Financial woes hit Victoria Beckham’s fashion label

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Victoria Beckham’s fashion label has been struggling to turn a profit, but the ex-Spice Girl is not giving up just yet. Still, it’s unclear if business fortunes will change anytime soon.

Beckham Brand Holdings, the company that runs David and Victoria Beckham’s business empire, reportedly paid out £30 million (€35 million, $38 million) in dividends to the couple even after profits in Victoria’s part of the company tanked.

The company’s pre-tax profits fell 20 percent to £15.7 million, as losses rose at Victoria Beckham’s fashion business, despite revenue rising by 17 percent to £55.7 million.

Victoria Beckham’s business losses rose from £8.5 million to 10.3 million in 2017, and the unit was only helped by writing off almost £7 million in debts that the business owed to David Beckham’s firm and the parent company.

Victoria Beckham Limited then raised £30 million from NEO Investment Partners, in return for a 28 percent stake in the business.

‘It lacks scale’

“I’m not sure that the company has ever consistently made a profit and it has lost money for several years running, so the latest trading deficit is really the norm rather than an exception,” Russ Mould from stock brokers AJ Bell told DW.

“There are lots of luxury fashion brands which continue to make very high profit margins — just look at Burberry or the Kering-owned Gucci — so you would have to say that the latest loss suggests the Victoria Beckham brand may simply not resonate with enough luxury goods buyers for it to be a consistently profitable enterprise,” Mould said.

In the grand scheme of things, a business with sales of some £40 million is not big in the world of luxury brands, he underlined.

“It lacks scale compared to the real heavy hitters,” he said. “There has been talk of cost-cutting and the brand has also received a cash injection so that will enable it to keep investing in the product and marketing even as it works on the cost base,” Mould argued.

A tough sector

“For small-sized brands such as Victoria Beckham, the luxury fashion sector is an incredibly competitive and expensive arena to compete,” Andrew Groves, professor of fashion designing at the University of Westminster, told DW.

“Dominated as it is by both LVMH and Kering, it can be incredibly hard for small to medium size brands to scale their business,” he pointed out. “The fashion conglomerates dominate through the scale of their manufacturing, supply chain management, purchasing power for advertising and ability to dominate press coverage.”

Market leader Asos recently lost nearly a €1 billion in market value on the UK stock exchange — in just half a day, with its share value down 40 percent after a profit warning issued by the British fashion platform.

Asos top executive Nick Beighton spoke of an “unprecedented level of discounting” in the fashion industry.

British shoppers are not buying as much as they used to and Asos’s target market is 20-somethings, and they are the ones who are spending less money than a decade ago.

All of the big fashion retailers have been seeing falling share values, from Zalando to H&M, point out industry analysts.

“You must consistently invest in your brand, via product quality and especially marketing, and you need deep pockets to do that. In addition, there has been some slowdown in the luxury market, thanks to China in particular, where the economy is not as strong as it was and there has been a crackdown on gifting,” Mould noted.

Evolving consumers

“You have a hyper-informed consumer that is not seduced by brand name only anymore but also wants competitive pricing, value for money, exclusivity of product, and excellent and instant customer service,” Groves added.

“So, while Victoria Beckham has exceptional brand recognition and a good design team around her, the actual garments are becoming a far less significant part of what makes a modern fashion label successful.”

“Beckham should continue to diversify her product range, and think about significant collaborations,” Groves emphasized.

“She had a blink-and-you-miss-it collaboration with Reebok earlier this year, but what the brand needs is an ongoing partnership such as the one Stella McCartney enjoyed with Adidas, which was incredibly successful for both companies both for generating new income, supporting their core businesses and increasing brand recognition and diversification,” Groves concluded.

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