This week, Italian sneaker brand Golden Goose postponed its Milan IPO, citing volatile market conditions in the wake of European elections that registered a hard swing to far-right anti-EU parties and French President Emmanuel Macron’s move to call snap legislative elections.

Shares in the Stoxx 600 index of Europe’s leading companies dipped 5 percent as Macron’s decision plunged France, the EU’s second-biggest economy, into uncharted territory. Markets have since recovered slightly, but polls for the nation’s June 30 election continue to show Marine Le Pen’s National Rally neck-and-neck with a new coalition of France’s left and centre-left parties. Macron’s technocratic, centre-right Renaissance party is expected to be soundly beaten: the president will almost surely have to share power with one of two divergent rivals, risking political dysfunction and stagnation.

Of course, there were other challenges to Golden Goose’s IPO beyond European politics. Owner Permira had already knocked down the brand’s targeted valuation by a third in the lead up to the listing, then went on to price shares at the bottom of its forecast range.

In theory, investors are always on the lookout for the next Moncler, another high-margin, essentially mono-product luxury listing, which has repeatedly shaken off doubts about how far it can take its pricey puffers (Ultimately, revenues have multiplied five-fold since 2013, the year of its Milan IPO). But convincing markets that pre-distressed, Italian-made skate sneakers will have the same potential as Moncler became tougher as market conditions worsened, both for European stocks and European luxury goods themselves.

Golden Goose’s strong fundamentals had caught the eye of the market — the company grew 18 percent at constant exchange rates to €587 million ($628 million) last year, with an operating margin of 25 percent — and demand for shares was “well oversubscribed,” Golden Goose said. But beyond cornerstone investor Invesco, which pledged €100 million, the deal failed to attract enough support from “long-only” institutions whose stable bets could ensure a successful listing, The Financial Times reported Wednesday.

Permira also proceeded with particular caution in the wake of its Dr. Martens IPO in 2021: that brand — another essentially mono-product footwear player — has since issued 5 profit warnings as demand faded, leading shares to tumble by eighty one percent since its London debut. As a private equity firm whose vocation is to buy, develop and ultimately sell brands, Permira couldn’t risk handing investors another dud.

Caution and uncertainty reign elsewhere in the fashion market. Over a year after the lifting of Covid-19 restrictions in China, which, it was hoped, would restore a more stable dynamic in the key market, slower growth and high youth unemployment continue to depress demand, as well as an emerging sense of “luxury shame” among the wealthiest customers, Bain’s Claudia D’Arpizio said. In the US, economists see signs of slowing inflation and faster economic growth in recent months, but election-year uncertainty continues to dampen consumer confidence.

The state of affairs could be felt at menswear weeks in Florence, Milan and Paris, where most brands played it safe with heritage-focused, ultra-classic collections.

“Brands are playing defence in response to what’s happening in China and the Far East. They’re understanding it’s not just a cycle, a tough semester before new millionaires come from China to save the business again,” Emmanuele Farneti, editor-in-chief of the Italian fashion magazines d and U La Repubblica said.

Even as cautiousness and uncertainty abound, there are signs that luxury’s underlying business remains stable. This week, consultancy Bain said its 2024 forecasts for the luxury market’s growth were broadly unchanged versus its last report in November. Bain predicts the industry will grow between 0 and 4 percent at constant exchange rates, while sales could dip slightly at current exchange rates due to the deterioration of the Japanese yen.

Surging sales to Chinese customers abroad show that the “desirability of these products is still there,” Bain’s D’Arpizio said, even if domestic sales remain depressed. The possibility that Chinese authorities could hasten the pace of approving outbound visas, fuelling tourist shopping, is one potential lever for growth later this year:

Meanwhile in the US, “there’s a lot of cautiousness in the market, but there’s some hope to improve later in the year, when the political situation stabilises after the election,” D’Arpizio added.

A flash survey of purchasing managers released by S&P Friday suggested slowing inflation in June as well as the US’s fastest monthly economic growth in two years. Another sign that even with uncertain times ahead, hope for the luxury market is hardly lost.

THE NEWS IN BRIEF

FASHION, BUSINESS AND THE ECONOMY

Adidas opens fraud probe in China after whistleblower letter. Adidas AG is investigating allegations of corruption in China after receiving an anonymous letter exposing potential compliance violations by some employees.

Golden Goose postpones planned IPO. The Permira-backed luxury sneaker maker has shelved the listing amid a drop in luxury stock valuations due to political uncertainty in Europe.

Swiss watch exports drop in May as China slowdown persists. Shipments dropped 2.2 percent by value to 2.3 billion Swiss francs ($2.6 billion) in May from a year earlier, the Federation of the Swiss Watch Industry said Thursday. Exports to mainland China, the second-biggest market behind the US, skidded 18 percent by wholesale value as a downturn in real estate values battered consumer sentiment.

THE BUSINESS OF BEAUTY

L’Occitane revises privatisation bid, offers equity in new company. In an exchange filing published on June 17, the company updated its buyout offer, giving shareholders an option between the existing HK $34 ($4.35) per share in cash, or 10 shares in the new private company for every share held.

Augustinus Bader sales to top $130 million this year. The premium skincare brand is expecting sales to lift as much as 40 percent, as demand for its celebrity-loved products holds out.

Makeup by Mario hires investment bank to explore exit options. The premium cosmetics line, founded by celebrity makeup artist Mario Dedivanovic, has hired J.P. Morgan to evaluate its options.

Beiersdorf warns of difficult quarter ahead in China. While the German skincare company’s ultra-premium line La Prairie has gained market share, the local luxury beauty sector is still in decline.

Space NK sells off US wholesale arm. The beauty retailer’s 600 points of sale across North America have been acquired by distribution firm PCA Companies.

PEOPLE

Nike design exec Tania Flynn lands at Athleta. Flynn will be the Gap Inc.-owned activewear brand’s new head of design. She most recently served as Nike’s vice president and creative director of apparel design.

MEDIA AND TECHNOLOGY

China’s mid-year e-commerce festival sees weak sales performance. The 618 festival, China’s second-biggest annual sales event after Singles Day in November and a test of consumer sentiment, failed to stir up a great deal of excitement among shoppers, industry experts said, even as major platforms extended offers to a weeks-long period to woo belt-tightening consumers.

Compiled by Joan Kennedy.

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Subscribe to the BoF Podcast here.

Background:

Deena Aljuhani Abdulaziz was drawn to fashion from a young age, devouring issues of Vogue and Tatler. This led her to set up D’NA, a members-only boutique based in Saudi Arabia and Qatar. 10 years later when she closed her boutique, she became the founding editor-in-chief of Vogue Arabia – but soon parted ways with the publication due to a misalignment in values.

Now, Aljuhani Abdulaziz is back with her own media publication, on her own terms. ‘Deenathe1st.com’ is an editorial lifestyle website dedicated to fostering a creative community that celebrates Arab culture.

“What I hold dear is what anybody would hold dear. Representing my culture correctly and fairly,” she says. “And it’s not trying to show off Western ideas to the region. It’s the other way around. It’s showcasing the region and what we share creatively with the rest of the world.”

This week on The BoF Podcast, Aljuhani Abdulaziz joins BoF founder and editor-in-chief Imran Amed to share her career journey, the lessons she’s learned about fostering culture and community, and why the fashion community needs a new publication.

Key Insights:

• Born in California but raised between the US and Saudi Arabia, Aljuhani Abdulaziz is an expert code switcher who’s always felt able to act like a cultural bridge between the two worlds. “It never felt like an effort. It just came naturally. I think that’s part of what makes me who I am in a sense,” she shares. “It’s not just in figures of speech, but also in how you would interact with people, because there are different customs and traditions in different regions and in different households. It’s really about a state of mind.”
• Aljuhani Abdulaziz’s first fashion influence was her mother, who she describes as “still very, very chic.” As a child, her discovery of Tatler magazine pushed this passion even further. “I picked it up and I opened up its pages and I was like, ‘Oh my goodness, this is it!’ I was just so grateful and happy that it existed.”
• Aljuhani Abdulaziz’s stint at Vogue Arabia ended abruptly after just two months. “I understood the responsibility of being a voice for a very big region, being Arab myself,” she said.  “I think there was a point when that didn’t align and the visions were not parallel.”
• Looking to the future, Aljuhani Abdulaziz says she is building her editorial lifestyle platform ‘Deenathe1st.com’ on the basis of community, shared values, and kindness. “I think that it’s super important to remind people that you don’t have to be nasty to be stylish or to be in fashion or to be chic,” she said. “I would love to continue my love letter to Arabia. That’s really what I’m trying to do with this site.”

Additional resources:

This month, temperatures from Delhi to Athens to New York hit deadly highs: the latest grim reminder that the world is galloping towards climate catastrophe. Meanwhile, fashion’s efforts to curb its environmental impact, a major contributor to global emissions, are moving at a glacial pace.

The reasons for this are myriad, but a big one is money. A flood of funding is needed to cut the industry’s planet-warming emissions in line with global goals to stave off the worst effects of global warming. But conflicting interests and structural challenges have kept investment at a trickle.

While big brands have made bold commitments to slash their carbon output, the bulk of that pollution takes place in factories the brands don’t actually own.

Meanwhile, most manufacturers aren’t exactly in a position to be making big investments with long payback times, largely because their customers (the brands) have rigged the system so that they can access production as cheaply and flexibly as possible while taking on almost no financial risk themselves.

It’s a model in which brands take most of the profits, while suppliers are subjected to relentless pricing pressure and unpredictable, trend-dependent cash flows that make for crummy credit ratings. Fragmented supply chains populated by small and medium-sized businesses already struggle with access to affordable capital, let alone the financing for long-term climate projects with dubious payback potential.

The upshot: an impasse where the biggest opportunities to drive decarbonisation have the least access to funds.

That’s why it was interesting last week when two of the industry’s most prominent sustainability initiatives and four of its biggest brands announced they had a plan to try and help solve the problem.

The Future Supplier Initiative aims to bring down the cost of financing decarbonisation by having brands help underwrite the debt their suppliers take on. It was formed with the support of climate-focused trade groups The Fashion Pact and Apparel Impact Institute and its initial roll out in Bangladesh will include participation from H&M Group, Bestseller, Gap Inc. and Mango.

“It’s the first time the brands are coming together to risk share,” said Christopher Chiam, head of consumer products for the institutional banking group at Singaporean bank DBS, which has committed to provide loans as part of the initiative. “[They] are not in the business of lending money to suppliers.”

How will it work?

The scheme’s announcement was big on ambition and short on detail — one fellow industry watcher described trying to figure out how it actually works as like “trying to crack the Da Vinci code” — but the idea is to create a collective financing mechanism that helps suppliers access low-interest loans for decarbonisation projects.

The brands’ role is to help derisk the debt, allowing banks like DBS to offer more “competitive” rates to small and medium-sized suppliers that aren’t normally considered particularly credit-worthy. This will work in two ways:

1. The brands can put up the cash to fully collateralise the debt, which means if a supplier goes bankrupt the brands are on the hook to pay back the loan.
2. The brands can extend a guarantee representing a proportion of the loan as a kind of insurance to offset the risk of any default.

The collective aspect is also important because it’s rare for one brand to be a supplier’s only customer. Getting a bigger group on board splits the risk and addresses the free-rider problem; brands are reluctant to go out on a limb to help finance projects that will benefit their competitors, especially when they’ll only be able to take credit for the sliver of emissions reductions that relates to the volumes they source. Working together reduces this friction and individual risks.

For instance, if all four brands are present in a factory where a $2 million project to install solar panels has been identified, each would be asked if they’d like to underwrite $500,000.

The goal is to get more brands and banks involved and to expand the programme into more countries, including Vietnam, India, China, Italy and Türkiye.

Is it going to get money moving?

The hope is that this financial innovation will help unlock much more climate action. But there are big challenges and a lot of unanswered questions.

The initiative’s aim is to give smaller players (who might otherwise face astronomical interest rates or not even get access to debt in the first place) loans at significant discounts.

But exactly what rates suppliers will be offered — a critical issue — is fuzzy, set to vary from project to project. Likewise the manufacturers that stand to benefit from the scheme are yet to be determined. Consultancy Guidehouse has been contracted to identify the top 10 suppliers with big-ticket decarbonisation opportunities and links to participating brands’ supply chains in Bangladesh. Whether those will also be manufacturers who struggle to gain access to finance on their own remains to be seen.

Even how much money the brands are going to stump up is an open question. Each project is expected to cost in the realm of $100,000 to $1 million per brand, according to H&M’s head of sustainability, Leyla Ertur. “It’s going to be up to brands’ own budgets how much money they want to risk or de-risk… there is no minimum or maximum limit, but everyone knows, it will not be $50,000,” she said.

There’s also the question of what’s missing: any kind of mechanism to help smooth out the business volatility that makes taking on debt so risky for many suppliers who also question why they should be left to bear the costs of a problem the most profitable players in the industry have effectively outsourced.

Clear sourcing commitments that offer longer-term business certainty would likely be more effective at juicing investment in decarbonisation than access to cheaper finance, acknowledged Guidehouse’s manager of environmental stewardship Betsy Blaisdell. But the loans still give brands financial exposure to a factory’s fortunes they never had before.

“The whole apparel supply chain has been set up to… [allow brands] to lean out as much as possible from a risk standpoint, and this programme says you have to lean right back in,” said Blaisdell. “[The brands will have] skin in the game in the factory for a chunk of time and it will be crucial for them to meet their climate goals, so to walk away is a real hard walk away.”