IN LATE NOVEMBER, US designer Michael Kors threw a big party for the opening of his first namesake boutique in Singapore at the newly opened Scotts Square. Just days later, Kors, who founded the luxury sportswear, accessories and apparel firm, was performing the opening bell ritual from the narrow marble balcony overlooking the main trading floor of the New York Stock Exchange to herald the successful IPO of his iconic firm. While Kors raked in US$116 million ($145.9 million) as part of the listing, reducing his personal stake in the company from 11.7% to 8.6%, the biggest gainers were its real owners: two middle-aged men who have made billions from taking over fashion firms, turning them around and selling them in IPOs or to private equity investors.

 

Hong Kong-based billionaires Silas Chou, 65, and Lawrence Stroll, 52, are an odd couple. Chou, a Hong Kong native, hails from a family that has been in the textile business for five decades. Stroll, a native of Montreal, is the son of an entrepreneur who was once the Pierre Cardin franchisee in Canada. He later owned and ran the main Polo Ralph Lauren retailing franchise in Europe. Over the past 25 years, the two have worked their magic acquiring, building and selling fashion brands. When a fashion house is in trouble, needs a cash injection, expertise in beefing up its supply chain, retail capabilities or help extending its brand, often the first call is to their company.

 

Fashion industry insiders say the two men have a to-die-for Rolodex. From moneybag financiers and investment bankers to just about anybody in the rag trade, Chou and Stroll know them all by their first name. It is not surprising then that their total profit from just the listing of Michael Kors in December was more than US$1 billion. They are still controlling shareholders of the company, with a remaining stake worth more than US$2 billion.

 

Chou began his career working for his Hong Kong-based family firm, Novel Enterprises, one of the leading vertically integrated textile and apparel manufacturers in the world. Novel is a key cog the global fashion supplychain wheel — it buys cotton and yarn, makes textiles, sources materials, designs and makes apparel in huge plants in China, Vietnam and South Asia for global brands. The Chous are an old-money family in Hong Kong with interests in textiles, property and transportation. In the 1980s, the family helped set up Hong Kong’s private airline Dragonair, now a subsidiary of Cathay Pacific. Chou declined to talk to The Edge Singapore for this piece despite repeated requests. Stroll, who was reportedly travelling, could not be reached.

 

Kors’ rise, subsequent fall and phoenix like rise again from the brink of disaster is the stuff of legends. In the late 1990s, the talented US designer then running a smallish luxury sportswear retail business ran his firm aground with tens of millions in debt as bankruptcy loomed. Kors had first filed for Chapter 11 bankruptcy in 1993 and somehow kept his business afloat for a decade. Enter Chou and Stroll, who through their Hong Kong-based private equity group, Sportswear Holdings, reportedly paid US$85 million in late 2002 for the troubled firm.

 

Nine years and an extreme makeover later, the duo is looking at a combined US$4 billion in profits from their Michael Kors holdings alone, of which they have already cashed about half. That’s a 47-fold return. Not even Apple Inc, the world’s biggest company by market value and visibly the most successful over the past decade, can match that. Clearly, the payday from turning a troubled brand into a successful luxury IPO on the NYSE can be huge.

 

Under Sportswear Holdings’ watchful eye, Michael Kors the company grew by leaps and bounds. Revenues soared from around US$50 million annually a decade ago to US$803 million in the financial year ended April 2011. Profits were up 1,950% over a four-year period to US$72 million in the last financial year. Nomura Securities forecasts the company will rake in US$118 million in net profits in the financial year ending April on revenues of US$1.26 billion.

 

“There are few stories that come along in retail these days that are as exciting as Kors’,” Nomura’s luxury retailing analyst Paul Lejuez gushed in a recent report on Michael Kors. While his report readily conceded that it didn’t yet have the cachet of some of the European luxury brands, he was confident it was well on its way. “We believe strongly that the company will [ultimately] achieve greatness,” the analyst cooed. “It is off to a remarkable start with impressive brand momentum.” Only another sell-side analyst touting a newly listed luxury brand stock would be more in awe.

 

So how did they do it? Soon after they took charge, Chou and Stroll pushed Michael Kors, which is headquartered in Hong Kong, aggressively into US department stores. Then as the brand began to catch on, they helped it to roll out standalone stores. To resurrect the brand, the duo hired John Idol, a veteran of Polo Ralph Lauren and Donna Karan, as its CEO. Idol was CEO of the parent company of Anne Klein before he was lured to spearhead the Michael Kors ship in the treacherous waters of luxury retailing. Since the collapse of US investment bank Lehman Brothers, when US retailing was almost given up for dead, Michael Kors has been one of the handful of US brands whose backers have been willing to spend on expansion. The timing couldn’t have been better. Malls were hollowing out and keen to give away prime space for a song. As its peers pulled back, Kors boldly expanded to become the US’ most desirable label.

 

 

Thanks to Chou and Stroll, it is now the label everyone wants to be seen wearing. US First Lady Michelle Obama chose a Kors-designed black sleeveless sheath for her official White House portrait and Angelina Jolie has worn the label for many a red-carpet walk at Tinseltown’s award galas. In just seven years, Kors has gone from a designer few gave a second look, to one who is compared with legends such as Ralph Lauren and Calvin Klein.

 

Aside from the Singapore store, new ones have opened recently in Malaysia, South Korea, Japan, China, Hong Kong and the Philippines. A key reason for the December IPO was to arm Kors with the resources and visibility to expand internationally.

 

Chou and Stroll were also behind the rise of the Tommy Hilfiger brand in the 1990s. Sportswear Holdings acquired Tommy Hilfiger Corp in 1989 and helped to grow it from a little-known US$25 million American men’s apparel company to a global US$2 billion brand in just eight years. Often, the secret sauce in a designer’s success is the infusion of cash at the right time, access to a supply chain in Asia that can quickly scale-up production, expansion in international markets just as the brand is about to explode in the home market in the US or Europe, and constant investment in brand building.

 

Tommy Hilfiger was listed on the NYSE in 1992. By 2002, Chou and Stroll had sold their controlling stake in the firm, reaping several hundred million dollars each in the process. Hilfiger was eventually bought out by private equity house Apax Partners in 2006, which early last year sold it to PVH Group, the former Phillips-Van Heusen.

 

Michael Kors and Tommy Hilfiger aren’t the only brands on which Chou and Stroll worked their magic. Sportswear Holdings also acquired Pepe Jeans London Corp in 1991 and sold it in 1998. In 2000, the duo bought the British luxury- goods firm Asprey & Garrard. Between 1999 and 2003, they were mentioned as key bidders for then troubled fashion houses such as Valentino, Brooks Brothers and Calvin Klein, all of which fell through. One reason they have resisted the temptation of tackling other labels since then is that, when they took charge at Michael Kors in 2003, they realised they needed to focus on the brand and make it big.

 

While other brands such as Prada, Samsonite and, more recently, Coach (for a secondary listing) were rushing to Hong Kong for their IPOs, Chou and Stroll took Hong Kong-based Michael Kors to the NYSE instead. Not only were they able to price the IPO at US$20, above the initially indicated US$17 to US$19 range, the stock is up 50% in the six weeks since listing, and most analysts see another 15% to 20% upside for the stock from current levels. Prada, which was listed in Hong Kong seven months ago at the bottom end of its own indicated range, is actually just below IPO price. Coach’s stock, meanwhile, is up about 20% since it did its dual listing in Hong Kong in November.

 

Clearly, what Chou and Stroll have shown over the past two decades is that it doesn’t matter where a fashion house is listed or based, or how little the brand is initially valued at. It is possible to nurture and grow a fashion label from almost nothing and make billions doing so. The skills needed aren’t so much financial engineering, as the fashion world is littered with investment bankers who have tried their luck, but more mundane things like managing supply chains, betting on the right trends and unleashing a global retail rollout at the right time. With Michael Kors’ IPO out of the way, the fashion industry is abuzz with what Chou and Stroll will do for an encore.