Danish Fashion Going Global - Spandet And Partners

DANISH FASHION GOING GLOBAL 57
18. Capital
18.1. Available capital
Entries are as described fairly easy in the fashion industry; unfortunately, exits have
become even easier than entries after the global recession.
As a general rule fashion has a very complex value chain. Due to the delivery
structure, fashion generally requires liquidity to bridge the gap between payments to
the suppliers and payments from the customers. With growth this gap becomes even
bigger. For successful start-up companies the consequence may be that they fold up
due to liquidity issues before they get to celebrating their growth success.
The banks have introduced a very conservative approach to fashion financing and
are only exceptionally prepared to risk/invest more in fashion than the working capital
to finance the gap between payments to the suppliers and payments from the
customers. Unless the company can produce a healthy balance sheet with sufficient
equity or other collaterals, the banks today are usually unwilling to support the case.
Today capital is scarce and cash is king; the same goes in the fashion industry.
In 2007 and 2008 the focus from the labels were financing growth and a professional
board.
The only way to attract capital today is through presentation of a well-documented
business case.
In 2011, as a financial case, and with the issues described under brand platform, it is
usually next to impossible to calculate a proper return rate on only one single label if
it is small or medium sized.
In 2011 and ahead the labels will look for financing of an industrial platform and
professionalization of the platform. While they are calling various investors the
markets might catch up with a consolidation.
The private equity funds will not be the ones leading the transformation and the
banks will certainly not. The private investors have burned their fingers big time
helping the small and medium labels meet many challenges on their way from Tier 4
to Tier 1. Corporate venture capital (such as IC Companys investing in another
brand) has not been in fashion for many years.
Therefore, we it will mainly be the industry itself which will initiate the consolidation.