By  on August 22, 2005

NEW YORK — In what might seem like a marriage of strange bedfellows, Nordstrom Inc. has purchased a majority interest in Jeffrey.

As part of the deal, owner Jeffrey Kalinsky will become director of designer merchandising for women's and men's at Nordstrom. He will continue to operate his Jeffrey stores as president and chief executive officer.

The luxury designer specialty stores, Jeffrey New York and Jeffrey Atlanta, along with a Jeffrey shoe salon in Atlanta, did $35 million in sales last year.

Kalinsky and Pete Nordstrom, president of Nordstrom full-line stores, declined to discuss the purchase price; however, retail experts said the Jeffrey businesses likely fetched $40 million to $50 million.

Kalinsky was a pioneer in 1999 when he opened Jeffrey New York in a 12,000-square-foot space at 449 West 14th Street between Ninth and 10th Avenues. It was the first fashion business in the neighborhood, a temple to high style with collections from Gucci, Jil Sander, Helmut Lang, Jean Paul Gaultier, Alexander McQueen, Ann Demeulemeester, Balenciaga and Dries Van Noten.

At first glance, Kalinsky and Nordstrom might seem like an odd match. Kalinsky is a downtown denizen and standard bearer of the avant garde, given to wearing shirts in florescent colors, while Nordstrom is buttoned up. They were on the same wavelength, however, on Friday morning as they sat around a table in Kalinsky's office discussing the newly consummated deal, which is being announced today.

"For me, the excitement is being a part of Nordstrom," said Kalinsky in an exclusive interview. He will report to Nordstrom, as do Sue Patneaude, executive vice president of designer apparel, David Whitman, executive vice president of men's and Margaret Myers, vice president of main floor accessories.

"The motivation was recognizing what a talent Jeffrey is," Nordstrom said. "If there was any way that we could work together, I wanted to make it happen. Designer has been our top-growing category. This demonstrates our commitment to designer. We want to grow it and work at it. We're going to carry a broader array of products."

Nordstrom — which has 95 full-line stores — wants to build its designer business, which continues to fuel its strong performance. The company reported a 39.3 percent jump in second-quarter profits to $148.9 million, exceeding analysts' estimates by a nickel. Sales, meanwhile, rose 7.8 percent to $2.1 billion.Nordstrom hasn't ruled out opening additional Jeffrey locations.

"Are there opportunities for the business to grow?" asked Nordstrom. "We want Jeffrey to fully realize his dream for what this business can be. If a new Jeffrey makes sense down the line, we will do it."

Leveraging Jeffrey's name at Nordstrom is a no-brainer. Asked about a line with the Jeffrey label, Nordstrom said: "Why not? About 13 percent to 14 percent of our business is private label. That door's completely opened."

For his part, Kalinsky said he's "much more anxious to work with the Nordstrom team and make a contribution to the designer area."

"To take the next step in designer, we're going to have to take a more synergistic approach," Nordstrom explained, noting that buyers now stay within their respective categories. He suggested there will be more crossover.

Nordstrom has not been as acquisitive as other retailers such as Neiman Marcus, which acquired stakes in Kate Spade and Laura Mercier, or Saks Fifth Avenue, which purchased Club Libby Lu and is now looking to shed it.

"We've never done anything like this before," Nordstrom said.

Actually, Nordstrom bought the Façonnable brand in the fall of 2000 for $170 million. In addition to selling the label in the store, the company has opened Façonnable boutiques in major U.S. cities.

"The idea of bringing Kalinsky's talent in-house is really an innovative move," said Manny Weintraub, a retail analyst. "They're extending the Nordstrom brand to another level. It's been a store for women who want great service and mainstream fashion. Now, women who are more fashion-forward can go to Nordstrom."

A former luxury retail executive said Nordstrom wants to get on a more comparable footing with Neiman Marcus, Bergdorf Goodman and Saks Fifth Avenue.

"It's a bit of a laboratory and a bit of leveraging Jeffrey's relationships," the former executive said. "It's certainly a way to buy entry to the designer world. This is a somewhat different way of doing that than if they raided someone from a traditional store. I think Nordstrom's wants to ensure that there's a greater differentiation between them and Macy's.""In some ways, it's kind of clever," said investment banker Peter Solomon of Peter J. Solomon Co. "Nordstrom is buying into the Barneys New York sensibility at low cost. It's interesting to see a retailer use some imagination."

Others, however, took a more wait-and-see attitude toward the deal.

A luxury merchant, who asked not to be named, said, "It's so extreme that it might work. When you look at the selection of merch offered at Jeffrey compared to Nordstrom, it's the wildly fashion-forward customer versus the Midwest customer."

Speculation about Kalinsky putting his business up for sale has swirled for years. In 2001, he denied the business was on the block after press reports that Neiman Marcus and The Leiber Group reportedly eyed it.

Last September, speculation again circulated. Kalinsky said he wasn't actively selling the store, but that anything was for sale at the right price.

Peter Nordstrom read the reports. Then, Patneaude began talking about Kalinsky to Nordstrom. When Patneaude and Kalinsky met in Milan during the collections, she urged him to call her boss. "I think you ought to give him a call," she said. "He won't call you."

After the collections, Kalinsky called Nordstrom. The following week, Nordstrom was in New York for a tour of Jeffrey New York. In December, Kalinsky flew to Seattle.

"I left the next day feeling so high," Kalinsky said. "I felt like we had a great first date and a great second date."

Kalinsky was hoping Nordstrom would pop the question, but all he did was suggest they speak after the holidays. By February, though, things started moving quickly.

"Taking his skill sets to a broader universe was very exciting to Jeffrey," said Bill Susman, president and chief operating officer at Financo, which served as Kalinsky's adviser in the deal. "Pete Nordstrom's vision to provide great choices and great merchandise with an increasing designer element made it an attractive combination."

"What he brings in terms of added value to designer merchandising at Nordstrom will be significant and allows Jeffrey to play in a much bigger arena," said Gilbert Harrison, chief executive officer of Financo."Nothing at Jeffrey is going to change," stressed Kalinsky. "I'll still be picking out the clothes with David Rubenstein [buyer for Jeffrey]. I'll devote 30 percent of my time to doing the things that Pete wants me to do. I have 100 ideas a day. Depending on how much these guys want to be talking to me, I'd love to spout them out."

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