Letter from America – 21.01.19

Letter from America – 21.01.19

This week I was talking to some US private equity guys about opportunities for them to lend to the UK retail market; looking, in particular, at struggling UK heritage brands and the recent CVA phenomenon. We discussed how brands that are struggling in Europe might tap into a stronger US consumer economy, which is seeing consumers with more money in their pockets after last year’s personal tax reforms. One of the brands that was picked up in our research was #KarenMillen and I expected to see its numbers reflect some of the UK retail carnage that was 2018, but that surprisingly wasn’t the case.  But before I get to discussing that, the PE guys were asking about the rise of the CVA in the UK, particularly in the retail and hospitality & leisure markets, and whether they could lend in those situations. That got me thinking about CVAs when a turnaround plan was in place and the business was focused on a number of strategies, including for example (1) improving customer engagement though digital interaction, new channels and loyalty programmes and, (2) expanding the brand into new categories with third-party financial and operational support, through brand licensing deals.  The PEs confirmed they were interested in lending provided they could take security over the brands and related IP assets, particularly if some of the funding was being spent on increasing the brand asset (secured) value by pursuing these strategies.

Anyway, back to the KM brand. I read that its turnaround plan seems to be working and when I read on, I was intrigued. It seems a big part of its turnaround success is linked to working with specialist third parties focused on licence deals around the KM brand and related IP assets.  That strategy involved taking the Karen Millen brand to market in new categories through licensing partners e.g. it was reported that #PentlandGroup signed a licence for footwear and #GlobalBrandsGroup signed a licence for handbags and #HeidiKlein signed a global licence for swimwear.  This is a strategy often used by smaller fashion brands making the move to become more of broader lifestyle brand once they build a strong customer following.  In the past successful global licensing strategies were reserved for large global brands with big financial backers, but now mid-market brands are successfully tapping into these strategies.

One headline in our research was that the KM brand was “gearing up for growth in the global shoe market”. I believe that by using a partner like #PentlandGroup the KM business could be sheltered from the funding or commercial risk of developing the KM brand into a global footwear market on their own. Often in these licence deals the brand collects an upfront fee and ongoing royalties, especially where they have a brand valuation with comparable royalties as leverage in those discussions.  Licence deals also offer key valuation points that can boost the overall business valuation and royalty-backed IP / brand valuations can be used to good effect in discussions with lenders and ultimately buyers of the business in any scenario. One of the key valuation points for us in the sale of the #BENCH urban youth brand last year, was the recurring revenues from existing licensing partners.

Interestingly, we discussed similar IP focused retail strategies during IP training sessions we delivered to UK restructuring firms in 2018; sharing ideas on brand-led and other IP-related business strategies for retailers and leisure brands, to inject some life into a turnaround plan.  These can also help attract fresh capital and operational support and specialist “category” retail knowledge from carefully selected partners to launch in categories such as shoes, lingerie, sunglasses, perfume, handbag, etc, etc. Heck it seems to be working for Karen Millen and I for one will be following its progress with interest.

Finally, since we started with companies tapping into US and global consumer demand, I kid you not, I had a dream that I got a call from the US president last night – this is the truth – he wanted to discuss the roll-out of the IP100 across the USA as a new benchmark of IP protection and IP management and he wanted this done in conjunction with the Chinese, as part of their new IP Accord (agreement) to overcome their long standing dispute around trade secret and IP theft.  He said it was to give us “common goals around protecting IP for mutual and combined economic gain and to help stimulate growth in small and medium sized enterprises (SMEs)” how bizarre is that? and yet perhaps not such a bad idea. Although I hope there is a better looking blonde in my dreams tonight!

So until my next Metis Letter from America I hope you have a great weekend!