It’s been a season of “What ifs” for American fashion.
What if election anxiety keeps consumers on the sidelines? What if the stock market takes a roller-coaster ride? What if the Federal Trade Commission looks to block more corporate buyouts? What if the Chinese consumers keep pulling back? What if the accumulative effect of inflation sinks the economy?
Analysts and bankers are asking their own questions about specific businesses. What if Ralph Lauren Corp. were to be acquired? What happens with Michael Kors, Versace and Jimmy Choo now that it seems Capri Holdings is not being bought by Tapestry Inc.?
And more.
After a long, anxious year, Election Day has finally come and gone. And while results weren’t available as of presstime and could take some time to materialize, the path ahead for fashion should soon start to come into focus as companies look to make their move.
Wall Street is waiting.
Trading was a relatively quiet Election Day in the markets, where the Dow Jones Industrial Average picked up 1 percent, or 427.28 points, to close at 42,221.88.
The Dow is up 12 percent so far this year and the retail performance has been mixed. Walmart Inc. is up 59.3 percent, while Ralph Lauren is up 41.1 percent and Tapestry is up 34.3 to date in 2024. But others have been falling behind. Capri is down 59.2 percent while Macy’s Inc. is off 24 percent and PVH Corp. has declined 18.2 percent.
Craig Johnson, president of Customer Growth Partners, said the industry is facing a “watershed event,” not just with the election, but with consumer spending and finances and the recovery from two massive hurricanes in the Southeast.
“The consumer’s been sitting on the sidelines and particularly in terms of any kind of big-ticket purchases,” said Johnson, who added that the election might just give consumers the nudge they need. “My guess is this will be a precipitating event to get people off the sidelines and out buying.”
If so, higher-income shoppers have the money to spend.
“People have been through a lot,” Johnson said. “This whole election thing is a pain. The inflation thing is still bad. There’s a lot of pent-up demand, people in the two higher-income quintiles are in good shape financially.”
A person exits a voting booth on Tuesday at the town offices in Lancaster, N.H.
Johnson is sticking to his forecast for a 4 percent increase in holiday sales this year, but he said sales could be higher and even hit the 10-year average of 5.2 percent if enough pieces clicked into place.
That kind of bump would mark a real turn for the consumer and the industry if it panned out.
Greg Portell, senior partner and global markets lead at Kearney, said companies have been in a kind of a holding pattern, waiting out the election, the consumer and supply chain uncertainties and the rest of it.
“By the time this holiday season is over, companies will have lost their excuse to sit on their hands and wait,” Portell said. “They will have to do something. And that something should be done with confidence.
“By January everyone should have a high confidence in their path forward,” he said. “That path could be restructuring, it could be, ‘I need to find buyers.’ It could be, ‘I’m going to relaunch in this particular way.’ The path forward won’t be the same for every brand. Management teams need to show a reason for investors to have confidence. This is what we want to do and this is why — that is a message across industries that resonates with investors.”
Portell is looking for the fashion industry to continue to consolidate, although he said companies are still trying to figure out the rationale the FTC is using as it seeks to block deals.
No doubt, the industry will spend months if not years poring over the FTC’s case to block Tapestry’s $8.5 billion acquisition of Capri, the argument the government used to secure a preliminary injunction that seems likely to tank the deal and so on. Technically, the trial is proceeding, but it is not scheduled to wrap up before Feb. 10, when the contract governing the deal runs out.
For Coach-parent Tapestry as well as Capri, the question now is, what’s next?
“Tapestry has large aspirations to what they can build and what they can become, and they believe that they have an infrastructure in place to be able to build something that’s larger than what they are right now,” said Simeon Siegel, analyst at BMO Capital Markets. “Figuring out how to go about that will be part of their project.”
That is something like a return to the pre-deal status quo for Tapestry.
The bigger question is what happens to Capri, which saw a marked decline since the deal with Tapestry was signed in August 2023.
For the first quarter ended June 29, Capri’s revenues fell 13.2 percent to $1.07 billion while gross margins sank to 64.6 percent, from 66.1 percent a year earlier, and operating losses tallied $8 million.
“The degree with which Capri has fallen in the last year raises many questions,” Siegel said. “The company as a stand-alone needs to figure out what its path back is. The brands still carry the same recognition and theoretically should be able to regain the same brand perception and power that they had.
Michael Kors, spring 2025
“I’m not positive the brands are sitting at a natural point of weakness,” he said. “I think the brands are likely sitting at a point of neglect. It’s very rare. The fall in Capri brand performance this year seems to be a very different type of business fade than we typically see when brands hit a cycle.”
While Capri could try to pick itself up, other analysts have speculated it could also sell off Versace and perhaps Jimmy Choo, while Michael Kors is seen as a candidate for a private equity buyout.
And they aren’t the only companies with the buzz of dealmaking around them.
The Nordstrom family is still looking to take Nordstrom Inc. private. Hudson’s Bay Co. is in the process of closing on its deal to buy Neiman Marcus and merge it with Saks Fifth Avenue. There are also a host of companies with private equity investments, from Tory Burch to J.Crew Group.
People wait in line to vote at a polling station at Martin Luther King Jr. Library in Washington, D.C., on Tuesday.
And on Tuesday, John Kernan, a stock analyst at TD Securities, released a bullish research note on Ralph Lauren, adding that investors are increasingly asking questions about succession and what’s next as the designer just celebrated his 85th birthday.
Lauren, who serves as the company’s executive chairman and chief creative officer, would have the final say over any transaction as he controls 84.5 percent of the company’s voting rights.
Still, there could be potential buyers.
“The brand could be viewed as an attractively priced global asset to European luxury houses,” said Kernan, who added that both LVMH Mo?t Hennessy Louis Vuitton and Compagnie Financière Richemont were big enough to do such a deal.
Since 2019, dealmakers have tagged luxury brands with enterprise values of about 3.6-times sales, most recently with Supreme trading at 2.5-times sales in its sale to EssilorLuxottica, Kernan said.
Ralph Lauren could hypothetically be sold with an enterprise value of $14.9 billion to $17.1 billion, he said. The high figure there would be 2.6-times the company’s $6.6 billion in sales last year.
Ralph Lauren has long been a desirable property and the potential for some kind of deal has been rumored in the past, but never materialized and the company has done well to stoke growth on its own.
But the aperture for dealmaking in fashion seems to be opening with more players struggling and needing some help or on the hunt for their next growth driver in a still-scrambled consumer landscape.
Where that leads is a whole other question — one for after the dust from the election has settled.
