Alternative Latin Investor
August 2012
Premium Article

It is no secret that the major trend fueling the LatAm retail is the growth of the region’s consumer classes. But while much attention has been paid to brands and retailers serving the middle-income population, some investors are turning to high-end luxury brands. These brands cater to upper-income buyers as well the “aspirational” element of the middle segment, and some have the potential to take the leap abroad.


Two prime examples of this trend are Etiqueta Negra, a high-end menswear company from Argentina, and OndadeMar, a classy beachwear company from Colombia. They stand out among other High-end brands in the region for their success not only in solidifying their LatAm presence but in spreading to developed and other emerging markets.

Both companies are owned by Tribeca Asset Management, the largest asset manager in Colombia. Tribeca currently has US$4,30 million AUM and 9 portfolio companies across sectors, including healthcare, infrastructure, mining, oil & gas, telecom, and fashion retail. Currently the form is raising a US$500 million fund to focus on the same sector, as well as education and clean tech. About half of Tribeca’s investors are local LPs, the other half international.

As Felipe Iragorri, an investment director for at Tribeca, explains, the form focuses on growth-phase PE. Etiqueta Negra and OndadeMar illustrate their strategy. In both cases, Tribeca took a company that was small but already had a highly valued brand and expanded it with new business lines and markets, including in the US and Europe.

Beyond the “Swimsuit Issue”

In the case of OndadeMar Mr. Iragorri says: “The company was very well known, having been featured on several occasions in the Sports Illustrated Swimsuit Issue, but it had minimal sales and was focused almost exclusively on bikini-style swimsuits”. Tribeca changed the business in 2 fundamental ways, First, it expanded OndadeMar’s offerings to include women’s beachwear and beach accessories of all kinds, summer casual and evening wear and select men’s offerings, as well. The focus is ultimately still on women’s swimsuits, but the brand has broadened.

Second, Tribeca expanded OndadeMar into other markets beyond Colombia and opened its own stores. There are now 40 OndadeMar stores in LatAm, as well stores in US and Dubai. It sells wholesale in the US, Europe and Asia. Mr. Iragorri says the company plans to pen several more stores in the US and Colombia, as well as franchises in Venezuela and Mexico.
“We also want to strengthen wholesale in the US and Europe through boutiques, departments stores and other distributors,” he says. “We probably won’t have our own stores in Europe unless we partner with a very good group. In the middle East, we are looking to partner with a premium brand group with access to the Turkish market.”
In all, OndadeMar’s sales have grown 6-fold in the last 5 years.

Exporting a Way of Life

Meanwhile, Etiqueta Negra, already famous in Argentina for its polo style and exquisite stores – marking it, in Mr. Iragorri’s word, “practically a way of life” – also expanded geographically under Tribeca’s ownership. Aside from 10 stores in Argentina, it now has a store in New York, 5 in Europe, 1 in Florida and a very successful store in Sao Paulo.

The New York store was the flagship for the brand’s leap abroad. Yet, as Mr. Iragorri explains, some recent economic history spoiled the party. The contract for the New York store was negotiated in March 2008, on the eve of the global financial crisis, and opened that December in the thick of consumer panic and the start of a long malaise.

Transcending Local Status

Yet despite the underwhelming performance in New York and in some of the European stores throughout that region’s ongoing crisis, Mr. Iragorri emphasizes that having a presence in those developed markets is key for the Etiqueta Negra and OndadeMar brands, as it has created brand awareness in the US and allowed the companies to close new deals in those markets.

“New York was not the success we wanted, but opening there helped us close some deals in Europe and Florida. It became like a showroom, allowing us to find and close some other contracts, and all of those others have been profitable.”

Thus, he explains, most of the 2 companies’ growth has come from the high-growth emerging markets, but having a presence in the US and Europe was necessary to solidify the brand and transcend its merely local status.

“Our idea has been to bring Latin premium brands to the US and Asia, but since 2008, we’ve focused on expansion in LatAm and Asia, with a footprint in the US and Europe that gives you appeal and proof of concept in these markets. You need to prove your concept in the US and Europe, otherwise you’re just a LatAm brand-and that is what we’ve done. Most markets have been profitable, some have not, but it’s created the impact we needed for expansion of the brand internationally.”

Mr. Iragorri stresses the dual challenge of having a solid product and concept, both for its appeal to sophisticated customers abroad and to international groups that may be interested in an acquisition. He says that these groups could be luxury-focused or more midmarket groups trying to expand their reach.

“Our idea is to grow these brands and have good enough revenue for luxury groups to take a look or midmarket foreign groups. There are a lot of groups coming in, and if you’ve proven your concept in US and Europe, there is a lot potential for the people who buy this kind of brand.”

He is optimistic about the prospects of luxury brands that are able to prove their product and concept as his companies have. “You will always have premium customers,” he says, “and I believe that luxury will continue to be huge success, especially in these emerging markets that are getting wealthier. Emerging-market buyers like brands that help prove their economic position. It’s about the middle- and upper- middle classes looking for aspirational brands. If you’re aspirational, you’ll have huge success.”

“LatAm isn’t easy,” he says, “but we’ve done it with 2 brands.”

Source: Alternative Latin Investor
http://www.alternativelatininvestor.com/298/private-equity/exporting-latam-style.html
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