Now doesn’t seem like the best time to be buying stilettos. But Exor NV, the holding company of Italy’s billionaire Agnelli family, is acquiring a 24% stake in Christian Louboutin for 541 million euros ($642 million), valuing the famous maker of sky-high red soles at 2.3 billion euros.
The deal is a bet on a vaccine-fueled economic recovery. If we are about to enter the roaring 2020s, Louboutin will be a jewel in the Agnellis’s crown to sparkle alongside Ferrari. The investment may still prove challenging, but if Exor can capitalize on a rebounding footwear market, it could pay off handsomely.
It’s not hard to see why Louboutin’s eponymous founder is willing to accept outside investment. Half of the brand’s sales from women’s styles come from its vertiginous heels, which surely took a hit during pandemic closures and stay-at-home orders. And although demand for dressy footwear is bouncing back, particularly in the US, some 20% of the Louboutin stores remain shut due to local lockdowns.
Neither Exor nor Louboutin have disclosed the shoe maker’s sales or profits. Yet shoe brands seem to be a hot commodity these days, with companies like Birkenstock and Dr Martens Plc bringing in huge fortunes from recent public listings and sales. Birkenstock changed hands for an enterprise value equivalent to 25 times 2019 Ebit (an earnings measure), while Dr Martens is trading at just under 30 times trailing 12 month Ebit.
The gap between leading brands and lesser rivals has widened during the pandemic. As luxury adviser Mario Ortelli told me, consumers are gravitating to the most iconic names in each product category. The hope is this will carry on into high heels, where Louboutin dominates.
Although fancy footwear might not be in vogue right now, appetite for dressing up should return once economies reopen and events resume. Even if Louboutin isn’t quite as popular as it was in the 2000s, a fashion swing from soothing to sexy raises its chances of making a comeback. And, luckily, Exor is a long-term owner. It has time to wait.
In the meantime, Louboutin has other areas where it can expand.
While it is best known for its towering styles, the company has significantly broadened its product range over recent years. The other half of its women’s shoe lines comprises low heels or flats, including sneakers, and it’s gained a foothold in men’s and children’s styles. Diversifying further away from stilettos will also be a useful hedge against pandemic-driven casualization.
The shoe maker has already shown it can stretch its brand into other areas, such as beauty and handbags. The trend toward luxury experiences could open up additional opportunities such as branded hotels.
Not only does Louboutin have scope to generate more sales from e-commerce, but with strong positions in the US and Europe, it also has room to expand its presence in China, where demand for high-end goods is surging. Exor is clearly eyeing the Chinese market for its burgeoning portfolio of luxury companies. In December it became the majority shareholder in Shang Xia, the Chinese luxury brand that was backed by Hermes International.
If Louboutin can pull all of these levers, Exor will have made a profitable move getting into shoes. If not, well, at least those soles look good with with Ferrari red.
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries.