By  on June 12, 2008

NEW YORK — Jones Apparel Group has acquired a 50 percent stake in Rachel Roy, giving the $3.85 billion apparel giant a long-desired entry into the high-end contemporary market and providing the small design house with vital operational backing.

The fashion company's founder, Rachel Roy, will continue to design and produce the line, with the same 18 employees, in her showroom at 148 West 37th Street here and in the same factories. But with financing from Jones, the three-year-old label will be able to expand beyond its current collection into additional categories, with possibilities including fragrance, footwear, accessories, home and — closer to the designer's heart — a more affordably priced line. Expanding globally and opening freestanding stores are also on the to-do list.

"So many different areas of growth excite me," Roy said. "Having a partner like Jones that is willing to support us is like getting a big brother or family member."

The deal creates a three-way venture between Rachel Roy, Jones and TSM Capital, which acquired a significant minority stake in Rachel Roy in November. Jones will assume operations of the existing designer collection business under license and also will market the line.

Jones, a predominantly mainstream vendor that owns Nine West and Anne Klein, has been looking to invest in the contemporary arena for years, but the high multiples that hot market had demanded were cost prohibitive.

The terms of the deal were undisclosed, but "there wasn't a big exchange of money here," said Jones chief executive officer Wesley R. Card, "but we all have a share in the potential upside of this business."

The result is a lot of industry veterans focusing their attention on the young line. On the side of the Roy company, there is the designer herself and her husband and co-founder, Damon Dash, as well as Stephen L. Ruzow, who has been consulting for the brand. From TSM, there are co-founders Marvin Traub, Mortimer Singer and Aslaug Magnusdottir. From Jones, Susan Metzger, ceo of Jones' women's wholesale sportswear division, will be responsible for the operations of the business.

"When I first got into designing Rachel Roy, I was given this platform by Damon to work on my dream," said Roy, who started her career as an intern at Rocawear. "And no matter how hard I worked, I loved it and never felt the pain — Damon felt all of that."Her husband rubbed his jeans pocket and said, "Wallet shock," shaking his head.

Card rubbed the pocket of his own suit pants instinctively and joked, "I'm worried now."

Roy joined Rocawear fresh out of college, and rose to become creative director of Rocawear's women's and children's lines. While at Rocawear, where she met her husband, she launched her own label in spring 2005. When they both left later that year, the couple kept ownership of the Rachel Roy business, which was initially launched as a contemporary collection before changing tiers to become a young designer line with prices about 40 percent higher.

"Rocawear was a quick flip for me, but we couldn't exploit this brand," Dash said. "We had to protect it."

Retailing from about $650 to $2,995, sources put the collection's sales volume at around $10 million. The line is sold in more than 60 doors in the U.S., including Bergdorf Goodman, Neiman Marcus and Saks Fifth Avenue, and 40 doors worldwide, making international more than a fifth of the company's business. Door expansion, particularly globally, will be one of Jones' first priorities.

"In only about three years in the design business, Rachel has made a great business," Traub said. "Having a partner like Jones will bring it to the next step. It can be as big as a major global design business can be."

Although Dash is campaigning for a men's line, Roy, who just gave birth to a daughter a month ago, vetoed that idea as "last on the list." The closest category expansion to Roy's heart is creating a more affordable collection — one of Jones' specialties. Roy said she plans to use the vendor's resources to research and decide what segment of the market will be the best point of entry for a diffusion line.

"There's a whole world of women who love fashion and it should not be exclusive to women who can afford a $1,500 dress," Roy said. "A lot of my life I couldn't afford to spend that, and my friends and family still can't."

Roy said that after her first appearance on "Oprah," she received about a million e-mails."A lot were positive, but a lot said how they couldn't afford it," the designer recalled. "The second time I went on, I didn't even talk about the product because most of the audience couldn't afford it. There was such a disconnect, which I felt was unfortunate. It's really important to me to make a line more women can afford, but just as important is doing it right."

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