Italian shoemaker Tod’s to court US lovers of quiet luxury By Reuters

Written by Elisa Anzolin and Valentina Za

MILAN (Reuters) – An LVMH-backed investment firm is betting that demand from wealthy Americans for quiet luxury will ensure its 510 million euros ($545 million) stake in Italian shoemaker Tod generates the double-digit returns typically sought by private equity.

L Catterton, set up by US fund Catterton and LVMH owner Groupe Arnault, on Friday secured enough shares to take Tod's private once the deal is completed, valuing the company at just over 1.4 billion euros ($1.5 billion), officially announced in the coming days.

Tod's is listed in Milan but controlled by its founding Della Valle family, and Tod's profitability has lagged behind its competitors.

Last year, it deferred its marketing investments to help boost its operating profit margin to 8.4% of sales – behind Prada (OTC:)'s 22.5% and Brunello Cucinelli's 16.4%, partly because more of its production is in-house than its peers.

In-house production costs more than outsourcing, but gives brands greater control over quality.

L Catterton has offered €43 per share, which is good value for the investment fund considering Tod's was listed at €40 24 years ago when it became the first Italian luxury brand to go public.

Under private equity, Tod's will invest in marketing to capitalize on its stylish, understated character and grow its U.S. sales, a person familiar with the matter said.

Tod's-branded shoes and handbags — including the $695 Gommino shoes, with their signature rubber-grain soles — have a healthy following among affluent consumers ages 40 and up.

At the top of the luxury ladder, Roger Vivier, the Paris-based buckled shoe brand it acquired in 2015 at $950 a pair, is attracting big spenders in Asia.

But the group's smaller brands, such as Fay, which makes jackets inspired by American workwear, and Hogan, which pioneered the luxury sneaker trend but failed to capitalize on its boom over the past decade, need a refresh.

A failed attempt in 2022 to take over Tod's Private aimed to run the various brands separately, possibly divesting the less profitable ones.

Tod's has long refused to chase younger shoppers, a choice it appeared to partially address in 2021 when it appointed fashion influencer Chiara Ferragni to its board. Three years later, her position was not renewed.

Back in 2018, Todd’s founder, Diego Della Valle, told the Financial Times that “millennials are not for everyone” – a demographic that includes people up to their early 40s.

The focus so far on older customers has been one reason Tod's has room to increase digital sales, said the person close to the matter, who requested anonymity because he was not authorized to speak publicly.

A separate industry source said Tod's also failed to capitalize on the success of its most popular products, such as the $3,000 Di Bag made famous by the late British Princess Diana, to increase sales by expanding further into clothing.

In order to compete with the best in its category, Tod's must accelerate the rollout of its new collections and invest heavily in its brand image, the source added.

Currently, Tod's total marketing and communications expenses are around 10% of sales, which is generally in line with other Italian peers.

A new creative director and a larger footprint

“The relaunch needs to focus on renewing and expanding the product range and… strengthening the retail channel, both physical stores and e-commerce,” said Giuliano Nosi, professor of strategy and marketing at Milan's Politecnico University.

L Catterton's investment plans, which have the roughly five-year time horizon typical of private equity funds, will initially erode operating profit margin, but the write-down means the shift could happen beyond the scrutiny of stock market investors in the short term.

Todds and L. Catterton declined to be interviewed by Reuters.

In comments to Italian newspaper MF in February, Della Valle said increasing its US presence would be a primary goal for Tod's in the next two years, along with developing its apparel business.

Any relaunch also requires a more ambitious retail strategy, with new store openings and concept, a luxury goods industry executive said. At the end of last year, Tod's had 19 directly owned stores in the United States, the same number as in France.

All of this needs to be done when luxury brands face a slowdown following a post-pandemic boom.

Demand in China is a particular cause for concern as Tod's has a strong focus on the Asian market. The Greater China region, where Tod's operates 124 direct stores, accounted for 31.7% of total sales in 2023, compared to 7.5% in the Americas.

With its focus on consumer goods, Connecticut-based L Catterton is well positioned to drive expansion in the U.S., where it also aims to grow another Italian brand, cosmetics maker KIKO, which it agreed to buy in April. to its capital of $34. $1 billion in assets under management.

Attempts to expand Tod's appeal are nothing new.

For a decade, Tod's tried to expand into ready-to-wear and update its classic chic image, but eventually retreated to focus on the leather goods that had always been central to its identity.

Clothing accounted for 6.7% of Tod's total sales last year, compared to about 30% at powerhouse Prada.

In December, Tod's appointed Matteo Tamburini as creative director of both womenswear and menswear for its flagship brand, but his new collections have yet to hit stores.

“We go way back with Tod's: quality has always been of the utmost importance to them,” said Carla Sereda Biffi, head of purchasing at Biffi Stores in Milan, whose store on Corso Genova stocks many of Tod's Bubble Ballerinas and T-bags.

“I just know that this won't change what they decide to do next.”