Dressed to Impress: why is fashion this season’s must-have asset for investors?

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 In September 2017, Apax Partners acquired a majority stake in matchesfashion.com for an undisclosed sum.

While high profile, this acquisition is just the tip of the iceberg, supporting a trend that sees an increasing interest from private equity in fashion industry assets.

Over the last five years, annual private equity investments in the fashion industry have increased by 20% globally, with the majority of these investments having taken place in the US and Western Europe. In Western Europe, the majority of deals were focused on Italy, France and the UK.

So why is fashion this season’s must-have asset?

E-commerce and the rise of the online retailer

Online demand for clothing is on the rise, as seen by the year-on-year increase in search demand (Google searches for clothing and specific items) in the UK. Online search demand has increased two consecutive years, with a 4% increase in 2016 followed by a 5.3% increase in 2017. Indeed, Mintel reports, online fashion sales account for 24% of total spend in 2017, an increase of 17% compared to 2013.

Clearly, online is seen as an increasingly natural option for consumers. This shift toward online for fashion consumers is reflected in the investments from private equity companies: e-commerce clothing sites accounted for 12% of fashion investments five years ago, yet in 2017 this number grew to 40%.

This sees a move away from previous years, where investments were mainly into specific brands and designers.

This rush to online is putting established e-commerce businesses in high demand, but also presents growth opportunities for those assets who haven’t yet fully exploited their digital strategy.

While the rise of online has created a wealth of opportunity for new businesses, this has not gone unnoticed by High Street brands, with many now offering multi-channel retailing to their consumers. What is noticeable is that recent investments are tending towards pure player retailers; companies that stock designer brands online-only.  Interestingly, many lack a clothing line of their own with Matchesfashion.com being a prime example of this as mentioned above.

This differs to the online offerings of typical High Street brands such as Next or H&M, that promote their own-branded clothing ranges. This is unsurprising when observing the online statistics; the top online pure player sites recorded, on average, a 13% growth in website traffic over the last 12 months. This is more than double the 6% growth seen by the top High Street brands.

‘E-tailers’ have an easier time competing in the market than their high street competitors due to the lower barriers of entry. These online retailers can offer a greater variety of items and brands yet have generally fewer factors of production that typical bricks-and-mortar companies have to deal with.

Luxury is the new black

Another observable pattern is the higher price point of brands being invested into, with a move towards luxury and designer brands.

Matches Fashion, for example, specialises in designer fashion, while in April saw investment into Forte Forte; an Italian designer specialising in high contemporary women’s wear. Even e-retailers have a generally higher price point, stocking items from well-known brands which, more often than not, are more expensive than typical high street items.

The lower price point of high street brands can see them struggle on the online market. Primark trialled an online service in conjunction with ASOS in 2013 which lasted just 3 months.

Often online shoppers have higher demands including free delivery and returns; higher price pointed items allow companies to satisfy these demands, while typically cheaper brands (like Primark) can struggle to provide these options due to margin limitations. Indeed, it was the expense of delivery and the small price margins of Primark items that made online a non-viable option at the time.

Next seasons trends for investors?

We have seen rising online demand for clothing create opportunities for e-retailers and higher price point clothing companies alike in 2017. With the economic advantages e-retailers have over the typical brick-and-mortar High Street brands, we would expect fashion e-commerce to keep flourishing. Likewise, the logistical benefits associated with retailing luxury items would see these higher price-pointed brands thrive in comparison to cheaper e-retailers.

It would be reasonable to expect a continuation of these recent fashion investment trends. However moving forward, if recent performances are anything to go by, the PE world may be keeping a close eye on the progress of Amazon fashion sales.

Since its purchase of Zappos, a footwear retailer, in 2009, Amazon has been making in-roads in the world of fashion. In the last few years, Amazon has started offering more luxury designer names such as Zac Posen and Stuart Weitzman.

A successful venture into luxury fashion from Amazon would most likely have an impact of the type of PE investments we see in the future; potentially closing the door of opportunity on any other luxury retailers.

And with the pulling power and resources available to Amazon, it may be the case that future success is more of a question of when rather than if.


To find out more about how onefourzero’s digital due diligence and insights can help you identify opportunities for growth and potential risks, contact fleur@onefourzerogroup.com