Fashion & Finance
“An explosive cocktail”
Lesson 11
Corporate Finance
Castellanza,
17th November, 2010
2
Fashion & Finance: “An explosive cocktail”
Summary
1
2
3
4
5
6
7
Two worlds that meet together
Why so explosive?
Emanuel Ungaro’s history
The Ferragamo strategy
Some figures
The decision to sell
Other examples – success stories
Corporate Finance
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1 Two worlds that meet together
larger size of the companies;
Fashion & Finance
Two different worlds that
started to talk each other
due
to
the
changes
in
business arena
new geographic markets;
necessity of management and
organization – not only style;
interest of “external” investors;
finance as a tool to grow.
Corporate Finance
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2
Why so explosive?
fashion is a world of “primadonna”,
“stars”;
finance is a world of “primadonna” as
Why very often fashion &
finance are an explosive
cocktail?
well;
in many cases people tend to “invade”
the competencies of the other;
success stories are those in which
the competencies and the roles of
the single individuals are respected
and valued.
Corporate Finance
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3
Emanuel Ungaro’s history
1958
Emanuel Ungaro at the age of 22 started his career working alongside the
designer Cristobal Balenciaga in Paris.
1965
Opened “Emanuel Ungaro SARL”, avenue Mac-Mahon in Paris.
1967
Transformed it into “Emanuel Ungaro SA” and opened the current house at 2,
avenue Montaigne, Paris.
1968
Opening of the first ready-to-wear boutique, Ungaro Parallele, on the ground
floor of the Fashion House. First contact with licenses.
70s
Ungaro Parallele was opened in American Department Stores (Neiman Marcus,
I. Magnin, Saks, Bloomingdale’s, Bonwit Teller) and in Japan (Takashimaya).
Start of agreements with the licensor GFT. Creation of the Ungaro pour
Hommes line. Opening of the Emanuel Ungaro Homme store at 2, avenue
Montaigne. Opening of the first Emanuel Ungaro store in New York.
Corporate Finance
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3
80s
1996
From
1997 to
2003
Emanuel Ungaro’s history – cont.
Creation of the Ungaro Diffusion line in Europe. Creation of the fragrance
for women, “Diva”. Opening of the Emanuel Ungaro showroom in Milan.
Creation of the Emanuel/Emanuel Ungaro Bridge line.
Salvatore Ferragamo Group acquired Emanuel Ungaro SA.
Creation of Fever collection. Creation of the Emanuel Ungaro Shoes and
Handbag line, made by Salvatore Ferragamo. Creation of an Emanuel
Ungaro Eyewear line, in partnership with Luxottica. Creation of the Ungaro
Sun (Swimwear) line. Opening of the Emanuel Ungaro boutiques in London
Rome, Moscow, Beijing, Shenzen, Singapore, Taipei and a new accessories
boutique in Paris.
Corporate Finance
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4
The Ferragamo strategy
Emanuel Ungaro is one of the most famous Fashion House in the world. The
Company designs and commercialises clothes and accessories and is specialised
in Haute Couture and Ready To Wear. During the last forty years, the
Emanuel Ungaro House expanded to include boutiques and license agreements
worldwide. Emanuel Ungaro is
registered at the Chambre Syndicale de la
Haute Couture.
In 1996 Salvatore Ferragamo Group, which is one of the most important and
internationally famous Italian luxury company, acquired the whole share
capital of the Company. Salvatore Ferragamo is also the licensee for the
Emanuel Ungaro footwear and handbags collection.
Corporate Finance
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4 The Ferragamo strategy – cont.
The arrival of Ferragamo as new shareholder led to a strategic shift in 1997, with
a focus on internalising the activities of the Company to better control the
operations and the brand image of Emanuel Ungaro.
The main components of the Ferragamo strategy were the following:
Product: reshuffle of product portfolio, keeping the top lines but eliminating the
bridge and the diffusion lines and developing of accessories line (bags & shoes).
Production: have a better control of sourcing and reduce the licensing activities (e.g
Japanese lines).
Distribution: reduce the retail franchising activities and launch an aggressive retail
strategy with the opening of several direct operated shops in key locations and the
refurbishment of the existing boutiques.
Corporate Finance
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4
The Ferragamo strategy – cont.
This effort implied closing significant sources of profit (licenses and franchises)
and investing in high fixed costs.
This strategy, that was not supported by an appropriate product range, together
with the increased competition in the luxury industry since the late 1990s and
the economic slowdown since 2001, has put Emanuel Ungaro in an difficult
financial situation. In detail the main consequences of this strategy are:
Increase of the Company revenues due to the expansion of retail network, that
substituted the loss of Company and brand revenues caused by the decrease of the
licensing activity.
Significant decrease of profitability due to the increase of rental and personnel costs
not entirely offset by retail gross margin.
The disappearance of the bridge line in the United States and the gradual exit from
the Japan marketplace
Corporate Finance
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5
Some figures
The economic results of Emanuel Ungaro for the years ending December 31,
2001-2004 are summarised below
Income Statement
2001
2002
2003
2004
Euro '000
Sales
Cost of goods sold
Gross margin
Building & Equipe rental/maintenace
Professional fee & consultancy
Labor costs
Marketing & selling costs
General & Administrative costs
Operating costs
24.521,0
100,0%
(9.406,0)
38,0%
100,0%
27.038,0
100,0%
(10.123,0)
39,0%
10.617,0
39,0%
26.258,0
30.122,0
100,0%
(12.323,0)
40,9%
15.115,0
62,0%
16.135,0
61,0%
16.421,0
61,0%
17.799,0
59,1%
(5.481,0)
22,0%
(6.036,0)
23,0%
(4.885,0)
18,0%
(6.817,0)
22,6%
(3.835,0)
16,0%
(4.128,0)
16,0%
5.062,0
19,0%
(4.454,0)
14,8%
(9.532,0)
39,0%
(10.817,0)
41,0%
(9.770,0)
36,0%
(10.051,0)
33,4%
(6.144,0)
25,0%
(4.014,0)
15,0%
5.554,0
21,0%
(4.985,0)
16,5%
(3.307,0)
13,0%
(2.585,0)
10,0%
(2.286,0)
8,0%
(2.730,0)
9,1%
(6.325,0)
102,0%
(29.037,0)
96,4%
(11.136,0)
41,0%
(11.238,0)
37,3%
(734,0)
3,0%
21,0%
(28.299,0)
115,0%
(27.580,0)
105,0%
Ebitda
Depreciation
Amortizaion
(13.184,0)
54,0%
(11.445,0)
44,0%
(1.156,0)
5,0%
4,0%
(1.617,0)
6,0%
3,0%
Ebit
Net interest
Other expenses/revenues
(15.292,0)
62,0%
6,0%
2,0%
(13.794,0)
Ebt
Income taxes
Minority Interests
(17.216,0)
(15.342,0)
0,0
70,0%
0,0%
0,0%
Net result
(17.237,0)
70,0%
(952,0)
(1.556,0)
(368,0)
(21,0)
(732,0)
(5.688,0)
53,0%
4,0%
2,0%
(17.558,0)
(14.382,0)
0,0
58,0%
0,0%
0,0%
0,0
53,0%
1,0%
0,0%
(15.364,0)
59,0%
(14.458,0)
53,0%
(1.011,0)
(537,0)
(22,0)
Corporate Finance
(483,0)
3.659,0
(76,0)
65,0%
2,0%
14,0%
11
6
The decision to sell
Poor results led the Ferragamo
Board of Directors to decide
to sell the Company.
Acquirer:
Mr.
Asim
Abdullah
(Global Asset Capital, Llc), a High
Not all the Directors agreed
Net Worth Individual who made a
Deloitte was engaged in 2004
Sale was concluded in 2006
Corporate Finance
fortune with Internet
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7
Other examples – success stories
Valentino
D&G
New
investors
management
Armani
Gucci
LVMH
Corporate Finance
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external