A Retail Crusader’s Eclectic Portfolio Is Giving Malls New Hope
(Bloomberg Businessweek) -- Jamie Salter started Authentic Brands Group as a licensing business more than a decade ago, often scooping up intellectual property out of the detritus of bankrupt companies like Polaroid and Linens ’n Things. Today he’s buying not only brands but also entire retailers, adding to an empire built on the belief that a bruised but well-known name can still work wonders at the cash register.
Authentic is one of a dwindling number of potential saviors for ailing and failed chains. Since last year, Chief Executive Officer Salter has added Brooks Brothers, Eddie Bauer, Forever 21, and Lucky Brand to an eclectic portfolio of more than 30 apparel, celebrity, and sports names that includes Juicy Couture, Sports Illustrated, and Barneys New York. The growth has Authentic considering an initial public offering as soon as this year.
After the shakeout of the Great Recession, there were lots of potential buyers for troubled retailers, including private equity firms Sun Capital Partners and Golden Gate Capital. But would-be rescuers can no longer count on the steady cash flow the stalwarts of American malls once provided. Customers have gone elsewhere—to newer, often online-only brands, rental and secondhand clothing merchants, or nowhere at all, with sustainability-minded young people dialing back on clothing purchases. Nor is another prized asset—a retailer’s trove of real estate—the lure it was in the days when Eddie Lampert bought the Sears and Kmart chains.
“Unless someone has some secret sauce, people are still nervous about retail,” says Christa Hart, senior managing director at FTI Consulting. “The path forward is not a typical private equity playbook” of streamlining expenses, installing new management, and making strategic investments. Retail’s problem, she says, “is the top line”—revenue.
New York-based Authentic eventually created its model by teaming up with landlords. In 2016 it formed a joint venture with Simon Property Group and the predecessor of Brookfield Property Partners, the two biggest U.S. mall owners, to purchase bankrupt teen-clothing chain Aéropostale. Brookfield has since left the partnership, now known as Sparc Group, and last year started its own $5 billion “retail revitalization” fund. Authentic and Simon each own half of Sparc.
David Simon, CEO of Simon, has lauded the partnership to investors, calling it “a winning formula” and Authentic a “very good partner” on an earnings call last year. In an emailed statement, he said, “We look forward to continuing our proven track record of growing brand equity in collaboration with ABG.”
There have been a host of potential targets. Since the Aéropostale deal, a wave of familiar names have filed for bankruptcy, including now-defunct merchants such as American Apparel, Gymboree, and Payless. But Sparc, which runs the retailers’ daily operations with its own management team, is choosy, says its CEO, Marc Miller. Sparc considers not only the profile of the brand—its store base, digital operations, and distribution—but also whether the brand provides a novel capability or expertise that can be extended to the other brands in the Sparc portfolio. With Nautica, the draw was wholesale distribution. It was luxury with Brooks Brothers, outdoor wear with Eddie Bauer, fast fashion with Forever 21, and denim with Lucky Brand. Because the joint venture owns so many retailers, Miller says, it can benefit from stronger supplier relationships and shared services, such as investments in 3D digital design to shorten manufacturing times.
An $875 million investment by BlackRock’s private equity unit in 2019 helped Authentic pounce when the pandemic devastated retail. “We saw the acceleration of what we considered some great brands to be all of a sudden in a distressed situation,” Miller says.
Salter, a 58-year-old Canadian, has spent his whole career in the brand business, beginning when he built up Wayler windsurfers and Kemper and Ride snowboards. He then made his way to the top of Hilco Consumer Capital, where he led deals in partnership with Gordon Brothers Group to purchase intellectual property from bankrupt companies. He started Authentic in 2010 with funding from private equity firm Leonard Green & Partners, buying niche brands like TapouT mixed martial arts and licensing rights to the names of celebrities including Muhammad Ali, Marilyn Monroe, and Elvis Presley.
Salter declined a request for an interview, but in August he told Bloomberg News that operating stores is a key part of Authentic’s strategy and enhances the rest of its business, including expanding the online sales that make up a quarter of its retail revenue. Authentic brings management expertise to a brand, not just cash, Salter said last year: “We’re the last men standing because we’re turnaround guys.”
There’s plenty of reason for pessimism about mall-based retail. Thousands of stores were closing in the U.S. even before the pandemic, and hundreds of malls could follow. Retailers with a heavy presence in enclosed shopping centers, including Gap Inc. and the Kay and Zales chains, owned by Signet Jewelers Ltd., are shifting stores elsewhere. So it’s early days for Authentic and its partners, FTI’s Hart says. “This strategy is young,” she says. “It’s still in the proving stage.”
Still, Salter’s branding conglomeration has fared better than other licensing companies. Iconix Brand Group, the owner of Danskin, London Fog, and Umbro, has been hobbled by debt. Without admitting wrongdoing, it settled a fraud probe in 2019 and on Friday announced it’s going private in a $45.6 million all-cash deal that values it at $585 million including debt. Sequential Brands Group, whose brands include Jessica Simpson and Ellen Tracy, has received multiple default waivers and is dealing with a U.S. Securities and Exchange Commission investigation into its accounting.
Authentic and Sparc have begun purchasing healthy retailers, including Eddie Bauer and its 300 stores. But even though retail distress has slowed in the sector after last year’s blowups, Miller says, “the pipeline remains strong.”
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