Authentic Brands Group has been busy scooping up four firms since November of last year, and the future could bring more acquisitions its way.
The brand management firm followed its year-ago acquisition of retail icon Barneys—the blockbuster bankruptcy of 2019—with a deal earlier this year for Forever 21. It teamed once again with retail landlords Simon Property Group and Brookfield Asset Management to pluck the failed fast-fashion chain from bankruptcy, mimicking the trio’s strategy for reviving bankrupt teen retailer Aéropostale. Fast forward to August when ABG and Simon snatched Lucky Brand Jeans from the yawning maw of Chapter 11. A few weeks later, through the operating company Sparc, a deal was sealed for Brooks Brothers, the classic American clothier whose meltdown has been endlessly dissected this year.
ABG chairman and CEO Jamie Salter said Barneys is soon to announce a personal care and beauty deal in Korea, a move that will help it expand in the fragrance and personal care category in China, Korea and the EMEA region. The specialty chain already has stores in Japan.
Speaking at the WWD Virtual Apparel and Retail Summit last week, Salter also said Barneys will open stores in the U.S., augmenting its shop-in-shop partnership with Saks Fifth Avenue, which is slated to launch next year at the luxury department store’s Manhattan flagship.
“Our first [stand-alone] store will be in Greenwich, opening in early 2021,” Salter said, adding that “Covid-19 set us back over a year.” Opening in Q1, Barneys will carry a 50-50 mix of its own eponymous branded items and those from external labels.
Brooks Brothers, meanwhile, has 585 global stores open, primarily in China, Korea, Japan, the U.S. and Mexico, with European locations reopening as coronavirus infection rates allow.
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“Brooks definitely has great product,” Salter said. Claudio del Vecchio, the affordable luxury retailer’s former chairman and CEO of Brooks before the Sparc acquisition, and his team did a “great job,” he added, noting that the suiting side of the business will take a step back as the brand refocuses on high-end sportswear apparel. “We brought in Michael Bastian, who is helping us as creative director at Brooks Brothers,” Salter said, referring to the American fashion designer and recipient of the CFDA’s 2011 Menswear Designer of the Year award.
Salter is hoping ABG will generate $25 billion in annual worldwide retail sales over the next three to five years. “We’re just shy of $14 billion today,” he said, but “it’s going to take roughly another five or six acquisitions to get there.”
The CEO is confident that ABG has the bandwidth for even more deal-making. “We definitely can absorb more,” he said, stressing ABG’s “very stable” business model. “We have an enormous amount of cash flow coming in on a monthly basis.”
International is key, Salter said. “Forty percent of our business is coming from outside the U.S. The brands that are overseas could be more important to us than a U.S.-centric brand, but in all cases, the brands have to be global and have to be able to travel,” he said. “We break the company into four key areas: Latin America, U.S. and Canada, EMEA and Asia Pacific. These are [our] four different pillars around the globe.”
Though the brand management firm focuses on lifestyle and entertainment-centered brands, any new acquisition must hold the potential to expand beyond the categories it plays in today.
And while ABG initially didn’t want anything to do with retail, preferring an asset-light model of owning and licensing intellectual property, it has found reliable retail partners in Simon and Brookfield. The two mall landlords “control 58 percent of the real estate,” said Salter. “When it does involve retail, we always involve them.”
In short, the CEO has changed his tune about retail. “Over a period of time, we really learned that having retail stores in the U.S. and a unique strategy is important to expanding the business on a global level. If we look at the six brands we have with Simon and Brookfield, those represent 36 percent of our business [and] if we didn’t have the retail component, it would be very hard to expand the brands we have on a global basis,” he explained.
Salter also credited Simon’s CEO for making Sparc a reality. “We built a pretty amazing operating company, with the five operating brands under the platform doing $4.5 billion with virtually no debt,” he said. “I owe it to David Simon. It initially was his idea on how to put it all together.”
The supply chains operated by ABG’s brands have been migrating out of China for the past few years, according to Salter, who said roughly 15 percent remains in what is called the world’s factory. Forever 21 is the only name with a China-heavy sourcing footprint, a brand that Salter said has been marred by merchandising missteps and too-large stores. And at the time of its bankruptcy filing, the Gen Z-centric chain suffered beneath a bloated vendor portfolio that numbered around 1,800 when 150 was closer to where it should be, Salter said.
Salter believes most of ABG’s brands can support “roughly 300 to 400 stores” in the U.S., and while the department store format has its merits, the model has to evolve toward a digital focus with a spotlight on exclusive wares, he said. ABG is also mulling whether its portfolio of brands has a place in JCPenney‘s merchandise mix.
Salter has dreamed of building a loyalty program or subscription model, a goal his team has been developing in recent years. He envisions a virtual mall where all of ABG’s brands play together on one platform to take advantage of its 275 million combined social media followers.