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The Private Equity Boom: How Luxury Can Amplify Its Business Model

The Private Equity Boom: How Luxury Can Amplify Its Business Model

In June, the Financial Times reported that private equity-funded global mergers and acquisitions were at an all-time high, with completed deals worth more than $500bn.

Among the beneficiaries of the boom are luxury multi-brand retailers. But how can other luxury retailers attract the kind of transformative investment that e-commerce players such as LUISAVIAROMA have obtained?

In this article, I have outlined the ways luxury retailers can amplify business models to entice private equity investors.

When a market becomes suddenly alive with investment, it can be both an exciting and daunting moment. Luxury e-commerce retailers are currently amid a succession of private equity investments, raising hopes of new funding and fears of being surpassed by competitors.

This sentiment was summarized by Federica Lovato, fashion and luxury partner at Bain, who told Vogue Business that: “it is a moment of very high dynamism in the market, so all the players are reinventing themselves. We will see a sort of Darwinism where the ones that survive are the ones that manage to keep relevant.”

Private investment and IPOs are at record-breaking levels. Recently, LUISAVIAROMA, Mytheresa, Ssense and End Clothing have received hundreds of million dollars in investment.

Chief executive of LUISVIAROMA, Andrea Panconesi, said of receiving $152 million in investment from private equity firm Style Capital: “The financial market realized that this is the time to invest in this segment, and we took advantage of it.”

Given this climate, luxury retailers will wonder how their businesses can take advantage of this realization. When an industry is attracting vast investments, it is prudent to consider how to attract capital. To not do so makes the long-term viability of a business less certain than it needs to be.

Enhance Your Sustainability Efforts

Pierre Mallevays, co-head of the merchant banking team at Stanhope Capital, advises luxury online retailers that “continued investment in high levels of service (in relation to delivery and return in particular) is required.”

The question is, where do you direct funds to ensure delivery and return offerings differentiate your brand, surpassing the offerings of competitors? To attract investment, you must deliver a more sustainable model, yet it is increasingly difficult since packaging, delivery and returns are all central to a luxury e-commerce retailer’s business model.

To elevate this service, we must consider that many investors now view sustainability as key to business strategies. “Investors are looking for reassurance that companies understand the linkages between the non-financial performance of the business and the successful delivery of the business strategy”, says Doug Johnson, Climate Change and Sustainability Lead at EY, “More and more investors are trying to move away from carbon-related investments.”

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Last year, Goldman Sachs committed to targeting $750 billion in sustainable investment. They hope by 2030 to have “accelerated climate transition and advance inclusive growth.” Encouragingly, these commitments have become a commonality, rather than an outlier.

Packaging

If we fuse the two investor criteria above, there is an obvious and underutilized solution: sustainable, luxury packaging.

At Delta Global, we make each packaging adhere to these criteria as standard. The Delta Global FutureBox needs no magnets and no tape. It is the ultimate luxury and recyclable box for the future of our planet.

Aside from ensuring that packaging satisfies consumer service expectations, packaging supplies a memorable unboxing experience and makes returns uncomplicated. It also allows for two other crucial elements desirable to private equity investors.

The first of these, custom content, is essential to attracting a strong niche. Fashion retail platforms must increasingly offer one-stop-destination type e-commerce – where luxury clothing is accompanied by the lifestyle of the consumer – helping the brand attract a niche and loyal customer base.

For instance, for athleisurewear luxury brand Sweaty Betty, Delta Global designed shipment packaging that was not only made from 100% recycled material, removing 2.7m plastic bottles from entering oceans and landfill but produced an added value product that functioned as an aesthetic gym bag, cosmetics pouch and water-resistant swim bag, completely washable and inclusive of a handy hair tie, that echoed the messaging of ‘empowering women everywhere’.

Personalized packaging allows also for customized inserts, the inclusion of customer names, and customer-devised personalized messaging on the exterior or interior. Design alterations that fit seasonal holidays and celebrations can be quickly manufactured.

This, in turn, encourages referrals, word-of-mouth, and organic social media marketing, all of which are the foundations of establishing a strong and robust niche – desirable to Private Equity investors.

Indeed, the only limitations of custom content with personalized packaging are the imaginations of the client and the manufacturer.

Such is the increasing importance of custom content, two luxury e-commerce retailers who have won this type of niche customer – LN-CC and Ssense – do not have a sole product for sale on their landing pages. Instead, they feature original content: editorials, blogs, lifestyle and fashion news.

These are luxury retailers who understand the value of custom content that appeals to a niche. It is, therefore, no surprise that they have both won considerable investment.

However, the type of content they foreground (digital) doesn’t ensure consumer engagement in the same way custom packaging does. Packaging is guaranteed to be interacted with. Digital content can be easily ignored.

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The second element that can attract investment is storytelling. Let’s say, for example, that your brand is keen to show that sustainability is a prominent narrative in its principal story. What better way to communicate this than by having packaging that meets the highest sustainability standards?

With packaging, you are showing, rather than telling. An excellent recent example of packaging that tells a story caught my eye in both its simplicity and detailing and was created by Divine.

Divine is not a luxury fashion retailer, but its packaging proves the simple power of conveying a brand story.

Divine are, in fact, a luxury chocolate manufacturer who, as the name suggests, hopes to convey a tale of a ‘heavenly’ chocolate experience. The packaging incorporates spiritual symbols from the adinkra tradition, each one with a unique meaning such as ‘sanctity of mother earth’, ‘wisdom, creativity’ and ‘patience and harmony’.

Like the best packaging, it invites us to look beyond the raw product and invest emotionally. Such is the importance and potential of sustainable, luxury packaging, it may well help others to invest financially.

[To share your insights with us, please write to sghosh@martechseries.com]

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