In a recent Financial Review article discussing the threats to Australian brands (If the Billabong brand is worth nothing, which brand will be next?), Griffith Hack Valuation Director, Tim Heberden, discusses the threat that online and global competitors pose to Australian retail brands. Highlighting the clothing retail sector as one particular category at risk in the new environment, Tim comments that Australian retailers are vulnerable due to the ease of buying clothes online from international retailers; however, a strong brand is a powerful weapon in protecting customer loyalty. The proviso is that the retail experience in all channels must keep pace with international standards.

A question that the AFR article did not explore is whether Billabong international’s write-off of brand value means that the intrinsic value of the iconic Billabong brand is zero.

The answer is a clear ‘no’! Although the Billabong brand has lost some of allure, it retains strong brand equity amongst large parts of its target market. Any declines in brand equity are dwarfed by the implosion of market capitalisation and the balance sheet write-off. The latter takes account of the value that the brand generates in its current use (i.e. within the current operating structure). Thus, the profitability of the brand has been impaired by operating problems concerning the retail infrastructure and level of debt. These operating problems have resulted in the market value of Billabong International plummeted by over 90% since its 2007 peak. The corporate reputation has also nose-dived amongst disgruntled investors and analysts.

However, If the trade marks were held in a special purpose vehicle – protected from the burden of the retail infrastructure - they would have a value far in excess of the current market capitalisation of Billabong International. The difficulty is untangling the valuable intellectual property from the underperforming bricks and mortar.

The ownership of intellectual property in specialist holding companies is not uncommon in multinationals. The securitisation of trade marks is less common, but examples include Sears raising US$1.8 billion through securitising the Kenmore, Craftsman and Diehard brands.

Click here to read the full Financial Review article.