It was only last year that Marco De Benedetti, the Carlyle Group Inc. partner behind its winning wager on Moncler SpA, was saying he spied opportunities for more knockout deals in Europe’s luxury-goods market.

Spin forward to today, however, and the private equity giant has paused its investments in the continent’s consumer companies, according to people with direct knowledge of the matter. Moncler, a Milan-based maker of expensive padded jackets, was a lucrative hit, more than quadrupling the firm’s money. It’s getting harder to repeat the trick.

Like its peers — and Europe’s consumer-goods industry as a whole — Carlyle has suffered as shoppers have been whacked by higher inflation and soaring credit costs, putting the squeeze on some of its investments. At the same time, the firm is going through a difficult period of readjustment as a newish chief executive officer, Harvey Schwartz, tries to find a way to match the performance of peers at the top end of the buyout industry.

With fundraising in Europe slower than hoped for, the local buyout team’s leadership has been overhauled. Massimiliano Caraffa, who headed consumer, media and retail, is on the way out. De Benedetti, the architect of many luxury deals at Carlyle, has stepped down from a senior management role and now chairs the Italy business. Technology punts are in favor instead, at least while consumers stay stuck in the doldrums.

“Some private equity funds have done a great job in consumer and luxury but they came in at the right time, with the right brand and benefited from a sector boom,” says Vincent Barbat, a Paris-based partner at consulting firm Kearney who’s in charge of its Europe luxury coverage. “Will it be possible now? I’m not sure.Creating and developing a brand in the current situation isn’t obvious.”

As well as Moncler, Carlyle made handsome returns on its 2020 sale of Golden Goose, an Italian shoemaker that was riding the mania for deluxe sneakers.
Its current crop of European investments isn’t faring so well, and includes several underperformers, according to analysis of corporate filings by Bloomberg News and conversations with people who know the firm but aren’t authorized to speak publicly. A Carlyle spokesperson declined to comment for this story.

The firm had great hopes for Dainese SpA, which makes high-end clothing for motorbikers, cyclists and skiiers, but the company’s profits have hit the skids. It’s been trying for years to offload Twinset SpA, a fashion outlet for women. And it’s just handed over the keys for End Clothing, which sells branded goods such as Balenciaga and Carhartt, to creditor Apollo Global Management Inc.
Even Golden Goose, in which Carlyle has kept a minority stake, has had a mishap of late. Current owner Permira Holdings postponed an initial public offering in June because of worries that the share price would fall.

Carlyle is far from alone in feeling the broader effects of penny-pinching shoppers, and more specifically of a faltering luxury market that once minted plenty of fortunes but which is in retreat as China sales slow. Other buyout firms are rethinking their consumer exposure, too.

Nor are Europe’s publicly listed titans of fashion immune, as seen in the share price of LVMH Moet Hennessy Louis Vuitton. “The scale of the industry downturn is reflected in the stock performance of some big luxury players,” Barbat says.
Still, the pause in investment by Carlyle and its ilk will weigh on an important part of a luxury ecosystem that’s been a rare industrial success story for Europe of late. While behemoths like LVMH, Hermès International and Gucci owner Kering tower over the global sector, smaller upstarts have been able to tap private equity when they want to reach international markets.

Golden Goose was founded in Venice in 2000 by husband-and-wife duo Alessandro Gallo and Francesca Rinaldo. In 2016, it had sales above €100 million ($105 million), a strong wholesale business and fewer than 100 staff. In the next three years under Carlyle ownership, it cracked the Japanese, Chinese and US markets, went from seven stores to near 100 and lifted earnings swiftly.

Any startup ateliers in Paris, Milan or elsewhere with budding global ambitions will find it much tougher to find backing now. Carlyle has made a similar move to pause consumer investments in North America, people with knowledge of the situation say, although Europe does tend to be the prime conduit for private equity deals given that it’s often home to the most desirable brands.

“Private equity funds are becoming more selective in deploying money,” says Jérôme Souied, another Paris-based partner at Kearney who specializes in their PE coverage. “The industry has faced a slowdown in new investments due to the rise in interest rates which has made the economic equation between the seller and the buyer more complicated.”

One senior financier at Carlyle, who asked to remain anonymous discussing commercial matters, stresses that the firm is pausing consumer investments rather than making a fullblown retreat, and that unlike the fossil fuel industry, for example, the luxury market remains a long-term strategic target.

Nonetheless, the backdrop today isn’t encouraging.
A report last month from consulting firm Bain & Co. found some green shoots in the US, and that Europe has been helped somewhat by tourist spenders. But it estimates that in 2024 the personal luxury goods market has suffered its first slowdown since the financial crisis, excluding the pandemic, with a 2% drop at current exchange rates compared to last year.

A cut in discretionary spending — particularly by younger Generation Z shoppers — has contributed to a 50-million drop in the number of luxury customers over two years, the report’s authors wrote.

“The problem is that luxury can be a ‘want’ versus a ‘need,’” says Oliver Chen, managing director and senior research analyst covering retail and luxury goods at TD Cowen. “You have brands which strive to achieve timelessness, but nobody necessarily needs any of them. The name of the game for many value-oriented consumers is, ‘You only need one.’”

Carlyle’s recent experience of Europe’s consumers hasn’t been all bad. Codorniu Raventos, Spain’s oldest winemaking company, reported a record €39 million operating profit for the year ended June 30, 15% higher than the previous year. The Carlyle-owned cava producer has expanded market share in Spain and abroad in a rough period for its industry.

Italy’s Dainese has, so far, been an unhappier punt. While the clothier made a profit in 2022, the year it was bought by Carlyle, in 2023 it posted a loss of €40 million, according to corporate filings seen by Bloomberg. In Europe, it had overstocked during the pandemic. Slower Chinese growth hurt sales. Higher interest rates tightened shoppers purses in the US.

At the same time, higher borrowing costs — as Carlyle part-funded the buyout with more than €250 million of pricier private notes — put an extra strain on Dainese’s finances. Carlyle covered its losses, according to filings.

Things were worse still at deluxe streetwear retailer End Clothing, a 2021 purchase by the US buyout firm that subsequently struggled with some brand withdrawals, problems with a new stock system and falling earnings. It financed the deal with a private unitranche loan provided by Apollo, on top of some bank debt. Apollo took control of the business in October, filings show.

Those hoping for a quick rebound in well-heeled shoppers’ sentiment may be disappointed, according to Kearney’s Barbat, who points to the additional threat of new tariffs and trade wars to the market for high-end goods.

“I believe the luxury downturn is not a one-year topic,” he says. “It’s going to last longer. Our clients are running different scenario planning models and in their worst-case analysis they estimate that this could last up to five years.”

Even when the tide does eventually turn for luxury markets, the stranglehold of LVMH and its fellow titans will be another challenge for upstarts wanting to compete in the boutiques of London, Paris, Dubai and Hong Kong.

“Private equity firms need to pick their battles,” says TD Cowen’s Chen, who’s also an adjunct professor of retail at Columbia Business School. “Another hurdle they face in luxury is vertical integration, which is expensive. The industry giants own their stores, customer relationships and their supply chain. That’s part of their heritage. How do you compete with them?”