EXCLUSIVE - Why the Chinese won Lanvin, France’s oldest fashion brand
China’s Fosun International won the bidding war for Lanvin against the Qataris this month for reasons that have little to do with money, creative vision or strategy for France’s oldest fashion maison, four sources close to the matter have said. Instead, Fosun’s victory had apparently far more to do with the pivotal role of one minority shareholder and pressure from key people directly or indirectly involved, including the Chinese government.
The transaction announced officially last Thursday valued Lanvin at 45 million euros, two sources said. A fraction of the more than 400 million-euro conditional offer Qatar’s Mayhoola had made in early 2015 before Lanvin stunned the fashion world by sacking its star designer Alber Elbaz in October that year.
Mayhoola, which owns Valentino and Balmain and was expected to win Lanvin, had entered in early January into exclusive talks for a month with its controlling shareholder, Chinese media magnate Shaw-Lan Wang. Mayhoola had been courting Lanvin for more than a decade. Wang, now 76, is not in strong shape, both mentally and physically, and last year brought in her ex-boyfriend Nicolas Druz, a former journalist, to run Lanvin and represent her in Paris.
Several sources said Druz weighed in to get Wang to sign with the Chinese even though she had prepared herself earlier to conclude a transaction with the Qataris. Druz opened the company’s books a month ago to Fosun International, one of China’s most active deal-makers, which in France controls leisure company Club Med.
Several sources said Fosun promised Druz to make him Europe, Middle East and Africa (EMEA) head of development at Fosun Fashion Group, the Chinese group’s company that oversees investments in little-known fashion brands to, using its own words, “leverage the momentum in the Chinese consumer market.”
Fosun Fashion group has invested in brands such as Italian menswear brand Caruso in Italy, France’s Iro and US knitwear label St. John – none of which have made headlines for their commercial success. Fosun also was the under-bidder recently in the deal to acquire La Perla. Fosun has no experience turning around a luxury brand of the size and importance of Lanvin.
Fosun, Lanvin and Druz did not respond to emailed requests for comment. Mayhoola declined to comment.
It is not clear what Druz, a journalist who created a newspaper for Chinese expatriates in Paris in the 1990s, will be doing at Lanvin. But it is understood that Joann Cheng, Vice-Chief Financial Officer of Fosun International and Executive President of Fosun Fashion Group, will become president of Lanvin. According to her LinkedIn page, Cheng is a young China Europe International Business School graduate who was CFO of drone specialist DJI until January 2016 and previously worked for accounting firm KPMG.
Another crucial element that helped Fosun win Lanvin was that the Chinese group gave in to demands from Swiss German minority investor Ralph Bartel – to which the Qataris were less amenable. Bartel was keen to recoup his investment after having ploughed more than 35 millions euros into Lanvin since 2010, two sources said. He obtained a commitment from Fosun that he too could invest around 20 million euros in Lanvin, thereby maintaining his one-fifth stake in the house. In the event that Bartel would be willing to sell his stake to Fosun or another buyer, the price he would get would be a multiple of Lanvin's revenues, not EBITDA and revenues as Mayhoola had wanted.
“Bartel felt that he was not going to get what he wanted from the Qataris while Fosun was saying yes to most of his demands,” one of the sources said. Wang has an option to sell her stake in three years, the source added.
Mayhoola was keen to acquire 100 percent of Lanvin in the short-to-medium term and did not wish to remain tied to old guard investors such as Bartel or Wang, several sources confirmed.
As part of the deal with Fosun, Wang got to retain a stake of around 20 percent while Bartel will maintain a holding of a similar size, four sources have said. Fosun injected 15 million euros into Jeanne Lanvin SA, the parent company of the fashion brand, a few days ago and will be putting in another 105 million euros next month, two sources said. Fosun’s holding will be just under 60 percent, they added.
Lanvin was about to run out of cash at the end of last year after having accumulated losses of more than 30 million euros and watching its annual turnover halve in the past three years to around 100 million euros.
The story of Lanvin is one of the saddest in France as the brand is widely regarded as part of the country’s cultural heritage and fashion history, with precious archives. Many believe it has the potential to reach more than 1 billion euros in sales, like Italy’s Valentino whose Qatari Mayhoola parent fashion company is eyeing an initial public offering.
Lanvin has been lacking investment and strong, professional management in the past five years. And the brand had been through a handful of chief executives in the past 15 years. When Wang bought Lanvin from L’Oréal in 2001, Nicolas Druz had helped her run the brand at the time. Later, as the company was struggling, Wang’s son Sing-Ming Chu took over before being replaced in 2006 by seasoned fashion executive Paul Deneve, who had worked for Courrèges and Nina Ricci. But he would stay only two years at Lanvin. Then in 2013, Wang lost Thierry Andretta, another fashion veteran, now running Mulberry, who quit after four years. Both Deneve and Andretta left frustrated that Wang had no money to invest in the brand to develop its leather goods, digital presence and a network of boutiques worldwide.
One source said that the reason why Wang gave in to Fosun was also because there was pressure from the Chinese government on Fosun to win Lanvin. “There was active lobbying by the Chinese government,” one of the sources said. “I felt that suddenly Fosun became very motivated to win this deal,” a separate source said. “They made it very clear that they really wanted this business and were ready to say yes to whatever was needed.”
Though Wang, who controls the license to Elle in Taiwan, is frequently described as Taiwanese, she was in fact born in Chongqing, a giant municipality in central China.
China is keen to reap the profits of its consumers’ insatiable appetite for luxury which has been driving a rebound in global luxury goods sales in the past year. Chinese demand has been enriching mainly European investors in the past decade such as Richemont’s Rupert family, Kering’s Pinault family or LVMH’s Arnault family. If Fosun succeeds in turning around Lanvin, profits would go into Chinese pockets.
Beijing is trying to rebalance its economy away from exports and attract back outbound purchases, consistent with its target of developing a consumption-driven economy. It was telling that in Fosun’s statement, young Cheng pointed to China becoming the luxury market’s main growth driver: “As China becomes the main growth driver of the global luxury market, we are confident that Fosun can bring great incremental value to Lanvin with our global resources and expertise.”
Fosun has publicly declared backing the policies of China’s ruling communist party and its chairman disappeared twice in two years after reports the Chinese authorities were investigating groups that were very active in overseas investments.
On its website, Fosun says that it has invested in “happiness industries adapting to the living style of middle class” and has acquired stakes in companies such as tour operator Thomas Cook and Quebec’s entertainment company Cirque du Soleil.
Industry watchers will be monitoring Fosun’s progress with Lanvin. It is not known yet what strategy the Chinese group will adopt and whether it had identified a strong CEO-creative director duo who can give it back its fashion edge and glamour. For now, the brand’s creative director Olivier Lapidus plans on Wednesday to present his second collection for the brand. Lapidus was appointed last summer by Wang, succeeding Bouchra Jarrar, who lasted two seasons.
Luxury leaders LVMH and Kering, which looked at Lanvin last year, know that revamping a fashion brand requires patience and hundreds of millions of euros of investment. It took two decades for LVMH’s Céline to really take off and around 10 years for Kering’s Yves Saint Laurent to embark on a strong growth phase.
In its statement about the deal on Thursday, Fosun said: “A capacity for hard work and an intuitive understanding of the modern world explain the extraordinary success of Lanvin.”
Some analysts fear Lanvin could opt for a Pierre Cardin strategy – milking the brand to sell any type of consumer goods – particularly in China. If that is the case, Lanvin’s new controlling shareholder might have to wait a very long time before the brand recovers its former glory and “extraordinary success.”
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