Once hailed as China’s LVMH, Shandong Ruyi has been straining under a mountain of debt that could send its fashion nameplates to new ownership—assuming rumored suitors are ready to spend.
Ruyi’s hard times have been a long time in the making. Group chairman Qiu Yafu has publicly discussed the company’s ambitions to build China’s equivalent to French luminary LVMH—though the billions of debt it reportedly amassed in chasing that dream that devolved into an albatross. Ruyi’s failure to secure financing for its planned 2018 acquisition of Swiss luxury brand Bally offered early clues into its struggles.
In December, Ruyi missed a $153 million bond payment, the Financial Times reported, while a Nikkei Asia article that same month detailed how Ruyi faced a due date for the twice-postponed interest payment on a separate bond issued in 2019.
Now the conglomerate’s financial woes are trickling down to its brands.
One fronted by footie luminary David Beckham, Kent & Curwen has stopped sales in the U.K., although its China stores are open. The British men’s wear brand is owned by Trinity Group, the liquidating enterprise that became part of the Ruyi Group fashion portfolio in 2018.
A message on Kent & Curwen’s website says “[w]e are sad to say that we are closing the website for online sales, but this is not goodbye,” and directs shoppers to Greater China stores to “take full advantage of the discounts and deals available.”
Struggling Kent & Curwen was believed to have lost 18 million pounds ($22.99 million) over three years by the time Beckham cut and ran in 2019. Covid-19 only dampened demand for men’s formal office attire amid the mass shift to remote work.
Paris-based Cerruti 1881, a Trinity brand along with Saville Row tailor Gieves & Hawkes and the Japanese business and leisure wear line D’Urban, faced the same fate as Kent & Curwen, as has the D’Urban brand. The U.K stores run by Gieves & Hawkes, a service provider to the royal court, remain open and the label is believed to have received some interest from potential buyers, including private equity firms and Marks & Spencer, whose rebounding finances indicate its potential to follow through on a deal (more on that below).
In February, Trinity issued a profit warning for the fiscal year ended Dec. 31, 2020, noting losses stemming from the coronavirus outbreak as well as the “dampened consumption sentiments for premium menswear products” across key markets in Asia and Europe. The regulatory filing in Hong Kong added that the pandemic drove a “material decline” in retail revenue, as well as a “substantial postponement of orders in the wholesale business.” One month later, the company petitioned a Bermuda court, where Trinity is incorporated, to appoint provisional liquidators on a “light touch” basis to restructure operations. That changed last month when Trinity constituents voted to wind down its operations.
Trinity isn’t the only fashion holding impacted by Ruyi’s financial distress. Ruyi also owns French accessible luxury group SMCP, the Bagir Group Ltd. in Israel, the century-old Japanese brand Renown operating under the holding company Peine Gruppe GmbH, and Asquascutum. Ruyi’s global textiles and apparel empire also includes Australia’s largest cotton farm Cubbie Station and stretch fabric manufacturer Lycra Company, part of the sale of Invista’s Apparel & Advanced Textiles business that included Coolmax, Thermolite, Elaspan, Supplex and Tactel.
Renown and Bagir filed insolvency petitions in 2020. SMCP—the owner of the Sandro, Maje, Claudie Pierlot and De Fursac brands—was majority owned by European TopSoho, a Luxembourg-based Ruyi subsidiary that held a 53 percent stake. Creditors offered for sale a 29 percent stake after the company failed to redeem 250 million euros ($287.3 million) worth of bonds by Sept. 30.
Other conglomerates have suffered financial woes. Apparel powerhouse Global Brands Group Holding Ltd, which was spun off by sourcing and supply chain firm Li & Fung Ltd., saw its fortunes take a turn for the worse in the aftermath of the pandemic. The company in September filed to restructure just months after its U.S. arm filed for bankruptcy. Last week, the company opted to liquidate.
Sequential Brands’s fate illustrates the foibles of borrowing huge sums to orchestrate acquisitions. The American brand management firm filed for bankruptcy in August. Revenues had been declining when the company in late 2019 decided to put itself up for sale. It too had been on a tear to build out its umbrella of brands under prior management, taking on heavy debt in the process after overpaying for some of its acquisition. The company is currently liquidating and has sold off most of its brands, most recently with the Jessica Simpson Collection going back to Jessica Simpson the celebrity, and the William Rast and Joe’s Jeans denim brands to WHP Global.
Marks & Spencer
Meanwhile, Marks & Spencer’s improving finances underscore that it could translate its interest in Gieves & Hawkes into action. The retailer last week raised its full-year outlook after reporting that sales fell just 1.0 percent for the first half versus 2019, but grew in the second quarter while “overall full-price sales were up 17.3 percent,” it said. Operating profit before adjusting items totaled 156.2 million pounds ($209.5 million) versus 109.6 million pounds ($147 million) two years ago.
The British retailer grew sales of its “hero” women’s denim category by 56 percent per option over 2019, despite reducing the assortment by 29 percent.
Already this year, M&S has shown is willingness to pull out its checkbook when a desirable target presents itself. It acquired Jaeger in January after the label’s previous parent, Edinburgh Woolen Mill Group, collapsed into administration.
But acquiring Gieves & Hawkes would be an interesting move for M&S after it drastically cut back on the men’s suit products it carried in stores.
The retailer’s profit before tax and adjusting items was 269.4 million pounds ($361.3 million), against a net loss of 17.4 million pounds ($23.3 million) a year ago. Compared with the same 2019 first half, net profits rose 52.8 percent from 176.3 million pounds ($236.4 million).
So far, sales for the first four weeks of the second half are consistent with growth in Q2, according to M&S CEO Steve Rowe said. However, supply chain pressures, pandemic supply interruptions, rising labor costs, European Union border challenges and tax increases means deeper cost increases in the second half and “steeper again” in the 2022-2023 year, M&S warned.
“Taking these factors into account and assuming there is no further acute pandemic related disruption, our central case is for profit before tax and adjusting items for the year to be ahead of expectations and in the region of 500 million pounds ($670.5 million),” it said.