Building the Balance Sheet in the Fashion and Luxury Goods Industry

Building the Balance Sheet in the Fashion and Luxury Goods Industry
November 30, 2023 13 mins

Building the Balance Sheet in the Fashion and Luxury Goods Industry

1453666183

Funding to grow and innovate in the fashion and luxury goods industry can come from both traditional and non-traditional sources — like M&A and leveraging a brand’s intellectual property.

Key Takeaways
  1. Luxury goods companies should consider evolving risks, such as ESG and cyber, when looking at investment opportunities.
  2. As IP gains traction as an innovative financing option, firms should focus on protection and risk of brand infringement.
  3. To keep up with the fast-paced environment, companies should consider alternative capital instruments to create value and further protect balance sheets.

To grow and innovate, any business — whether a luxury brand or high street retailer — needs access to capital and liquidity. Whether looking to expand in new markets, new geographies, or take advantage of the growing role of technology, like virtual and augmented reality in the customer journey, a business will need to invest and understand how best to facilitate that investment. It’s an area where mergers and acquisitions (M&A) play a key role, and increasingly where the understanding of the intangible value of a brand can also help to fund investments.

Private Capital Attraction

The luxury goods sector, like retail, was severely disrupted by the pandemic. However, the industry’s rebound has been strong, powered by organic growth and private capital viewing luxury brands as a solid long-term investment. This is particularly true in the areas of apparel, cosmetics and fragrances. It’s about hands-on support from the private investor universe — allowing companies to expand geographically, exploit new markets, launch digital campaigns and support management teams with operational enhancements — as much as it is about accessing cash.

The supply chain has become a key area of focus as brands look to eliminate supply chain risk. Recent deals in the luxury space include LVMH buying a stake in tannery Heng Long Italy and Chanel investing in Italian knitwear company Paima.1 These examples demonstrate existing opportunities to put capital and innovation into the overall supply chain and change how luxury brands bring their products to market.

Quote icon

The private investor markets can help brands deliver this type of digital transformation and operational improvement, driving value for the customer and the business by creating access to capital and enabling the next stage of a brand’s growth plan.”

Jake Tobin
Global Co-Head of Financial Sponsors, Aon

Leveraging Intellectual Property

Of course, there are alternative financing options for luxury brands looking for funding. One of the most innovative methods that is gaining traction involves a brand using its intellectual property (IP). Luxury brands recognize that their brand is their most important feature. They know that it drives enterprise value. But rarely do they consider their underlying IP asset — the brand — as collateral. They often overlook it as an asset that can be leveraged for lending purposes, particularly at a time when traditional lending from banks is under pressure.

The process for IP based lending starts with a valuation of the brand’s IP assets — including its brand and other intangibles, like trade secrets and patents — on behalf of insurers who will then issue an insurance policy to a lender that will protect the value of that IP. A bank can then lend with greater confidence knowing that the IP valuation risk has been transferred to the insurance market. It may also be eligible for tax relief, which reduces the cost of lending for the bank. This type of structure is especially attractive for certain segments of the luxury goods sector where brands are facing short- to medium-term headwinds that have limited their traditional access to capital. From a technology innovation perspective, it’s unlikely that the luxury brands themselves will be developing the technology. They are more likely to buy it in from a third-party disruptor. Those disruptors may also benefit from IP-backed lending as an alternative, for example, to diluting their equity by selling a stake in the business to private equity.

Protecting Intellectual Property

Whether considering IP-backed lending or not, every brand should take steps to protect their IP. Luxury brands are regularly embroiled in litigation around areas like copyright infringement, whether accused of infringement themselves or in relation to a third party infringing the brand’s copyright or patents. And this issue is only further complicated by the digital era. In 2021, Hermes took legal action for trademark violations against Mason Rothschild, who had been selling NFT Birkin bags at $450 each.2 The court found in favor of the French luxury brand and awarded $133,000 in damages.

Quote icon

IP insurance can be invaluable for funding litigation against third parties who have infringed copyright, particularly for smaller businesses who may not be able to afford the cost of legal action.”

Will Kier
Head of Aon’s IP Solutions Europe, Middle East and Africa

Designing a Sustainable Future Through Alternative Financing Options

No luxury brand can stand still in this fast-changing environment if they want to maintain relevance and secure their long-term profitability. It’s why exploring traditional areas of growth such as M&A is important. It’s also important to take time to consider how alternative routes of financing for investment, such as IP based lending, could pay dividends in the long term. Equally, every brand should consider how to best protect their investment — whether through increased levels of due diligence in an acquisition or insurance solutions for potential IP issues.

Want to learn more about the latest key trends and issues impacting the luxury goods industry? Download our Designing a Sustainable Future for the Fashion and Luxury Goods Industry paper.

1 https://www.voguebusiness.com/fashion/luxury-brands-are-snapping-up-suppliers-what-are-the-pros-and-cons
2 https://www.lofficielusa.com/politics-culture/fashion-lawsuits-gucci-guess

General Disclaimer

The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Terms of Use

The contents herein may not be reproduced, reused, reprinted or redistributed without the expressed written consent of Aon, unless otherwise authorized by Aon. To use information contained herein, please write to our team.

Aon's Better Being Podcast

Our Better Being podcast series, hosted by Aon Chief Wellbeing Officer Rachel Fellowes, explores wellbeing strategies and resilience. This season we cover human sustainability, kindness in the workplace, how to measure wellbeing, managing grief and more.

Aon Insights Series UK

Expert Views on Today's Risk Capital and Human Capital Issues

Construction and Infrastructure

The construction industry is under pressure from interconnected risks and notable macroeconomic developments. Learn how your organization can benefit from construction insurance and risk management.

Cyber Labs

Stay in the loop on today's most pressing cyber security matters.

Cyber Resilience

Our Cyber Resilience collection gives you access to Aon’s latest insights on the evolving landscape of cyber threats and risk mitigation measures. Reach out to our experts to discuss how to make the right decisions to strengthen your organization’s cyber resilience.

Employee Wellbeing

Our Employee Wellbeing collection gives you access to the latest insights from Aon's human capital team. You can also reach out to the team at any time for assistance with your employee wellbeing needs.

Environmental, Social and Governance Insights

Explore Aon's latest environmental social and governance (ESG) insights.

Q4 2023 Global Insurance Market Insights

Our Global Insurance Market Insights highlight insurance market trends across pricing, capacity, underwriting, limits, deductibles and coverages.

Regional Results

How do the top risks on business leaders’ minds differ by region and how can these risks be mitigated? Explore the regional results to learn more.

Human Capital Analytics

Our Human Capital Analytics collection gives you access to the latest insights from Aon's human capital team. Contact us to learn how Aon’s analytics capabilities helps organizations make better workforce decisions.

Insights for HR

Explore our hand-picked insights for human resources professionals.

Workforce

Our Workforce Collection provides access to the latest insights from Aon’s Human Capital team on topics ranging from health and benefits, retirement and talent practices. You can reach out to our team at any time to learn how we can help address emerging workforce challenges.

Mergers and Acquisitions

Our Mergers and Acquisitions (M&A) collection gives you access to the latest insights from Aon's thought leaders to help dealmakers make better decisions. Explore our latest insights and reach out to the team at any time for assistance with transaction challenges and opportunities.

Navigating Volatility

How do businesses navigate their way through new forms of volatility and make decisions that protect and grow their organizations?

Parametric Insurance

Our Parametric Insurance Collection provides ways your organization can benefit from this simple, straightforward and fast-paying risk transfer solution. Reach out to learn how we can help you make better decisions to manage your catastrophe exposures and near-term volatility.

Pay Transparency and Equity

Our Pay Transparency and Equity collection gives you access to the latest insights from Aon's human capital team on topics ranging from pay equity to diversity, equity and inclusion. Contact us to learn how we can help your organization address these issues.

Property Risk Management

Forecasters are predicting an extremely active 2024 Atlantic hurricane season. Take measures to build resilience to mitigate risk for hurricane-prone properties.

Technology

Our Technology Collection provides access to the latest insights from Aon's thought leaders on navigating the evolving risks and opportunities of technology. Reach out to the team to learn how we can help you use technology to make better decisions for the future.

Top 10 Global Risks

Trade, technology, weather and workforce stability are the central forces in today’s risk landscape.

Trade

Our Trade Collection gives you access to the latest insights from Aon's thought leaders on navigating the evolving risks and opportunities for international business. Reach out to our team to understand how to make better decisions around macro trends and why they matter to businesses.

Weather

With a changing climate, organizations in all sectors will need to protect their people and physical assets, reduce their carbon footprint, and invest in new solutions to thrive. Our Weather Collection provides you with critical insights to be prepared.

Workforce Resilience

Our Workforce Resilience collection gives you access to the latest insights from Aon's Human Capital team. You can reach out to the team at any time for questions about how we can assess gaps and help build a more resilience workforce.

More Like This

View All
View All
Subscribe CTA Banner