The Style File Daily Cheat Sheet

Is Fashion Ready to Break New M&A Ground?

There’s a new theme in fashion M&A that has “synergy” taking a back seat to “innovation.” “This is like the geek trying to get the hot cheerleader to become cool at the high school dance,” said Sherif Mityas, a partner in A.T. Kearney’s retail consulting practice, describing the rush of companies searching for businesses that have the pulse of new consumers. Fashion players and retailers are trying to get smart, and quick, on everything from social media and mobile commerce to celebrity — and they’re willing to think differently to do it. New players are also entering the mix, making for some pretty interesting bedfellows. Take Wal-Mart Stores Inc., which bought video download site Vudu. Denim brand J Brand sold a majority interest, said to be worth more than $50 million, to Star Avenue Capital, a partnership between talent agency Creative Artists Agency and Irving Place Capital. And the Estée Lauder Cos Inc. acquired Smashbox, picking up expertise in digital, social media and television distribution, as well as a photo studio to boot. Looking beyond the traditional boundaries of fashion can lead to a big payoff.  “These are beyond synergistic type of opportunities,” said Mityas. “The opportunity will allow an organization to completely shift and create a new customer demographic, a new customer pool.” Mityas described innovation as the “holy grail” of growth and said the industry is beginning to see innovation through M&A. “This type of acquisition, in certain cases, allows you to leapfrog your competitor,” he said. This emerging M&A model is a distinct departure from the traditional one, where retailer A buys retailer B, reaching new customers while “realizing synergies” — firing people in the back office and dumping duplicate operations. The same can be done with brands and the model, at least on paper, leads to a larger company that is more profitable than the sum of its two parts.  Most of fashion’s dealmaking is expected to proceed along these lines, but the great recession has changed things. Being big doesn’t seem as important as being in the right spot as consumers evolve and technology advances. But there are plenty of risks. Venturing into new areas can lead to cultural clashes and taking on a disparate business can distract management and pull them away from their core competencies. Hot companies with new ideas and lots of growth ahead of them can also be pricy. Take Under Armour Inc. and Lululemon Athletica Inc. in the fashion world. Both public companies, while not necessarily for sale, have successfully tapped into very specific customer niches, giving them leverage to drive up the price for any possible suitors. read more

Schumer Bill Seeks to Protect Fashion Design

The American fashion industry has been pushing hard over the last four years for copyright protection for its designs. An earlier bill in the House was deemed too broad; clothing makers argued that protection against knock-offs would only encourage frivolous lawsuits from people claiming they had the idea first. Today, after a year of negotiations, Senator Charles E. Schumer introduced a bill that seemed to satisfy the different sides of the fashion industry — and may provide some protection, too. The bill, the Innovative Design Protection and Piracy Prevention Act, has the support of the Council of Fashion Designers of America (CFDA), whose individual members represent the creative core of the industry, and the American Apparel & Footwear Association (AAFA), which represents more than 700 manufacturers and suppliers and by its estimate accounts for about 75 percent of the industry’s business. The AAFA had argued that the House bill was too broad and would expose its members to lawsuits. Senator Schumer brought the two groups together. “In the first go-around there was nothing that gave our members protection,” Kevin Burke, president and chief executive officer of the AAFA said, adding that there was “a vast difference” in the Schumer bill. “It provides the protection for unique design.” The proposed legislation provides very limited intellectual property protection to the most original design. A designer who claims that his work has been copied must show that his design provides “a unique, distinguishable, non-trivial and non-utilitarian variation over prior designs.” And it must be proven by the designer that the copy is “substantially identical” to the original so as to be mistaken for it. The bill would cover all fashion designs, including products like handbags, belts and sunglasses, for a three-year period from the time the item is seen in public—on a runway, say. Factors than can’t be used in determining the uniqueness of a design are color, patterns and a graphic element. In other words, the bar is extremely high to determine what qualifies as a unique and distinguishable fashion design. And the burden is on the innovative designer. A beautiful dress worn by a celebrity at an important red-carpet occasion most likely wouldn’t meet the test. But a jacket that has an original cut — one example might be Martin Margiela’s peaked shoulder jackets from two or three years ago — could easily meet the standards of something unique and non-trivial. The Margiela jacket was widely copied and certainly the knobby shape of the shoulder was original. Steven Kolb, the executive director of the CFDA, seemed satisfied with the Schumer bill, which has bipartisan support. “The fact that there will be a law in this country, as there are in other developed countries, will make people think twice” before they copy someone, he said. “The law in itself is a powerful deterrent.” Senator Schumer acknowledged that not every creative designer will feel that he or she is sufficiently protected but he said “the bill is a good first step.” He expected the bill to be passed this fall. Narciso Rodriguez, who was among the designers urging protection, said in an email: “It’s an important moment for American designers that this bill is one step closer to becoming law. This protection has been necessary for so long and I am happy to see how the fashion industry’s efforts have made a difference.” Extending copyright protection to fashion has been a hard sell, in part because consumers ultimately benefit from such copying. In a post this spring on the Freakonomics blog, Kal Raustiala of the UCLA Law School and Chris Sprigman of the University of Virginia Law School pointed to the paradox in piracy protection: “The interesting effect of copying is to generate more demand for new designs since the old designs—the ones that have been copied—are no longer special. The overall result is greater sales of apparel.” Perhaps the upside for American fashion is that it will encourage designers to be more innovative. read more

Tween Helps Lift Dress Barn Sales 78.3%

The November acquisition of Tween Brands and healthy same-store sales growth helped Dress Barn Inc. raise its fourth-quarter revenues 78.2 percent. Sales for the 13 weeks ended July 31 totaled $710.9 million, the company said Thursday, versus $398.9 million in the prior-year quarter. Comparable-store sales rose 7 percent overall. By nameplate, Dress Barn sales rose 11.3 percent to $282.3 million on a 5 percent comp increase and Maurices sales were up 26 percent to $183 million on an 8 percent comp increase. Comps at Justice, previously operated by Tween Brands, were up 10 percent as sales hit $245.6 million. For the year, company sales rose 58.9 percent to $2.37 billion from $1.49 billion on a consolidated comp increase of 9 percent. The company reaffirmed its guidance for earnings per share of between $1.80 and $1.85 a diluted share. Dress Barn is scheduled to report fourth-quarter and full-year results on Sept. 15.