DONNA KARAN’S AGENDA: FIND A CO-CHIEF EXECUTIVE, FIRM UP LICENSING DEALS
NEW YORK — Donna Karan confirmed Thursday that her company is on the search for a top level executive with whom she will share chief executive officer duties.
“We are searching for someone who can realize my vision and strategize this company into the future,” Karan told WWD.
“We have interviewed several candidates, and there are a few possibilities. I would like very much to resolve this as soon as possible.”
Karan’s comments about a ceo search confirm a report in Thursday’s Wall Street Journal that the company had hired a headhunting firm. How-ever, she stressed that she would still share ceo responsibility.
The designer, who is currently the sole ceo of her publicly held company here, also said that various licensing negotiations are well under way, including prospective deals for her beauty business, fragrances, underwear, furniture, watches and luggage. The first license, for home, is expected to be announced in the third quarter, for February 1998 shipping. A fragrance deal is also expected shortly.
“The fragrance would not be a licensing deal, but rather a partnership,” she said. Regarding the other licenses, she said: “We are speaking with several people. All are pending and hopefully will be resolved as quickly as possible.” Those could be finalized by the fourth quarter, she said.
One of the most closely watched parts of the Donna Karan dynamic is her beauty business. Morgan Stanley, Karan’s investment house, has been making presentations to possible suitors. Executives at Paco Rabanne in Paris confirmed that their company, like others, has taken a look at Karan. Others that reportedly have begun exploratory talks are the Intercosmetic Inc. division of Wella, which holds the Gucci license, and Estee Lauder Cos.
Executives at Intercosmetic had no comment, but it is understood that the company is thinking of a joint venture, as Karan proposed.
Lauder, however, which already holds a beauty license with Tommy Hilfiger, seems unlikely to accept anything less than acquiring a license outright. Robin Burns, president and ceo of the Estee Lauder USA division, was said to be one of the Lauder executives attending a recent presentation.
Burns has a solid track record of turning designer beauty businesses into gold mines. When she took over Calvin Klein’s cosmetics business in 1983, sales were estimated by industry sources at $2 million a year with $6 million in losses. When she left for Lauder seven years later, sales were $215 million, and the profit margin was the envy of the industry, cruising at 16 percent of sales.
Another lengthy session with Karan and Lauder is said to be in the works.
At Shiseido, however, a spokeswoman said, the company is not currently considering a deal with Karan.
In the past, Karan has made other attempts to form a working partnership with a cosmetics company, but the effort always proved fruitless. Discussions usually fizzled over the issue of control. Karan and her husband, Stephan Weiss, decided to bankroll their own business largely because they concluded that the standard licensing agreement did not guarantee them the input and control necessary to develop products and build a business with the integrity that would warrant the Karan name. On the other side of the table, the potential licensees felt they would not have sufficient control to protect their investment, which promised to be massive.
In the U.S. beauty industry, the launch of a single department store women’s fragrance requires a minimum investment of $15 million.
Regarding the search for a co-ceo, Karan said it “was put out after we went public.
“It is important for the size and magnitude of our company. We need an executive who will help this company to realize its long-range goals and potential, and to fulfill the promises we made to our shareholders.” She said she will discuss potential candidates with the company’s board of directors.
Karan’s stock has been under intense pressure since it came out a year ago in the mid-20s and shot up to 30 1/8. It has since dropped as low as 8 7/8, but closed Thursday on the New York Stock Exchange at 12 1/2, up 1/2.
“My husband had served as co-ceo with me, and after he stepped down, I was missing that link that he had provided. I was the one who requested this search, and the board supported it,” Karan said Thursday.
She emphasized that Stephen Ruzow, president and chief operating officer, will continue to be “responsible for day-to-day operations.
“I will be in charge of creative, and the other co-ceo will handle the business and strategy.” Ruzow will report to both.
It has been a particularly high-profile time of late for Karan, who was the subject of a hard-hitting business profile in the New York Times May 28, following a poor first quarter.
The designer addressed her company’s history, its strategies and troubles during a speech Wednesday morning at WWD’s first annual Ceo Summit in Carefree, Arizona. She even referred, obliquely, to the Times article in her opening remarks to a gathering of top retail and vendor executives.
“Thank you for coming here today,” she told the group. “I called this summit because I wanted a platform to refute the idea that I am something of a spendthrift. Yes, flying you all here was a bit expensive. But at least I flew you commercial as opposed to chartering private jets.
“Seriously, despite what you’ve read, I am mindful of the budget. No, I’m not your typical ceo — far from it. But to take a company from zero to $700 million says something about how we operate. Do we do it by the straight and narrow? Of course not. We cut on the bias. I’m a creative thinker with a vision. A vision based on a unique understanding of people — how they live, how they think, what they need and want. That’s what founded our company, and that’s what will lead it into the future.”
Karan, however, made sure to point out some of the industry’s self-inflicted woes, including her personal pet peeve: delivery schedules. The designer has long maintained that the combination of early deliveries and markdown schedules has trained the American consumer to wait for sales, leading to earlier, more aggressive markdowns.
“As an industry, we are selling clothes two to three months ahead of the season,” she said. “I don’t know about you, but I don’t buy summer clothes until Memorial Day, and I don’t even think about winter clothes until it’s cold outside. But for some reason beyond my comprehension, stores want us to ship them six-ply cashmere sweaters and double-face coats by July 15. Of course, that’s fine with the consumer, because she’s learning to buy on sale by Oct. 15.”
Karan referred to it as “the white sale mentality,” and said it is the cause of drastic reductions in full-price sell-throughs.
“In February, why buy spring when the customer can buy resort on sale?” she said. “And we wonder why stores and manufacturers are struggling? A question for all of us to contemplate is why retailers need to be manufacturers, and why manufacturers need to assume the role of retailer, building in-store shops, supplying retail coordinators, sales associates, collateral material and marketing tools to assist in communicating to the customer.
“The industry has to come together, to support one another and sell the right clothes at the right time of year,” she added.
As for her own company’s problems, Karan was optimistic, pointing to such profit-makers as internal cost-cutting, a boom in international business and the segmentation of her signature and DKNY lines. International sales now represent one-third of the company’s total business.
“Yes, we had an uneasy transition from a private company to a public company, and we are in the process of addressing that,” she said, adding that her path in the fashion industry “has been about taking risks,” including designing for Anne Klein at age 25 and launching Anne Klein II, “which launched an entire new apparel market called bridge.
“Was it a risk? Absolutely. All successful businesses start off as a gamble.”
At her own company, founded in 1985, she said risks have included starting the DKNY bridge line, her signature and DKNY men’s lines, introducing a beauty company and rolling out her stores internationally.
But it was peanuts compared to the rigors of going public, which Karan compared to giving birth.
“I had been a ceo for 10 years, yet nothing in my experience prepared me for the challenge of going public,” she said. “Like having a baby, it doesn’t matter how much advice you get, how much reading you do — until you go through it yourself, you have no idea what’s coming. My job now is to make Donna Karan International a worthwhile and protected investment. We are a baby company and are still growing, and that growth potential is enormous.”
Understanding her customer doesn’t guarantee smooth sailing in the business waters, she admitted.
“I tell you, I wish I had a crystal ball,” Karan admitted at the end of her talk. “The most difficult part of my job is dealing with the unexpected. So many things happen for which you just can’t plan: deals fall through, key executives suddenly leave, retail changes.
“Competition is fierce. There are less luxury consumers and more bridge companies than ever. The better market heats up, and you have to switch gears immediately.”
The necessary response is “to do what we do best,” she said. “Be creative, innovative, flexible. Be committed and find the balance. We’re learning to cut budgets without sacrificing productivity, and to maximize the potential of every move we make.”
But a strong internal structure means nothing if the consumer is confused by the message, she said.
“It’s no longer just about the clothes,” she insisted. “It’s now about how it’s sold, when it’s sold and where it’s sold. You’ve got to educate everyone, through merchandising, marketing, advertising, public relations, retail development, coordinators, mailers, point-of-purchase videos and shop-in-shop environments,” said Karan. “Being a manufacturer today is not just about manufacturing, but reaching the customer. Unfortunately, this all costs money — lots of money.”
The company’s decision last year to segment its brands into distinct labels — Collection, DKNY, Classics, DKNY Jeans and Active, D — will result “in a major payoff down the road,” she said. “There’s too much at stake now. We’ve got to work to make shopping easier, understanding and catering to the customer needs, knowing their lifestyle and providing the right product at the right price.
“That’s why I believe so strongly in brand segmentation….Why break one powerful brand into five? We need to clarify things for the customer. A collection weakens when it tries to be all things to all people. When you separate it into labels, it becomes stronger. Each label can realize its own potential.
“Whether you’re a private company or a public company, you have to move forward,” Karan added. “You learn from your mistakes and try your hardest not to repeat them. You find the balance between short-term solutions and long-term investments. And as part of this, you listen to your gut, since that’s what got you here in the first place. We plan to still take risks, and don’t expect us to stop innovating fashion. I believe our products make a difference in the world. Our sales numbers prove it.”
Related Articles