Asia PE portfolio: Bain Capital, Mash Holdings take Japan fashion global

• Bain leveraged brand, marketing expertise to secure USD 1.4bn deal
• China, South Korea are initial expansion markets, US to follow
• Digital marketing, content licensing are key to growth strategy

One in every five women residing in Tokyo between the ages of 25 and 30 is a member of the Mash Holdings loyalty programme, which has over 7m participants in total. It is testament to the strength of the fashion apparel brands – Snidel, Gelato Pique, Lily Brown, Fray ID – assembled by Hiroyuki Kondo, the company’s founder. But he wanted to go global and knew he couldn’t do alone.

This paved the way to an acquisition by Bain Capital nearly two years ago at a valuation of about JPY 200bn (USD 1.4bn). Now, founder and private equity firm are eyeing an IPO within five years.

“On business side, the founder would not need our help, but he needed assistance from someone with expertise in globalisation. Secondly, he needed help from outside to establish the back office infrastructure that will enables the company to go public,” said Naofumi Nishi, a partner at Bain.

Globalisation efforts already appear to be bearing fruit, especially within Asia. Snidel’s global market share has reached a record high on the back of continued expansion in China, where the brand has 54 stores – about half its worldwide total.

Gelato Pique has 117 stores globally, with most of the 41-strong overseas contingent located in Greater China. It was the biggest contributor to sales in the 12 months ended August 2023, generating JPY 30bn, up 6% year-on-year, according to local media. China is a key driver, posting average annual sales growth of 10% in recent years.

Meanwhile, Mash’s debut flagship store in South Korea, Gelato Pique Grand Maison Hanna, opened one week ago in Seoul. Housed across two storeys of a renovated mansion with a garden terrace, it includes a Gelato Pique Café intended to allow customers to enjoy an immersive brand experience.

“The China business, which is the mainstay of our overseas operations, has been able to establish a local organisation, reform its profit structure, and flesh out its approach to the local market through the introduction of a new management team,” Kondo explained.

“In addition, we were able to launch the South Korean business in this short period of time. The Korean market is becoming a centre of trendsetting not only in Asia but also globally. In the Korean market, we were able to expand Mash’s mainstay Gelato Pique and Snidel businesses.”

Expansion in ex-Asian markets is also very much on the agenda, notably the US, where Gelato Pique opened its first store in 2018. The US and China were the world’s largest apparel markets in 2023, each posting revenue of more than USD 300bn, according to Statistica. Japan generated USD 100bn.

Finding a partner

Having started out in 1998 as a computer-generated graphics business, Mash now claims ownership of apparel, beauty, cosmetics, and food brands plus interests spanning design, content licensing, app development, e-commerce, and real estate. However, women’s apparel is the mainstay, accounting for two-thirds of revenue and aimed shoppers in their 20s and 30s looking for affordable luxury.

In a portfolio that is 90% domestic, Snidel was the first brand to make an international breakthrough. Overseas sales pushed past the one-third mark, and management wanted to use it as a test case, ultimately hoping to achieve an equal portfolio-wide split between foreign and domestic business.

COVID-19 intervened, the associated travails underscoring the potential benefits of working with a value-added partner. Mash held talks with at least four global private equity firms, starting in late 2021. It settled on Bain in May 2022, and one of the largest control deals involving a Japanese apparel maker was finalised by the end of the year.

Bain acquired 100% of the business, and then invited Kondo to re-invest for a 40% stake. The founder and management also took sole ownership of a small number of real estate assets. Both parties considered an arrangement that would have seen Kondo remain in the majority, but they ultimately decided Bain was best positioned to lead the way.

The private equity firm’s relevant operational and industry expertise was a key factor, according to Kondo. Its past exposure to fashion includes Canada Goose and Samsonite; in beauty and cosmetics, it has owned Carver Korea and US-based Sundial Brands; and then its Japan bone fides range from  Domino’s Pizza Japan and Skylark in food to Asatsu-DK on content marketing.

“Mash has been focusing on fashion, beauty, and food up until now,” Kondo told local media when the deal closed. “In addition to that, we would like to expand our licensing business in the future. We received proposals from several investors and considered whether there were any synergies with these business domains. Bain has experience in all the businesses Mash Holdings is aiming for.”

In devising a strategic agenda, the private equity firm has drawn on its Japan team and on resources across its global offices, including those in Hong Kong and the US. More than 10 professionals including Nishi and Shun Watanabe, a managing director in Bain’s portfolio group, are directly involved in executing the value creation plan.

Priorities included improving back-office infrastructure, deepening digital marketing capabilities, and revising procurement policies with a view to diversifying the supplier base in response to economic and geopolitical uncertainty.

In addition, five C-suite executives and more than 10 mid-level managers were hired. Mash recruited the head of global operations at Uniqlo and the head of digital marketing at Rakuten, among others. Meanwhile, a deputy CFO was brought in with a brief to lead IPO preparation.

“The management system, which is the foundation of the company, has been established with considerable speed through the reinforcement of personnel. Governance reorganisation for listing is progressing and improving according to schedule, mainly by new members,” Kondo said.

He added that improved corporate governance is one of the major achievements of the past 18 months. For example, the process of closing and preparing monthly business results has been shortened from 45 days to seven days, which facilitates faster management decision-making.

Strategic priorities

Snidel represented Mash’s first foray into fashion apparel in 2005. Gelato Pique, with its distinctive loungewear, emerged three years later. Since the 2010s, a further 19 brands have been launched catering to different styles and tastes, from vintage dresses to modern office wear. The company has also 13 beauty brands – such as Cosme Kitchen, Biople, and F Organics – and 11 food brands.

It also has five brand licensing arrangements. For example, Mash took over the Japan license for UK clothing brand Barbour and doubled sales in the 12 months ended March 2024, thanks to its direct store management and focus on the women’s segment. The share of sales to female customers rose from 10% to 30% in two years.

Mash posted company-wide sales of JPY 113.4bn in the 12 months ended August 2023, up 11% year-on-year, local media reported. The fashion business alone rose 12% to JPY 89.2bn. Kondo said that net profit, which reached JPY 9.8bn a year earlier, had increased, the report added.

To some degree, there are global industry tailwinds. Statistca projects that fashion and apparel will see faster compound annual growth than any other retail industry segment between 2021 and 2026 – 8.7%, compared to 5.3% for health and beauty and 3.7% for food. In addition, Nishi believes steps can be taken internally to ensure continuous growth over the next 10-15 years.

“Instead of focusing on one specific brand, we typically prefer to expand a portfolio of multiple brands. Particularly for Gelato Pique, we focus on accelerating growth. Other fashions are also important for portfolio creation so that we can offset the seasonality of fashion trends. This is our general strategy,” he said.

Gelato Pique is an example of smart brand positioning. Loungewear was traditionally categorised as bedding and located on the upper floors of department stores where footfall is lower. Gelato Pique was the first to occupy the main floor of women’s fashion stores. Its soft textures and cute designs also have crossover appeal, extending from adults and kids to pet clothing and home textiles.

“The brand originality does not matter the most. Gelato Pique is a distinctive brand. It has a completely different kind of positioning versus other affordable pyjamas. It’s fluffy and collaborates with global IPs [intellectual property holders]. That concept is quite unique,” Nishi said.

Watanabe added that the ability to identify and effectively target attractive sub-segments – such as Kawaii fashion – is especially valuable in a low-growth apparel market like Japan. Even in China, which promises long-term growth but it currently blighted by weak consumer sentiment, he sees potentially lucrative areas where there is limited direct competition.

Making an impression

With Bain’s support, Mash is looking to maximise the upside through digital marketing. This dovetails with the PE firm’s past exposure to Asatsu-DK and Mash’s desire to boost its licensing business.

In addition to traditional marketing, the company has launched collaborations with famous K-pop artists and struck global IP licensing deals. The most visible results to date include this summer’s Gelato Pique loves BTS campaign with the eponymous Korean supergroup. An autumn collection has just been launched in association with Le Sserafim, a Korean girl group.

In terms of licensing, about 40 campaigns are being launched each year, featuring brands like Snoopy, Super Mario, and Pokémon, which are responsible for 20%-25% of total sales. Last year, Mash opened Sesame Street Market, an official store that claims to offer a unique retail experience comprising merchandise sales, a café, and workshops.

Nishi and Watanabe bring their own perspectives to the table. While the former was involved in Asatsu-DK and Macromill, the latter used to oversee Japanese mushroom brand Yukiguni Maitake, for which he spearheaded various marketing initiatives.

“We apply our past experiences to this investment just as we do to any other investment,” Nishi observed. “The products are completely different. However, consumer goods are consumer goods. There are many similarities.”