The New Guards Group is in serious trouble

There is no rest for New Guards Group, the fashion division of the e-commerce giant Farfetch, which is undergoing a heavy financial restructuring in Italy through a legal process known as "Negotiated Composition for Business Crisis Solution" (CNC). CNC does not in itself indicate insolvency nor does it equate to bankruptcy but is intended to provide more time to support companies facing severe economic or financial difficulties – let’s call it a kind of financial rehab. The CNC process will allow NGG to continue its operations while reorganizing the business and addressing debt obligations, especially since earlier this month, the group lost the lucrative license to distribute Reebok products in Europe. Authentic Brands Group, the owner of Reebok, terminated the partnership due to the inability to agree on new terms and, according to sources cited by WWD, NGG owes approximately $300 million in royalties to the company. 

This episode marks a very complicated period for NGG, which once represented a new guard of fashion brands whose individual fortunes have been, to put it mildly, mixed: Off-White, for which NGG only held the license, suffered a major blow after Virgil Abloh's passing and has now also been sold by the majority stakeholder, LVMH; Marcelo Burlon County of Milan no longer has Marcelo Burlon at its helm since last April; Palm Angels, Heron Preston, Ambush, Alanui, and others continue to function but none of them have made a significant breakthrough in the market. But despite many complications, NGG's activities are expected to continue during this restructuring that aims to provide the group with renewed financial stability and a clear strategy. When NGG was acquired by Farfetch in 2019 for $675 million, it seemed like the start of a new era: a digital marketplace becoming a direct player in brand and license management, integrating content, branding, and e-commerce into a single large system. Farfetch, known for its tech-driven approach to retail and being a platform that did not hold physical stock, decided to directly manage its brands, making its business model infinitely more complex.

Meanwhile, times were changing, streetwear was fading, and the lockdown devastated the market. In 2022, Farfetch attempted to create NGG++, a division that was supposed to oversee Reebok's business in Europe and expand NGG's presence in the world of “pure” sportswear, only to falter within seven months due to insufficient funds, declining valuation, and increasing financial pressure. At the same time, the parent company Farfetch also faced troubles, requiring intervention from Korean e-commerce giant Coupang at the end of 2023. With an investment of $500 million, along with Greenoaks Capital, Coupang took the helm of a ship so difficult to steer that it dragged down Coupang's own revenues this year. At this point, there was speculation about whether NGG could be sold, and the private equity fund Style Capital expressed interest in an acquisition, which never materialized. So far, there have been no significant updates. Assuming this restructuring indicates a desire to stay in the game (in fashion, you never throw in the towel), if NGG wants to recover, it will need to streamline its brands, reevaluate operational inefficiencies, and reignite interest in its labels. It would be wise for NGG to rationalize its brand portfolio, cut dead weight, and perhaps use that liquidity for medium-to-long-term profitable investments. But now that the CNC is underway, it will be necessary to wait for the outcome of the restructuring, which could further disrupt the group's trajectory and, by extension, that of Farfetch.