China has figured out fast fashion, phones, and drones, but luxury is an elusive sector that it has yet to crack. The idea that China can one day shift from being the world’s top consumer of high-priced goods to a major creator of them is a story that investors have been hearing for years.
Hope has been rekindled with the announcement from Lanvin Group earlier this year that it plans to list on the New York Stock Exchange. But with the Chinese government chilling IPOs on the American stock market, it’s looking more challenging for the company to go public, and become a driving force in luxury fashion.
Lanvin Group, part of the Chinese conglomerate Fosun International, said in March it was seeking $544 million to fund the expansion of its five fashion labels along with “disciplined acquisitions” to build out a global collection of “iconic luxury fashion brands.”
Although it initially laid out a plan to list in the fall, the IPO plans are still hazy. Lanvin Group chairwoman and CEO Joann Cheng told Quartz on Sep. 13 there was no set date as of yet, but the company was aiming for a public market debut toward the end of the year.
The Chinese luxury market
The company is marketing itself as an opportunity to access the luxury-obsessed Asian shopper. The language it used in its SPAC announcement indicated it aspired to one day potentially rival LVMH or Kering. Max Chen, partner at Primavera Capital who heads the SPAC, described the venture as “a luxury powerhouse for a new generation of consumers, especially benefiting from surging luxury consumption in Asia.”
Chinese consumers are expected to make up half of all luxury spending by 2025, according to Bain & Co. At Lanvin Group last year, greater China accounted for just 14% of revenue, meaning in theory, there should be lots of upside for the company to grow. And who better to sell to Chinese shoppers than the Chinese themselves?
The challenge to revive Lanvin
The reality is that operating a luxury house is complicated. Once hotly anticipated ascents by Hong Kong’s Fung Group, which bought brands like Sonia Rykiel, Gieves and Hawkes, and Cerruti 1881; and Shandong Ruyi, the owner of Bally, Aquascutum, and SMCP, have fizzled. And the beginnings of the Lanvin Group have been shaky.
The star of Lanvin Group is the Parisian brand, founded in 1889, from which it gets its name. Under Alber Elbaz in the early 2000s, Lanvin surged in popularity. His bejeweled, drapey designs which were a hit with critics and shoppers alike. But with Elbaz’s departure in 2015, the brand entered a tumultuous period, counting four different designers in as many years.
The executive and designer shakeups continued initially under Fosun, which bought Lanvin in 2018. Jean Philippe Hecquet, CEO of Lanvin, lasted just 18 months with Fosun Fashion, as Lanvin Group was called at the time. After the exodus of designer Oliver Lapidus, the group stabilized the brand with designer Bruno Sialelli, who has mined the house archives for 1920s Art Deco motifs. It has boosted the label’s visibility in China, opening stores and hosting large events.
But continued zero-covid lockdowns in China mean its strongest operational advantage is hampered by the macro environment. Prospects for a strong rebound in luxury demand like the country saw in 2020 look murkier. The loss-making Lanvin Group had set a target for profitability by 2023, then pushed it back to 2024.
Lanvin Group’s other brands also need significant work. Wolford and St. John’s Knits are known for durable, quality fabrics but suffer from fusty images that need shaking up. Caruso is a tiny men’s suiting brand better known as a supplier to luxury houses like Dior than as a brand itself.
The 2020 acquisition of Sergio Rossi, a small but well regarded Italian shoe label, was a coup for the company. Fosun Fashion was able to swoop in after the shoe company’s founder died suddenly from covid-19, leaving the brand in a lurch.
In its listing presentation (pdf), Lanvin Group shared that its flagship brand grew 103% year-over-year for first nine months of 2021. For the group overall, it did not share GAAP standard figures, instead listing a pro forma number that valued the business (for enterprise value) at $1.5 billion, using numbers they had essentially cherry picked.
Has the hardware but still lacks software
Late last year, the company smartly rebranded from Fosun Fashion Group to Lanvin Group to signal a more global positioning. It also struck a series of key partnerships in China. It has aligned itself with Baozun, a big TP or “Tmall partner,” a kind of middleman agency that helps manage e-commerce storefronts on the Alibaba platform; Activation, a major marketing and events agency; Stella International, the footwear producer that can help supply for some of the lines that Lanvin makes in China, and Neo-Concept another Chinese manufacturer; as well as K11, a young and art-focused chain of malls by the influential Hong Kong tycoon Adrian Cheng.
Although these strategic alliances are a step in the right direction, it’s hard to paper over the fact that Lanvin Group still lacks core fashion experience. Parent Fosun International is a pharmaceuticals, real estate, and tourism conglomerate. Lanvin Group’s CEO and COO do not come from the fashion industry.
Of the fashion talent it has, instead of pulling from industry benchmarks like Chanel, LVMH, or Kering, Lanvin’s China leadership comes from Dolce & Gabbana, specifically the same team that oversaw the meltdown of the brand in the country in 2018. Insults about China by Dolce & Gabbana led to the cancelation of a major runway show in Shanghai and a nation-wide consumer boycott from which the Italian label has still never recovered.
The importance of fashion expertise cannot be overlooked because it’s a sector that’s inherently at the mercy of trends. It’s not enough to make products that are high quality—collections need to speak to the zeitgeist and fashion brands are constantly chasing that slippery cool factor. Labels that are mega hot can lose steam even after riding an explosive multi-year wave, and equally, return to popularity (see Gucci under Tom Ford to Frida Giannini to Alessandro Michele).
Questions about Fosun International
Even if Lanvin Group bypasses Chinese government pressure to list in New York, that is just one hurdle cleared. Questions about Lanvin Group’s fundamental ability to execute abound.
There are questions, too, about parent company Fosun International’s financial position. Last month, the rating agency Moody’s downgraded Fosun because of its $40 billion in debt and tougher economic conditions that would complicate its ability to sell assets to generate cash. This week, Fosun International shares took a major dive on a Bloomberg report that Chinese regulators instructed banks to closely examine their Fosun exposure, something Fosun’s CFO called “completely false.”
Lanvin Group may manage to maneuver around concerns about its parent company. But LVMH and Kering will not be looking over their shoulders anytime soon.