Equity turns fashionable

Friday, 28 January 2011
From investment banks to social networks gurus, all of them have something in common: their interest in fashion. Money has always been fashionable, but investing in something more than a covetable wardrobe is turning to be a trend that arrived to stay.Even more equity and investment firms are looking for opportunities to enter the fashion business, which is proving to be resilient to crisis and financial turmoils.

Just a drop in what threats to become a vast ocean, social shopping site Fashiolista brought in a half million dollars from Atomico, the investment firm founded by Skype founder Niklas Zennström. The startup, a social shopping service that allows users to “love” products using a special browser “bookmarklet,” has seen incredible growth in past months. 60 days after its founding last June at the 2010 Next Web conference, Fashiolista users had “loved” about a million items. They now boast that many interactions every month, with users in over 100 countries.

As ASOS's international expansion begins to impact its overall figures, Nick Raynor, investment adviser at The Share Centre explains what this means for investors. "Online fashion retailer ASOS reported a revenue increase of 59% to £100m in the three months until 31 December 2010. "ASOS international exposure was a key player in these strong figures, as sales grew 156% to £43.7m. 2010 saw ASOS launch stand-alone sites for America, France and Germany, and further growth overseas should be an attraction for investors.

"Following news that Danish fashion retail group Bestseller, has increased its stake in ASOS by 18.27% in the last two months, investors should watch closely for the possibility of a take over. ASOS is in the almost unique position of having no debt and rising levels of cash in the bank. Investors may be disappointed to see there is still no dividend but we are happy to recommend the online retailer as a ‘buy' for investors willing to accept a higher level of risk."

Also within the UK, Hobbs has received a new £14m investment from 3i, its majority shareholder. Nicky Dulieu, Hobbs' chief executive, said that the fresh funding will provide capital for the development of its trilogy of brands – Hobbs, NW3 and Limited Edition. It will also allow Hobbs to extend the "share investment opportunities" for its current management team. As part of the reshuffle, 3i, which first invested in 2004, has increased its stake from 68pc to 70pc. Mr MacRitchie has close links to 3i having sat as a member of its chairman's board. He has spent the past six months at Hobbs carrying out a "consumer insight review" of the business.

In the same vein, Italian fashion ambassadors Ermenegildo Zegna, Salvatore Ferragamo and Roberto Cavalli will increase investment in 2011, signaling greater confidence among Italian luxury-goods makers as demand continues to rise, reported Bloomberg early this week.

Zegna will lift capital expenditure by “more than 50 percent” from last year’s level as it invests in new stores and technology, the closely held company’s chief executive officer said. “We want to make sure we keep growing and be ahead of the pack,” Ermenegildo Zegna, CEO of the eponymous company, declined to quantify this year’s investment or give an outlook, beyond saying 2011 would be “more aggressive” than 2010. Ferragamo, will increase investment by “more than 20 percent” this year, CEO Michele Norsa said.

Companies including Cie. Financiere Richemont SA are building their retail networks as the number of millionaires rises in Asia and wealthy shoppers in the U.S. and Europe regain confidence. Luxury demand is forecast to climb 11 percent this year, according to HSBC, consolidating last year’s rebound from the industry’s worst year on record.

Also American department store Dillard’s is taking a forward-thinking approach to its real estate holdings. According to a SEC filing, the Arkansas-based department store chain is forming a real estate investment trust (REIT) looking for improved liquidity. Now that the economy is beginning to shyly recover, REIT have rebounded and started producing significantly better returns. And REITs raised $47.5 billion in the public markets, the second largest haul in the industry's history behind the $49 billion raised in 2006. Access to capital has allowed many REITs to stabilize their operations during a period in which both occupancy levels and rental rates have been in decline. So it’s clearly good timing for Dillard’s, taking into account that Dillard’s owned real estate is worth about $2.3 billion to $3.3 billion according to Deutsche Bank’s estimates, and especially as store sales continue to underwhelm. Total sales for the 48 weeks which ended January 1, 2011 increased just 2 percent.

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