Phoenix Equity Partners has bought a 50% stake in Radley in a GBP45 million deal that will see the handbag firm, which currently trades through department stores, develop its own retail chain. Phoenix is keen for the brand to expand in the US and Japan, but it will need to invest heavily brand building if Radley is to achieve the same level of kudos as Jimmy Choo.
Phoenix has a history of exploiting a fashion opportunity to good effect - its investment in Jimmy Choo in 2001 took the niche fashion shoe retailer to a global luxury brand within three years. Phoenix turned its GBP20 million investment into GBP101 million with the sale of the company in 2004.
There is no doubt that Radley offers similar potential. While as a brand it does not have the fashion kudos of Jimmy Choo, it has the potential to gain enhanced fashion credentials, especially as handbags are currently a key fashion item. The accessories sector has been growing much faster than clothing over the past two years and within this category we estimate the bag market has grown by over 50% since 2000. Furthermore, with over 500 wholesale accounts and an operating margin of 12.4%, the company is in a very healthy position.
That said taking it to the next stage does require major investment in brand building. Jimmy Choo had the advantage of media attention. Not only was it the favorite shoe brand of most of the fashion press - but also of many celebrities which ensured high profile press and media coverage.
Radley (and its other brands such as Tula) is a solid middle market, department store brand that needs a shift in consumers' perceptions to raise it to the level of a global brand. Standalone stores will give the brand a greater presence on the high street and will drive higher consumer awareness, but will come with higher costs and risks than a straight wholesale operation.
We expect accessories market growth in the UK to slow down over the next couple of years, just as it has done in footwear, with more price deflation creeping in from the higher participation of value operators. To justify a higher price position and protect its margins, Phoenix will have to ensure Radley becomes a 'must-have' brand too.