Despite the difficulties in the luxury sector, the LVMH-backed investment group L Catterton is taking a risk by pouring 510 million euros ($545 million) into the Italian shoemaker Tod’s, hoping for profits in the double digits. Securing enough shares to potentially take Tod’s private in the near future, this investment marks a big step, with the company valued at over 1.4 billion euros ($1.5 billion).

Despite being listed on the Milan Stock Exchange, the Della Valle family controls Tod’s. Its profitability, however, has lagged behind that of its rivals, necessitating strategic interventions to strengthen its position in the market. Profit margins have been hit by the company’s decision to manufacture in-house rather than outsource, despite the fact that this approach guarantees quality control but comes at a greater cost.

The private equity firm is planning to increase marketing spending at Tod’s in an effort to attract well-heeled Americans by capitalizing on the brand’s reputation for understated elegance. The acquisition of Roger Vivier and the legendary Gommino loafers are just two examples of how Tod’s attracts a demanding consumer, especially in the premium market.

Reviving Fay and Hogan, two of the company’s weaker brands, is proving to be a struggle; reaching today’s consumers will necessitate a new strategy. Given the current state of the business, Tod’s may want to reconsider its long-standing strategy of mostly serving an older audience in favor of reaching out to younger consumers.

To increase sales, Tod’s needs to diversify into apparel and build on the popularity of its iconic goods like the Di Bag, all while increasing its online presence. A retail strategy that takes into account both traditional brick-and-mortar businesses and online platforms is necessary for this.

L Catterton’s investment strategies are free from the constraints of the short-term stock market since they adhere to the five-year timeframe that is common among private equity firms. Operating profit margins could take a hit at first, but growth and a reinvigorated brand are possible outcomes.

Although there has been a decline in demand for luxury goods, notably in countries like China, Tod’s is still in a good position to grow, especially in the rich American market. By utilizing L Catterton’s knowledge and resources, Tod’s hopes to capitalise on its long history of excellence in craftsmanship and storied past to thrive in the dynamic luxury market.