Why Fosun’s Buyout Won’t Be a Quick Fix for Lanvin

PARIS  Analysts on Thursday welcomed Fosun International’s acquisition of Lanvin as a positive development for the cash-strapped French luxury brand, but they cautioned the Chinese conglomerate will need to be patient before seeing the effects of any turnaround plan.

The companies said Thursday that Fosun has acquired a majority stake in Lanvin, confirming a report in WWD on Feb. 12 that the Chinese firm beat Qatari rival Mayhoola Group to win control of the label, which is facing a liquidity crisis.

The sale agreement leaves the current shareholders, Taiwanese media magnate Shaw-Lan Wang and Swiss businessman Ralph Bartel, on board with a minority stake, Fosun and Lanvin said in a joint statement, which contained no financial details.

“Lanvin will leverage its strong fashion legacy and coupled with Fosun’s global resources will enter a new phase of expansion,” they said.

The Chinese conglomerate plans to invest 120 million euros in the struggling house, according to a source. A spokeswoman for the house declined to confirm that sum, or to provide any further details on the company’s shareholding structure.

“Given the size of the label, it’s a large amount, and should help fill in the hole,” said David Da Maia, equity analyst at CM-CIC Market Solutions. He cautioned, however, that it could be burned through quickly if business is not turned around fast.

The oldest French fashion house still in activity has seen sales erode since a peak of 235 million euros in 2012. In 2016, revenues fell 23 percent to 162 million euros, with a net loss of 18.3 million euros, marking its first red ink in nearly a decade.

Wang and Bartel have been offered the opportunity to provide a portion of the total investment, a decision they will have to make in the next few months, said the source. If she does not reinvest in the brand, Wang’s share will decline to around 20 percent from 75 percent previously, the source said.

“Given her track record, she has no tendency to reinvest,” said the source.

Shaw-Lan Wang
Shaw-Lan Wang.
CREDIT: Prandoni/BFA/REX/Shutterstock

Bartel’s share has been diluted from the 25 percent he owned previously. If he decides to reinvest, he would be left with a stake of between 20 and 25 percent.

There will be no immediate changes, either in the management or creative direction of the house, the Lanvin spokeswoman said. “The decision is to work with the existing teams,” she said. Olivier Lapidus and Lucas Ossendrijver are the creative directors of womenswear and menswear, respectively.

Following the appointment in July of Lapidus, succeeding Bouchra Jarrar after a run of only two seasons, two board members including Bartel resigned. Wang subsequently brought back Nicolas Druz as chief executive officer, succeeding Michèle Huiban, who remains with the company as deputy managing director.

“Fosun’s understanding of the brand and strong track record in the European and global market, including their successful partnership and transformational strategies with Club Med, Tom Tailor and many others, make us believe that Fosun is the right long-term strategic partner to team up with,” Druz said in the statement.

Guo Guangchang, chairman of Fosun International, said: “Not all brands can go through more than a century’s time and still shine and be admired like Lanvin. We feel honored to become its new partner and believe this globally renowned brand and its rich history has tremendous growth potential.”

Joann Cheng, vice chief financial officer of Fosun International and executive president of Fosun Fashion Group, noted Lanvin adds a luxury asset to Fosun’s Fashion Group division, which has been given a mandate to invest globally in the fashion and retail industry to leverage the momentum in Chinese consumer spending.

The group, which is active in the health, property and mining sectors, made its first move into fashion in 2011 with the acquisition of a minority stake in Greek jewelry brand Folli Follie.

In 2013, it invested in the Italian tailor Caruso, assuming control of the company last year, and in 2014 it entered the capital of German fashion brand Tom Tailor Holding AG.

Fosun also holds a stake in St. John Knits Inc., the American heritage knitwear brand, and in December entered into exclusive talks with La Perla with a view to purchasing a controlling stake in the Italian lingerie maker.

“As China becomes the main growth driver of the global luxury market, we are confident that Fosun can bring great incremental value to Lanvin with our global resources and expertise, while being absolutely committed to Lanvin’s high luxury positioning and its exceptional quality of products manufactured in France and Italy,” Cheng said.

The acquisition comes on the heels of recent news that Chinese textile and apparel giant Shandong Ruyi Group, which controls SMCP and Hong Kong’s Trinity Group, was taking a majority stake in Bally.

It ushers in a new era at Lanvin, which was under pressure to find an investor before the end of the month, as it was fast running out of funds. After an auditor last year issued a warning over the label’s financial situation, Wang promised to inject cash into the struggling business, but the investment never materialized.

Lanvin
Backstage at Lanvin’s men’s fall 2018 show.
CREDIT: Delphine Achard/WWD

But Lanvin faces an uphill battle in a highly competitive and shifting landscape, noted Elsa Berry, managing director of the boutique mergers and acquisitions firm Vendôme Global Partners LLC.

“What I do know is that this situation requires a very special talent. If I were Fosun, the first thing I would do is either confirm that Nicolas Druz is it, or if he’s not, try to find a leader that’s talented and also has the human skills and experience needed to assemble this team under a new vision, because money is not enough. Success today is driven by people, talents and culture,” she said.

The company should “assess where they are today, from a long-term horizon, not a short-term knee-jerk reaction — that’s not going to work. Nothing is ever short-term in fashion. If you look at Kering, I think Kering has done the most remarkable job at being a patient shareholder, they have never rushed Gucci,” Berry said.

“Saint Laurent was losing money for years and they stayed the course, they stood by it, and they are probably one of the best shareholders for fashion brands because of that nurturing and ability to be patient with their expectations,” she added.

Da Maia at CM-CIC concurred. “It’s a local actor that surely knows the Chinese market, but that’s not enough. The ability to attract competent management to turn around the label is a sizable challenge” even if the name still has a certain cachet, he noted.

In an environment where the gap between luxury winners and losers is widening, Lanvin is at a disadvantage because — unlike large players such as LVMH Moët Hennessy Louis Vuitton, Kering and Hermès — it has failed to build up a sizable leather goods business, the analyst added.

How the label fits alongside Club Med, another prominent French brand, is another question. When Fosun won a famously drawn-out bidding process for the resort operator in 2015, many saw the move as a chance for Club Med to bulk up its Chinese clientele.

Last year, Chinese nationals became the second largest group of Club Med clients after the French, numbering 200,000, after a 20 percent growth in the figures. Following years of scaling back its network of resorts, the company this year has embarked on an expansion plan, with three to five resorts scheduled per year.

Club Med CEO Henri Giscard d’Estaing welcomed the latest addition to Fosun’s portfolio.

“As a global partner of Fosun, I am happy to see Fosun pursue its investments in our country and participate in the development of French brands while respecting their culture and values. As Club Med has done since 2010, Lanvin will fully benefit from the support of its shareholder,” he said.

Mayhoola Group, which controls Valentino, is said to have expressed interest in Lanvin prior to the Middle Eastern group’s 2016 acquisition of Balmain, but balked at the price Wang was seeking, said to be in the neighborhood of 500 million euros.

Lanvin has struggled to find its footing since dismissing creative director Alber Elbaz in October 2015, following disagreements between the designer and Wang over the company’s direction. Elbaz catapulted the brand’s notoriety during his 14-year tenure.

The designer received a settlement in the neighborhood of 10 million euros in an out-of-court arbitration late last year in his long-running dispute with Lanvin for compensation over his dismissal, according to several sources.

Wang bought Lanvin from L’Oréal in 2001, and in 2007 sold the brand’s fragrance and cosmetics business to Inter Parfums SA for 22 million euros. Lanvin operates in more than 50 countries selling ready-to-wear for women, men and children, and accessories including footwear and leather goods.

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