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Set to pursue US expansion, boost marketing spending

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Brand's quiet luxury image tied to core leather products

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Group failed to use best-known products to drive sales

By Elisa Anzolin and Valentina Za

MILAN, May 7 (Reuters) - An investment firm backed by

LVMH is betting demand from wealthy Americans for quiet luxury

will ensure its 510 million euro ($545 million) stake in Italian

shoemaker Tod's yields the double-digit returns private

equity typically seeks.

L Catterton, created by U.S. fund Catterton and LVMH-owner

Groupe Arnault, on Friday secured sufficient shares to

take Tod's private once the deal, valuing the company at just

over 1.4 billion euros ($1.5 billion), formally concludes in the

coming days.

Listed in Milan but controlled by its founding Della Valle

family, Tod's profitability has lagged rivals.

Last year it postponed marketing investments to help

increase its operating profit margin to 8.4% of sales - behind

Prada's 22.5% and Brunello Cucinelli's 16.4%, partly because

more of its production is in-house compared with peers.

Producing internally costs more than outsourcing, but gives

brands greater control over quality.

L Catterton has offered 43 euros a share, deemed good value

for the investment fund considering Tod's listed at 40 euros 24

years ago when it became the first Italian luxury brand to go

public.

Under the stewardship of private equity, Tod's will invest

in marketing to capitalise on its sober elegance cachet and grow

U.S. sales, a person close to the matter said

Tod's-branded shoes and handbags - including its $695

Gommino loafers, with their characteristic rubber-pellet soles -

have a healthy following among well-off consumers aged 40 and

above.

Further up the luxury ladder, Roger Vivier, the Paris-based

$950-a-pair buckled shoe brand it acquired in 2015, appeals to

Asia's bigger spenders.

But the group's smaller brands, such as Fay, which makes

jackets inspired by U.S. workwear, and Hogan, which pioneered

the luxury sneaker trend but failed to profit from its boom over

the last decade, need refreshing.

A failed attempt in 2022 to take Tod's private aimed to

manage the diverse brands separately, and possibly divest the

least profitable ones.

Tod's has long refused to chase younger shoppers, a choice

it appeared to partly remedy in 2021 when it named fashion

influencer Chiara Ferragni to its board. After three years, her

position was not renewed.

Back in 2018, Tod's septuagenarian 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 person close to the matter, who asked not to be named

because they were not authorised to speak publicly, said the

emphasis so far on older customers was one reason Tod's had

scope to increase digital sales.

Tod's also failed to exploit fully the success of its most

celebrated products, such as the $3,000 Di Bag made famous by

Britain's late Princess Diana, to drive sales by expanding more

into clothing, a separate industry source said.

To compete with the best in class, Tod's must accelerate its

rollout of new collections and invest heavily in its brands'

image, the source added.

For now, Tod's marketing and communications expenses total

around 10% of sales, broadly in line with other Italian peers.

NEW CREATIVE DIRECTOR AND BIGGER FOOTPRINT

"A relaunch needs to focus on renewing and broadening the

product range and ... strengthening the retail channel, both

brick-and-mortar stores and e-commerce", said Giuliano Noci,

strategy and marketing professor at Milan's Politecnico

University.

L Catterton's investment plans, which have a roughly

five-year time horizon typical of private equity funds, will

initially erode the operating profit margin, but the delisting

means the transformation can take place away from the scrutiny

of short-term stock market investors.

Tod's and L Catterton declined to be interviewed by Reuters.

In comments to Italian newspaper MF in February, Della Valle

said growing its U.S. presence would be a core goal for Tod's in

the next two years, alongside developing its clothing business.

Any relaunch also requires a more ambitious retail strategy,

a luxury industry executive said, with openings and a new store

concept. At the end of last year, Tod's had 19 directly-owned

shops in the States, the same number as in France.

All this has to be done when luxury brands face a slowdown

after a post-pandemic boom.

Demand in China is a particular cause for concern as Tod's

is strongly focused on the Asian market. The Greater China

region, where Tod's runs directly 124 boutiques, accounted for

31.7% of total sales in 2023, against the Americas' 7.5%.

With its consumer goods focus, Connecticut-based L Catterton

is well placed to drive expansion in the United States, where it

aims to also grow another Italian brand, make-up maker KIKO,

which it agreed to buy in April, adding to its $34 billion in

assets under management.

Attempts to broaden the appeal of Tod's are not new.

A decade ago, Tod's tried to expand into ready-to-wear and

refresh its classic elegance image, but eventually retreated to

focus on the leather products that have always been central to

its identity.

Clothing accounted for 6.7% of overall Tod's sales last

year, compared with around 30% at powerhouse Prada.

In December, Tod's appointed Matteo Tamburini as its

creative director for both womenswear and menswear for its main

brand, but his new collections have yet to arrive in the shops.

"We go back a long way with Tod's: quality has always been

paramount to them," said Carla Cereda Biffi, head of buying for

Milan's Biffi Boutiques, whose Corso Genova shop displays

several Tod's Bubble Ballerinas and T-bags.

"I just know that won't change whatever they decide to do

next."