What Happens When Big Companies Buy Cool Ones

This week, Zalando, one of Europe’s leading fashion e-commerce players, acquired a majority stake in Highsnobiety, the streetwear blog that has established itself as a cool agency through content, commerce and consulting. in brand. Financial terms of the deal were not disclosed, although it is possible that Highsnobiety was valued between $180 million and $250 million.

The reason why Highsnobiety wanted to sell is obvious: Zalando offered an exit after more than 15 years, as well as an opportunity to further develop its fast-growing retail business.

The real question is why Zalando wanted to buy Highsnobiety. It’s clearly not about the money, at least not directly: Zalando generated more than $12 billion in sales in 2021, and neither Highsnobiety’s revenue nor the cost of running it will have much impact. on the retailer’s balance sheet. But the value that Highsnobiety could generate is significant. Zalando, a mainstream apparel player, has been striving to gain a foothold in haute couture. Highsnobiety will essentially serve as an internal consultancy that can help introduce the retailer to the young luxury customers it wants to reach. (Over the past few years, Highsnobiety’s creative agency, which advises brands and retailers on content, has become a bigger part of the overall business and is growing, according to Highsnobiety’s co-founder and chief executive. , David Fischer.)

Another bonus is that Zalando and Highsnobiety are both Berlin-based and run with German sensibility.

The deal also reflects a prevailing M&A trend in the fashion industry, with a wave of established companies taking over businesses that cater to younger and/or more discerning consumers. Just a few weeks ago, Spanish beauty conglomerate Puig bought Byredo in a bid to meet the growing demand for niche fragrances from designers. Management company Marquee Brands, which owns names like Martha Stewart and Ben Sherman, recently acquired polarizing streetwear label Anti-Social Social Club in a bid to better understand the Gen-Z shopper. And a few months ago, Farfetch snapped up LA-based high-end beauty supplier Violet Grey, aiming to establish its authority as it makes a major breakthrough in the category.

The reality, however, is that 70-90% of mergers and acquisitions fail to add value, according to harvard business reviewbecause of the way the two companies are integrated after the merger. HBR did not single out deals like Zalando’s, where cultural cachet rather than pure revenue and profit was the primary rationale, but the failure rate of such deals may be even higher.

Often the culture of the most innovative company is lost and the cool factor dissolves. A classic case is Banana Republic. When acquired by Gap in 1983, it was a chic outfitter of safari clothing, later transformed into a ready-to-wear brand intended to compete with Ann Taylor. But despite some successes in the 1990s and more recently, its identity remains unclear and its performance inconsistent. The American beauty group Estée Lauder, which had great success with its takeover of MAC, has experienced acquisition difficulties more frequently in recent years. For example, five years after buying Becca Cosmetics in 2016, he decided not to resell it, but simply shut it down, citing poor performance.

It’s entirely possible for a brand to lose its magic once it’s taken over by a bigger entity, and Highsnobiety fans have taken to social media to voice their concerns. “What a disappointment,” said @marcjanssenberlin, a personal shopper. “Uh, I don’t know if this is a good deal for @highsnobiety!?! When they can/will do their [independent] business in the future, so okay. Otherwise I’d say it’s a fail…” @sven_moye added.

On the other hand, strong brand management can lead to success. VF Corp. managed to grow The North Face and Vans without, for the most part, damaging their reputation with their core clientele. Perhaps that’s why Supreme, the quintessential “cool” brand, chose VF as a partner when it “sold out” at a $2.1 billion valuation. So far, the lines outside his Lower Manhattan store remain just as long.

There are signs that Highsnobiety will retain some independence from Zalando: not just editorially, but physically. (They’re not merging offices.) Ideally, Highsnobiety will help polish Zalando’s brand, while growing the Highsnobiety business and retaining some of the magic that made it so special in the first place.

NEWS IN BRIEF

FASHION, BUSINESS AND ECONOMY

Zalando acquires Highsnobiety. The German fashion e-tailer has taken a majority stake in the high-end streetwear platform in a bet on the combined power of content and commerce.

The last-mile delivery start-up wins the LVMH Innovation Prize. Toshi, Sojin Lee’s high-end delivery service, has landed contracts with Chanel and Dior and is preparing for further expansion.

The “optimistic” economy of Bernard Arnault of LVMH can avoid recession. The French luxury giant was on a “very good track” when it comes to its performance for the first six months of the year, Arnault told reporters at a tech event in Paris.

Norway warns H&M, Norrøna against misleading sustainability claims. The Norwegian Consumer Authority has ruled that outerwear brand Norrøna cannot use Higg Index data to back up environmental claims, dealing a blow to the industry rating tool in the part of a broader crackdown on greenwashing.

LVMH invests in lab-grown diamond start-up Lusix. LVMH Luxury Ventures, the private equity arm of the French luxury conglomerate, has acquired a stake in Israeli lab-grown diamond startup Lusix alongside other investors in a $90 million seed round. dollars.

H&M sales jump as shoppers return post-pandemic. The world’s second-largest fashion retailer reported a bigger-than-expected increase in sales three months from March. Net sales rose 17% year-on-year, or 12% when measured in local currencies, to 54.5 billion crowns ($5.4 billion) in its fiscal second quarter.

EU cartel raids target creators offering sale periods, discount changes. The European Commission, which did not name the companies or the countries in which it carried out the searches, said the companies may have breached EU cartel rules against restrictive business practices, including the fixing of price.

Russia’s Wildberries are selling Zara clothing online despite Inditex’s shutdown. The region’s e-commerce leader confirmed a report by the TASS news agency that Zara items were being sold on the site, highlighting the difficulties faced by businesses in keeping control of their brands.

Forever 21 takes its third place in China with a new physical store. The brand said on social media platform WeChat that it would open a store “in June” at the Jingjiang Impression City shopping mall in Taizhou, a third-tier city in the eastern province of Jiangsu, neighboring Shanghai.

Gap Inc. and Athleta invest $1 million in footwear and apparel start-up Saysh. The San Francisco-based clothing retailer has invested in the brand founded in June 2021 by US Olympic sprinter Allyson Felix and her brother Wes Felix. The investment was part of an $8 million Series A funding round, led by Gap and consumer fund Iris.

THE BEAUTY BUSINESS

Revlon's nude makeup line.

Revlon files for bankruptcy as online beauty pageant takes its toll. Known for its nail polishes and lipsticks, the 90-year-old company listed assets and liabilities of between $1 billion and $10 billion in a court filing on Wednesday. The company has also been hit by supply issues, made worse by the Covid-19 pandemic.

PEOPLE

Sydney Toledano.

Sidney Toledano becomes president of the Institut Français de la Mode. The chief executive of LVMH Fashion Group will work alongside Dean Xavier Romatet, the former chief executive of Condé Nast France, in a supervisory role at the French fashion school.

Nicholas Daley wins the BFC/GQ Designer Fashion Fund 2022. The London-based menswear designer has been awarded £150,000 ($188,000) to invest in the business development of his eponymous brand. Daley will also receive ongoing mentorship through the British Fashion Council (BFC), as well as legal and business support over the next 12 months.

Swarovski appoints its first external CEO. The Austrian maker of crystal flakes, jewelry, collectibles and precision optical equipment has hired its first chief executive from outside the company’s founding family. Alexis Nasard previously ran Czech footwear and accessories retailer Bata.

Mytheresa eyes China expansion with new president of China and Asia-Pacific. The luxury e-commerce giant has named Steven Xu president of China and Asia-Pacific. In this role, Xu will be responsible for consumer-facing activities in the region, as well as building a team, the company said.

MEDIA AND TECHNOLOGY

Bracelets displayed in the window of a Cartier store.

Amazon is teaming up with Cartier in a joint infringement lawsuit. The companies are suing eight Amazon sellers and an individual operating under the social media handle Phym9y3v for peddling fake Cartier products on the e-commerce giant’s platform, marking Amazon’s latest move in its war on counterfeiters.

Compiled by Joan Kennedy.