Can L Catterton Scale Kapital Without Sacrificing Its Soul?

When news spread this weekend that the LVMH-affiliated private equity firm L Catterton had quietly taken a majority stake in Kapital, it didn’t take long for “RIP” comments to start appearing under the cult Japanese label’s latest Instagram post.

The deal, which was first noticed by Reddit users and then reported by Highsnobiety, seemed tailor-made to ruffle feathers, at least with online fashion enthusiasts. Derek Guy, a popular menswear commenter known as DieWorkwear on social media, simply called the news “terrible.”

The concern is that what made Kapital special — its painstaking craftsmanship, its unconventional mix of Japanese tradition and hippie Americana — would be lost under the management of private equity, an industry that has a reputation for diluting brands as it scales them to sell for a profit. Historically, cult labels haven’t always fared well when sold to a new owner with an eye on growth, with Supreme offering a recent example.

The nearly 40-year-old, family-run label has remained small even as it has developed a global following. Kapital only has 13 stores in Japan and is notorious for producing limited stock of its most coveted goods, such as handcrafted Japanese boro denim, while also being highly selective about its global wholesale accounts, which include Mr. Porter and boutique shops such as New York’s Blue in Green.

Designer Kiro Hirata — son of the brand’s late founder, Toshikiyo Hirata, who died last year — gives few interviews, and the company hasn’t outwardly signalled any desire for rapid expansion, though it has delved into offering more mainstream products like graphic T-shirts and enjoys a flourishing fandom among hype-driven streetwear consumers.

L Catterton, meanwhile, is a large player in private equity known for its backing from LVMH and investments in brands such as APC, Etro, Ganni and Birkenstock, which it took public in late 2023. It also invests in consumer goods beyond apparel.

The deal arrives at a moment when there’s increased M&A activity within the broader consumer space, particularly for buzzy fashion labels. In November, LVMH’s venture arm invested in Our Legacy and Represent sold a minority stake to private equity firm True. Pitchbook private equity analyst Jinny Choi said L Catterton has been “quite active” within the past year and credits strong M&A activity to cash-rich firms injecting funds into companies during times of economic uncertainty.

“I think at the end of the day, we’ll see a lot of companies turn towards M&A as a strategy to strengthen their market positioning during these volatile times,” said Choi.

Neither L Catterton nor Kapital has disclosed details about the investment, but the pairing raises questions for Kapital fans and industry onlookers alike about L Catterton’s interest in a niche Japanese brand and what Kapital’s future might hold.

What L Catterton Could Gain From Kapital

Nikhil Thukral, managing partner at L Catterton, told The Business of Fashion in an interview last year that he defines a winning fashion company as one with a clear understanding of its customer and how it fits into their world.

Kapital definitely has that.

While it originally gained a following with its denim, today it’s known for a wide range of meticulously made products, often featuring embellishments like distressing or graphics, and counts mainstream menswear style icons such as A$AP Rocky and Travis Scott among its fans. In November, social-analytics platform Trendalytics reported that the number of TikTok posts about Kapital increased 400 percent over the past year. Even the brand’s most idiosyncratic products have been counterfeited.

Kapital also fits with the growing interest among menswear shoppers for niche brands with their own distinct identities.

“I think there’s a lot of fatigue around the same big brands, designers and creative directors who are constantly moving around, and increasing interest in independent brands that seem out of that fray a little bit,” said Highsnobiety editor-in-chief Noah Johnson, who was previously GQ’s global style director. “Power in the menswear marketplace right now is in these smaller homegrown brands that have been around for years with a proven cult-like following. I would imagine that Kapital is pretty desirable for that reason.”

More Than Just a Brand

Loic Bizel, a Japan-based consultant who has helped luxury companies such as LVMH and Richemont connect with the Japanese market, believes L Catterton’s investment in Kapital differs from investments the firm has made in other apparel brands. In his view, L Catterton is also hoping to benefit from its know-how on the production of the label’s highly coveted and distinctive artisanal denim.

Kapital runs four sewing factories and one dyeing factory, according to the profile page on its website. While the brand is quiet about its production prowess, interviews published with brand employees in the past reveal a slow manufacturing process done by hand, which makes some of the label’s most coveted items, such as its Century Denim, nearly impossible to buy — even within Japan, let alone international markets — due to limited production runs.

“There are very few factories actually making Japanese denim, so I see it as a way to secure some sourcing,” said Bizel, who pointed out that Japan’s highly regarded denim industry is built on small workshops.

Whether or not L Catterton wants direct access to Kapital’s facilities itself, the brand’s production abilities were clearly a draw. In its description of Kapital on its website, L Catterton highlighted its expert craftsmen and the fusion of traditional techniques with creative designs at its ateliers in Japan.

What Scaling Kapital Could Look Like

While Bizel does anticipate Kapital expanding its distribution, he believes its unique craftsmanship and production methods mean it doesn’t have the ability to open 1,000 stores or become a $1 billion brand, at least not without compromising its DNA. The fear among its fans is that’s exactly what will happen.

“I get worried when brands expand because I believe expansion brings in compromises that I don’t think are very good for the purist,” Derek Guy said in an interview.

Guy believes the brand has already been leaning away from its artisan offerings to appeal to more streetwear-leaning customers in recent years. He pointed out how Kapital trucker caps, graphic T-shirts and apparel with its signature smiley-face logos and bone motifs have become “luxury flex items” amongst the streetwear set.

Those items might be where the biggest opportunity for quick growth lies and don’t require Kapital’s usual artisanal expertise to produce. By contrast, Guy said he “can’t imagine many people wearing boro [denim] jackets and persimmon-dyed boots.” (Dyeing materials with persimmon juice is one of Kapital’s unusual techniques.)

Neither L Catterton nor Kapital has said what their plans are, and neither replied to requests for comment. Kapital is unlike most M&A targets for private equity deals, meaning there isn’t much precedent on what to expect, akin to Supreme receiving investment from the Carlyle Group in 2017.

L Catterton’s Thukral did tell BoF that another characteristic of what the firm views as winning fashion companies is being able to “define and be true to your DNA.”

For Kapital, that would mean maintaining the approach that has sustained it over the decades, even as it potentially tries to reach more shoppers and expand its audience at home and abroad.