Evaluating The Investment Potential of Premium and Luxury Brands

Evaluating The Investment Potential of Premium and Luxury Brands

Blog Posts / Monday, 20 March 2017 - 15:27

Private equity firms are increasingly recognizing the value of premium and luxury brands. For example, previously, Tengram Capital Partners announced an agreement to acquire Zanella, a leading Italian luxury menswear brand.

While each deal is invariably distinct and each private equity firm has its own approach, due diligence is equally necessary in all cases. In the case of premium and luxury brands, this means understanding the brand’s positioning, competitive milieu, existing and potential consumer relationships, and the condition of its retail network.

We all know that some brands are intrinsically valuable, but the dynamics that surround them are complex, particularly in the modern luxury market. The financial data can tell you how well the brand did in the past, but only a deep exploration of the way customers see the brand today, made in light of the overall trends in the luxury sector, can project its future value. What is its brand promise, and is it fulfilling that in the eyes of consumers? Is it relevant in all the geographic contexts it operates in? Who are its major competitors, in key markets and worldwide, and how are they affecting its position?

Equally critical are the demographics of the brand’s customer base. If they are older, how does the brand plan to replace them? If they are younger, how does it plan to earn their loyalty in an increasingly fragmented product landscape? What percentage of the brand’s core customers has it grown into ambassadors, and what percentage of overall customers have become detractors?

Finally, the health of the retail network must be considered. Affluent consumers now expect brands to be able to deliver a seamless omnichannel customer experience—is the brand you’re considering able to do that? Does it deliver its promise equally well across all touchpoints, digital and physical? Are its staff engaged? Are its stores performing well? Has it failed to tap opportunities for consumer engagement, and are these untapped opportunities sources of potential growth? 

The answers to these questions may either confirm or problematize the financial data. Either way, however, they provide the essential context the investor needs to be able to ask the right questions and provoke the right conversations before an acquisition.

Source: https://www.linkedin.com/pulse/evaluating-investment-potential-premium-luxury-brands-christophe-cais

Christophe Caïs

Owner & CEO at Albatross Global Solutions