The English city of Nottingham, its warmest month averaging a cool 17 degrees, seems an odd place to find the headquarters of a brand synonymous with Australian beach culture. And yet this gloomy, land-locked English city is home to the global headquarters of Speedo.
UGG Australia is another example of an iconic local brand with overseas owners, this one an American footwear company owned by California-based Deckers Outdoor (NYSE:DECK). Swimwear designer Seafolly meanwhile has joined leather boots manufacturer RM Williams in the hands of Louis Vuitton’s (ENXTPA:MC) Asian private equity arm L Capital Asia.
It isn’t just in the fashion stakes where once great Aussie icons are no longer calling Australia home. Brands such as Arnotts, Vegemite, Foster’s, Tooheys, Uncle Toby’s and Victa Lawnmowers are now owned by foreign conglomerates. Following HanesBrands (NYSE:HBI) $1.1 billion bid for Pacific Brands (ASX:PBG), it seems Bonds can be added to this list.
This is just capitalism in action, of course. With a market capitalisation of around AUD$14 billion, Hanes is around 14 times bigger than Pacific Brands and can easily afford to take on the diversified consumer brand company. Considering the rough ride Pacific Brands’ shareholders have had over the last few years, you can hardly blame them for taking up the offer.
Irrational as it may sound, I have to admit that the Aussie brands sell off leaves me a little cold. Our connection with household names like Arnott’s and Speedos is forged early in life and seeing them sold offshore somehow feels like a slow loss of connection with our past.
Nevertheless, this trend does highlight the power of brands and why they’re such attractive targets. Arnott’s and Vegemite continue to take up space in our shopping trolleys despite the best efforts of Dick Smith (the person, not the failed retailer). An emotional, irrational attachment to a brand leads to lifelong customer loyalty and typically, higher margins.
What worries me is why this fact seems so well understood by foreign investors and under-appreciated by their local counter-parts. Whilst foreign companies have greater capacity to acquire local brands Aussie investors make it easy for them. It seems we have lost interest in growing our own consumer brands and aren’t too concerned about hanging on to the ones that are left.
Would more Aussie companies be happy to stay local and reach their potential if investors were less focused on dividend payout ratios and more interested in re-investment of profits for growth?
The ASX is already an extremely concentrated market skewed towards financials and resource companies. So-called balanced funds aren’t really properly diversified at all. If we want to change this, we need to develop our existing listed consumer brands and encourage the next wave of great Aussie brands to tap the local markets for future capital.
If we don’t manage that transition we’ll be limiting the opportunities for local investors and losing a slice of our history at the same time.
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