aldo didn’t have a good presentation on the wholesale front and that’s the strength that Camuto brings.”
For Camuto, Lyon will be watching the firm’s retail business, which he said has been “a drag on profitability for the overall company.” Still, he believes that the firm’s decision to sell hinged on other interests.
“It seems like this was more of a liquidity event for the Camuto family than a merger of brands that would result in significant business benefits for both,” Lyon said.
For Kors and Choo, Van Sinderen said “removing redundancies and leveraging the infrastructure of the acquirer” are opportunities, but he remains perturbed by the “arguably rich multiple Kors paid for Choo.” (Michael Kors acquired Jimmy Choo for $1.2 billion — a price equal to about 17.5 times Jimmy Choo’s adjusted EBITDA for 2016.)
“Don’t think many would argue that [Michael Kors] underpaid and it remains to be seen what level of contribution they can achieve with Choo,” Van Sinderen added.
Conversely, Lyon views Jimmy Choo as a potentially strong boon to business for Michael Kors.
“Strategically, it opens up the luxury piece of the business for footwear, which tends to be more stable,” Lyon said. “So that expertise of a well-known brand and the cache is appealing. And, it allows Kors to move their business to more of a portfolio-based [model] but aiming toward the luxury spectrum. Jimmy Choo is good for a step in that direction.”
When it comes to the advantages Jimmy Choo could gain from Michael Kors, Lyon is less certain: “I find it surprising that Kors didn’t really articulate the [benefits it would offer Choo], which would have added to the synergies discussion. But, I would imagine that scale benefits should accrue to them on the production side if they’re able to scale and leverage their costs. That’s probably the most obvious thing and maybe some back office consolidation.”