What would an IPO mean for Tory Burch?

Tory Burch has hired investment firm Morgan Stanley to explore its strategic options, WWD reported on Monday. This could result in the brand taking on more investors, a sale, or — perhaps the most headline-generating outcome — an initial public offering.

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The news comes as a surprise to investors and analysts.

 

“[Tory Burch] has traditionally shunned being a public organisation in favour of remaining privately funded by a tight-knit group of investors,” says Neil Saunders, retail analyst and managing director at analytics firm Globaldata. “We don’t know the reason or motivation for the review, but it was not something that was widely expected.”

 

The vague wording — “exploring strategic options” — is likely intentional to create buzz in the fashion world, experts say. “It’s a deliberate move to leave room for a bit of mystery and excitement,” says Ba Minuzzi, founder of venture capital firm Umana House of Funds.

 

Given current market uncertainty, experts say an IPO is an unlikely outcome, betting instead on new investors coming onboard. Regardless of the direction, it’s a tough time to explore such options, says Jessica Ramírez, senior analyst at research firm Jane Hali & Associates, given the economic environment.

 

“As an independent, private company we do not comment on our strategy,” a Tory Burch spokesperson said. “We are focused on growing our global brand with a priority on creativity, innovation and operational excellence.” Morgan Stanley declined to comment.

 

Tory Burch founded her eponymous label in 2004. Since, she’s grown the New York-based label while retaining control of her company, with annual revenues that will approach $2 billion this year, according to people familiar with the company.

 

Burch holds the roles of chairman and designer, but turned the chief executive reins over to her husband, former LVMH executive Pierre-Yves Roussel, in 2019.

She said the move has given her more time to focus on design, and her label’s runway collections have been notably elevated in recent seasons. It also gave her company the management oversight of a highly trained luxury company executive with years of experience and contacts in building brands.

 

It’s still privately owned, with two major investors. In 2009, Mexico City-based Tresalia bought a 20 to 25 per cent stake, resulting in an approximately $1 billion valuation. Then, in 2012, General Atlantic and BDT Capital Partners both bought minority stakes in the brand. The valuation at the time was $2.25 billion. In 2018, the Tory Burch brand bought back the stake from Tresalia.

 

IPO odds

 

It’s a trying time for IPOs — as evidenced by Birkenstock’s flop after a much-anticipated build-up of expectations. This, coupled with the fact that Tory Burch hasn’t expressed interest in an IPO in the past, leads Globaldata’s Saunders to believe this to be the least likely of the strategic directions the brand will go in.

“It would be a risky move for Tory Burch,” he says. “An IPO would expose the company to a lot more public scrutiny and arguably more commercial pressure.

This is not a way of working that Tory Burch is used to, so it would require some changes in terms of the way the company operates. It may also force the company to adopt more short-term strategies to drive sales, which is something it has traditionally shunned in favour of trying to create long-term value.”

 

Ramírez agrees an IPO would be at odds with the brand’s ethos. “When you do an IPO, everything is questioned,” she says. “You don’t have that freedom of creativity or how you want to scale your business,” which is what Burch is accustomed to.

 

A public offering or a strategic partner could provide the financial resources for faster expansion, particularly globally — but both would mean giving up an element of control.

 

Ramírez also flags that, while Tory Burch’s runway collections have generated noise in recent seasons, the brand’s primary offerings — handbags and shoes — don’t have the consumer resonance necessary for a successful IPO. “We haven’t seen the brand hit top charts as luxury or affordable luxury,” she says, comparing the brand’s leather goods to competitors like Coach and Michael Kors.

 

By numbers, though, the brand’s upward trajectory seems to be resonating with consumers. Searches for Tory Burch are up 15 per cent, according to Lyst’s Q3 fashion index, and it’s one of the global shopping platform’s ‘Breakout Brands’ of the third quarter.

 

Because of unfavourable market conditions and investor sentiment, Minuzzi is more confident in the investor option. “It feels more fluid to find institutional investors that are familiar with the brand, its journey and [who can] be of value-add, than going mainstream. She flags that the brand’s growth trajectory and financial health are the key factors for success. “Founders know their babies well,” she says. “So, if she is exploring these options, trust me, she knows her game.”