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Why Intermix Was a Private Equity Opportunity

The party-friendly retailer failed to flourish under Gap Inc., but investor Altamont is looking to cash in on tremendous growth in the online luxury space.
Gap Inc. has sold Intermix to private equity firm Altamont Capital Partners.
Gap Inc. has sold Intermix to private equity firm Altamont Capital Partners.

Gap Inc. is selling the multi-brand retailer Intermix, the latest move by the retailer to prune its portfolio in order to focus on reviving its struggling namesake brand.

The American boutique chain, which came to prominence in the 2000s at the height of the contemporary fashion market’s influence, has been acquired by Altamont Capital Partners, a Bay Area-based private equity firm with more than $2.5 billion invested across a variety of categories, including apparel.

Gap has been closing or offloading its smaller lines after deciding against a spinoff of its most successful asset, Old Navy, in early 2020. Hill City, a menswear label, was shut down last year, and the childrenswear brand Janie and Jack was sold to Go Global Retail in March 2021. The company announced early this year that it conducted a “strategic review” of the Intermix business in late 2020 — incurring a $56 million impairment charge. The group’s European business is also under review.

Over the past 20 years, Gap Inc. has struggled with dwindling margins and decreased relevance at its namesake brand, as well as Banana Republic. Both were supplanted in the eyes of trend and price-savvy US consumers by global, fast-fashion challengers including Zara, H&M, and Uniqlo, plus Amazon, now the top seller of apparel in the US. While the Gap brand still generates $2 billion a year globally, it relies heavily on promotions. Gross margins in 2020 across the group were 34.1 percent, down from 37.4 percent in 2019.


Gap Inc. executives have considered selling almost all of the company’s brands at various points in recent years, though aside from the now-cancelled Old Navy spinoff, major moves such as closing Gap or disposing of Banana Republic rarely made it past the idea stage. Group chief executive Sonia Syngal was promoted into the position at the beginning of the pandemic with a plan to continue to right-size the larger businesses, which include Banana Republic, Old Navy, Gap and fast-growing activewear label Athleta. The hope is that changes to the marketing and product, including a long-term collaboration with Kanye West, will once again pique the interest of consumers who remain nostalgic for the Gap label and the grip it had on culture in the 1980s and 1990s.

Smaller divisions like Intermix, which Gap bought in late 2012 for about $130 million, had no role to play in that strategy. A decade ago, Intermix was a 32-store retailer that Gap’s then-chief executive, Glenn Murphy, planned to blow out by developing its then-minor online presence. The chain also gave Gap access to wealthier customers. Long before online luxury players like MatchesFashion and Net-a-Porter invested deeply in accessible luxury in order to expand their own customer base, Intermix — founded in 1993 by Khajak and Haro Keledjian — was a go-to in the US for upscale, but not exorbitantly priced, “going out” and vacation clothes from trendy labels that appealed to a younger, or youth-chasing, customer.

Today, while almost everything in the store is under $1,500, and mostly under $1,000, the brand mix is more varied, with accessible labels like Ganni and Agolde merchandised alongside designer lines Dundas and Balmain.

However, Intermix failed to grow significantly under the Gap umbrella, where its business model and customer profile simply didn’t align with the discount-driven mass market. While online is a bigger component of its business than it used to be, its store footprint is virtually unchanged. According to Gap’s most recent annual report, Intermix generated under $140 million in 2020, less than 1 percent of the group’s nearly $14 billion in annual revenue.

For Intermix, the investment from Altamont is not only a lifeline, but an opportunity to double or triple sales through upfront investment. Multi-brand retail is new for the firm, whose apparel interests are in the sports-lifestyle space, including Huf, Billabong and Brixton.

“Coming out of the pandemic, we fundamentally believe there would be a desire to return to normalcy,” said Keoni Schwartz, a managing director at Altamont. “Intermix is well-positioned to harness that demand, be aggressive and capture an increasing share of that market.”

Like many of its competitors, the online channel became about 50 percent of Intermix’s business in 2020, and Altamont is eager to capitalise on that opportunity, as well as its unique positioning in the market. It has always operated smaller-footprint stores and relied on a local customer, not tourism, which means its fleet is better positioned than those of oversized, over-expanded American department stores.

It’s also a primarily US-based business, with its customer database growing in the “double digits,” which chief executive Jyothi Rao, who joined the business in 2014, and Schwartz both believe give it a competitive advantage over online competitors based in Europe that continue to rely heavily on paid customer acquisition to broaden their reach. About a third of its product is exclusive to the store.


“One of the things we realised is that there is additional market share to grab,” Schwartz said.

At the same time, Intermix is less reliant on one brand or category than multi-brand players, argued Rao.

“Many [of our competitors] have a very large dependency on luxury handbags and footwear,” she said. “We don’t have too many eggs in one basket and we can be agile in how we respond to customer needs. Because of the [small] format of our spaces, we’re not dependent on filling a certain amount of space or buying a certain amount of inventory.”

And yet, multi-brand retail remains challenged overall. Not only does Intermix have dozens of established players to compete against — including Nordstrom, Net-a-Porter, Saks Fifth Avenue, Neiman Marcus and Farfetch— but there are also a spate of new-model marketplaces, including The Yes, The Lobby and Verishop, more directly targeting the customer who doesn’t necessarily shop at the top of the luxury pyramid but is willing to spend $500 on a dress. Not to mention growing competition from individual brands selling directly to the customer.

However, Intermix does have an opportunity to triple its sales to something close to $500 million without spending exorbitantly on customer acquisition. (Once multi-brand luxury players pass the half-a-billion mark, it becomes more difficult to maintain a point of view and keep customers loyal.) While the party-girl aesthetic fell out of the consumer’s favour in recent years, it appears to be returning with a vengeance post-pandemic, with the rise in popularity of early-2000s fashion trends and a general desire to “dress up” once again.

Intermix may have evolved its look beyond resort wear and bachelorette-shindig attire, but consumers once again want to look sexy and wear colour. Rao said that while activewear and sneakers performed well during the pandemic and continue to do so, dresses are already on the comeback, and high heels are even selling from certain brands, like Amina Muaddi.

Now, under the watch of an investor with an incentive to prioritise growth, Rao believes she has an opportunity to capitalise on Intermix’s distinct point of view.

“Altamont really got what makes Intermix special,” she said. “We have an opportunity to double this business in a pretty short period of time.”


Related Articles:

The Contemporary Market Needs a Rebrand

Gap Sells Childrenswear Label Janie and Jack

Duelling Visions for Online Luxury at Mytheresa and Farfetch

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