Eliza Anzolin and Valentina Za
MILAN (Reuters) – An LVMH-backed investment firm is betting that demand from rich Americans for quiet luxury will ensure its 510 million euro ($545 million) stake in Italian shoe company Tod’s will generate double-digit profits, adding to private investment is usually sought.
L Catterton, created by the US Catterton Foundation and LVMH owner Groupe Arnault, received enough shares on Friday to buy out Tod’s private property once the deal, valuing the company at just over 1.4 billion euros ($1.5 billion), is officially completed In the next few days.
Incorporated in Milan but controlled by the founding Della Valle family, Tod’s profitability lags that of rivals.
Last year, the company delayed marketing investments to help boost its operating profit to 8.4% of sales, behind Prada’s (OTC:) 22.5% and Brunello Cucinelli’s 16.4%, in part because most of its products produced in-house compared to analogues.
In-house production is more expensive than outsourcing, but gives brands more control over quality.
L Catterton offered 43 euros per share, which is considered a good price for the investment fund, given that Tod’s was listed at 40 euros 24 years ago when it became the first Italian luxury brand to go public.
Under private equity ownership, Tod’s will invest in marketing to capitalize on its understated elegance and boost U.S. sales, a person close to the matter said.
Tod’s branded shoes and bags, including the $695 Gommino loafers with their distinctive rubber soles, have a strong following among affluent consumers age 40 and older.
Further up the luxury ladder is Roger Vivier, a Parisian brand of buckled shoes priced at $950 a pair that he acquired in 2015 and is attracting larger buyers in Asia.
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But the group’s smaller brands, such as Fay, which makes jackets inspired by American workwear, and Hogan, which pioneered the luxury sneaker trend but failed to capitalize on its boom in the last decade, are in need of a revamp.
An unsuccessful attempt in 2022 to take Tod’s private was intended to operate the various brands separately and possibly sell off the least profitable ones.
Tod’s has long resisted chasing younger shoppers, a choice it appears to have partially corrected in 2021 when it appointed fashion influencer Chiara Ferragni to its board. After three years, her position was not renewed.
Back in 2018, Tod’s septuagenarian founder Diego Della Valle told the Financial Times that “millennials are not for everyone” – a demographic group that includes people under 40.
A person close to the matter, who asked not to be named because he was not authorized to speak publicly, said the focus on older customers was one reason Tod’s had room to increase digital sales.
Tod’s has also failed to fully leverage the success of its most iconic products, such as the $3,000 Di Bag made famous by Britain’s late Princess Diana, to boost sales by expanding into clothing, a separate industry source said.
To compete with the best in class, Tod’s must accelerate the launch of new collections and invest heavily in its brand image, the source added.
At the moment, Tod’s expenses on marketing and communications amount to about 10% of sales, which is generally in line with other Italian colleagues.
NEW CREATIVE DIRECTOR AND MORE PRESENCE
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“The relaunch should focus on updating and expanding the product range and… strengthening the retail channel, both brick-and-mortar stores and e-commerce,” said Giuliano Noci, professor of strategy and marketing at Politecnico di Milano.
L Catterton’s investment plans, which have a roughly five-year time horizon typical of private equity funds, will initially lead to lower operating profits, but the delisting means the transformation could occur away from the scrutiny of short-term stock market investors.
Tods and L. Catterton declined to be interviewed by Reuters.
In comments to Italian newspaper MF in February, Della Valle said expanding its U.S. presence would be Tod’s main goal over the next two years, along with growing its clothing business.
Any relaunch will also require a more ambitious retail strategy, including openings and new store concepts, according to the luxury industry executive. At the end of last year, Tod’s had 19 stores in the United States, the same number as in France.
All this needs to be done as luxury brands face a slowdown following the post-pandemic boom.
Demand in China is particularly concerning because Tod’s is heavily focused on the Asian market. The Greater China region, where Tod’s directly operates 124 boutiques, accounted for 31.7% of total sales in 2023, compared with 7.5% in the Americas.
Consumer products company L Catterton is well positioned to expand its operations in the United States, where it also plans to develop another Italian brand, cosmetics maker KIKO, which it agreed to buy in April for a $34 addition. billions of assets under management.
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Efforts to broaden Todd’s appeal are not new.
A decade ago, Tod’s tried to expand into ready-to-wear and update its image of classic elegance, but ultimately retreated and focused on leather goods, which had always been central to its identity.
Clothing accounted for 6.7% of Tod’s total sales last year, compared with about 30% for biggest brand Prada.
Tod’s named Matteo Tamburini creative director of women’s and men’s wear for its flagship brand in December, but his new collections have yet to hit stores.
“We’ve come a long way with Tod’s: quality has always been their top priority,” said Carla Sereda Biffi, head of purchasing at Milan boutique Biffi, whose store on Corso Genova displays a selection of Tod’s Bubble flats and T-shirts.
“I just know it won’t change what they decide to do next.”