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ALL IN THE FAMILY

The St. John story is a classic American tale of love, family and fashion. Boy meets girl. Girl scores knitting machine through ties as a TV game show hostess. Girl convinces boy to sell her designs. Born is an empire based on the unwavering gospel...

The St. John story is a classic American tale of love, family and fashion. Boy meets girl. Girl scores knitting machine through ties as a TV game show hostess. Girl convinces boy to sell her designs. Born is an empire based on the unwavering gospel that women want to look polished in clothes that withstand the fluctuations of time, not to mention of their own bodies.

And the story doesn’t stop there: The sequel features an heir apparent, with considerable career dexterity as jet-setting company supermodel, creative director and co-president.

In 40 years, St. John Knits Inc. has grown from one hand-cranked knitting machine in the garage of Marie and Robert E. Grays’ modest North Hollywood home to nine high-tech factories (eight around Orange County, Calif., and one just over the border in Mexico.) That first sleeveless column dress has evolved into the full ready-to-wear St. John Collection, as well as the St. John Sport casual line, jewelry, faux-fur outerwear, footwear, handbags, belts, fragrance and home accessories.

Marie Gray likes to proclaim that she has little interest in wooing the fickle fashion media with clothes that real women have no interest in wearing. “We don’t do shows in New York. We don’t get a lot of fashion press. So what? What really excites me is seeing that the customer is loving it and she’s paying full price.”

Kelly Gray, Marie’s only child and the co-successor to her father’s executive post once he retires (she’ll likely be sharing the office with chief operating officer and co-president Bruce Fetter), makes no apologies for St. John’s hallmark consistency in a mercurial marketplace. “We have taken a perverse pride in not being part of the whole scene and being able to stay focused on the customer. If we did do a runway show in New York, it would mean creating something newsworthy, and that’s never been the focus of our customer. We’re lucky. It would be more of a distraction than an asset.”

Observers tend to speak of St. John’s business significance over its impact on the fashion lexicon. “I would never consider St. John fashion forward, but they have been reliable as far as quality is concerned,” observed Sylvia Sheppard, co-author of “California Fashion: From the Old West to New Hollywood” and a former promotions director who first worked with St. John in the Sixties. “But they are a credit to the market, because of their high standards and their `stickability.’ How many firms have their track record? A lot of major fashion contributors are in and out too quickly.”

Today, the company employs nearly 4,800 employees, scattered through its factories and its Irvine, Calif., corporate headquarters; five international showrooms; 28 company boutiques in the U.S. (plus another three on the way before yearend); 10 company outlet doors, and three home stores nationwide. And then there are the St. John in-store boutiques in Saks Fifth Avenue and Neiman Marcus, and in selected Nordstrom stores. The three chains have long considered the brand among their top five performers; it also sells at Lord & Taylor, Marshall Field’s and Dayton Hudson as well as specialty stores. St. John has operated under several incarnations: as a completely family-owned business, a corporate subsidiary, a publicly traded concern and, finally, as a mostly private hybrid. Somehow, even when a weak retail environment dampens sales or an unnerved Wall Street deflates its stock, the company’s overall picture has remained, relatively speaking, as resilient as its trademarked knits. While the Grays retain only 16 percent of the company — Vestar Capital Partners, the private equity investment firm that helped the family with its stock buyout in 1999, holds 77 percent, and the remaining 7 percent continues to be publicly traded over the counter — the Grays’ command over the business’ creative and financial areas is undiminished.

The St. John story actually began well before Robert Gray met Marie St. John, or even before the invention of Marie St. John. The Belgrade-born Marie Hermann and her family relocated to Winnipeg, Canada, at the end of World War II, leaving behind communist Yugoslavia. In 1955, having accepted a job managing Hollywood’s famous Brown Derby restaurant, her father moved the family again.

Soon after, she found work as a secretary and fit model at Cannady Creations, a Los Angeles manufacturer. While she had her sights set on the Hollywood star factory — even dropping her surname for the stage name St. John — she shared a design for a wool jersey chemise that was then integrated into the line and shown by the Cannady sales team, headed by a manager named Robert Gray.

It was far from love at first sight. She apparently found Gray good-looking, but “terribly arrogant,” according to a book written by her sister, Liz Mitchell, and published by the company in 1998.

The only child of a Hollywood stuntman and the daughter of a wealthy Minneapolis railroad executive, Gray grew up in Los Angeles as an avid sports and airplane enthusiast (there have been at least a half-dozen company planes, the latest being what he calls his “nicest so far,” a 10-passenger Gulfstream 2000). After serving in the Army Air Corps in World War II, Gray graduated from the University of Southern California and then gave up plans for law school after an ex-classmate hooked him up with a sales job at his family’s small sportswear firm.

Meanwhile, St. John left Cannady to continue her career, working freelance for Max Factor, Jean Louis and Mr. Blackwell. The 25-year-old also appeared as a hostess on the nationally televised game show “Queen for a Day,” pointing out prizes such as dishwashers and other symbols of better domestic living. A clotheshorse on a budget, she had just acquired her first set of knitting needles when a knitting machine turned up as one of the show’s prizes. She contacted the maker and paid a whopping $450 for it. St. John began selling her experiments and tucking away the extra cash, dreaming of a honeymoon to Hawaii with her fiance, Gray, who by then had been through a divorce and custody battle over his two young sons and become a seasoned figure on the Los Angeles garment scene.

Still, Gray wasn’t sold immediately on his girlfriend’s designs. The knitted sleeveless shells and slim skirts were too simple, he recalled. In an effort to finally quiet her requests, he took along a look on his rounds to Bullocks Wilshire and a local boutique. Eighty-four dresses sold that day.

Their mothers stepped in, lending a hand and $5,000 to meet production demands. At first, Gray’s push to sell a moderate line prevailed. But his fiancee continued to insist on a better-quality product at a higher price. By the time the couple married in 1962, they had five machines and a half-dozen knitters making 100 dresses a week. Despite their promising start, there were production issues and financial challenges, as most profits were fed back into the business. In 1966, the couple, in anticipation of Kelly’s birth, sold their 53-foot boat to meet mortgage payments and the company payroll. That year had signaled a turning point for the fledgling brand, when Robert began insisting that retailers buy the line as a collection instead of ordering the single hottest style. By 1969, St. John hit sales of $1 million wholesale; two years later, the Grays relocated an hour south to Irvine.

From the beginning, Gray has handled the business while his wife has overseen the creative side. On the surface, he appears the stalwart numbers man, as conservative as his financial forecasts. He’s famously fanatical about punctuality. One oft-repeated story has him leaving late-running executives behind on the airport runway. His temper is similarly renowned. Certainly, his staff appears to tread on eggshells in their St. John pumps, even when he’s not around. Observed one retailing veteran who asked not to be identified: “The Grays — especially Mr. Gray — are very difficult people to work with. It’s kind of remarkable that, in spite of that, they’ve forged ahead. But that’s all thanks to Marie.”

Publicly, Marie defers most talk of numbers to her husband, preferring instead to discuss color and silhouettes, though behind the scenes she’s known for a certain competitiveness and finds the weekly sales reports “fun.”

There’s more to the company patriarch than meets the eye as well: He’s showing signs of loosening up. After postponing his retirement several times in recent years — most recently, following the surprise resignation of H.W. Mullins from the presidency last October after only nine months on the job — Gray has his eye on turning over the reins to St. John’s co-presidents Kelly Gray and Bruce Fetter by December. His pending retirement has relaxed him, noted Fetter, who joined the company as vice president of distribution in 1997. “He has been a terrific mentor and given us an awful lot of freedom. I hope it’s because he has the confidence in Kelly and me, and it has allowed him to be a little less hands-on.”

Kelly, of course, is a chip off the old block.

“I would say that I am very much a blend of both my parents. I wish I had more patience from my mom, but I unfortunately didn’t get enough of it.” Like Dad’s, Kelly’s temper is familiar to those around her. But having grown up in a home where work matters routinely made their way into dinner conversation, she has also learned the art of compromise. “I’m probably a very good problem solver and mediator,” she said.

Although official company portraits over the last two decades have focused squarely on the trio, Kelly isn’t the first Gray offspring in the president’s chair. Michael Gray, Robert’s son from his first marriage, reported to St. John for 26 years, starting out in the shipping department as a teen and making his way through the sales, marketing and advertising departments before becoming president in 1987. “It was a great experience,” acknowledged Michael, who left in 1991 to start an Irvine-based wholesale bakery business called The Sweet Life. “Working for a family business, you realize it’s an environment where you learn a lot, but you’re protected from mistakes.”

During his tenure, he helped lay the foundations for developing the St. John brand identity, securing prime real estate for in-store boutiques, initiating the signature store concept, introducing look books for retail buyers and upping the advertising budget with the goal of obtaining national placement.

As for whether he’s given Kelly tips in her new role as president, Michael simply responded: “We’re all pretty independent. She does things her way.” Working for your parents, he added, has its advantages: “You have direct lines of communication and a lot of rope.” The disadvantages? “You have direct lines of communication and a lot of rope,” he repeated dryly.

Doing things Kelly’s way means that she’s eased up on some of her parent’s old-school ideals. Along with shorter skirt lengths, she’s lobbied for clothes that are more contemporary and casual, albeit in keeping with St. John’s classic styling.

While St. John Collection and St. John Sport, launched in November 1995, now account for the majority of the company’s sales, there have been efforts over the years to boost revenues through other lines. The Griffith & Gray collection was launched at retail in the fall of 1994. Headed by Kelly and designer Diane M. Griffith, the mostly woven collection was sold as a “younger and more wearable look,” Robert Gray told WWD earlier that year. Yet within three seasons, the Italian-manufactured line was going through what he called “a retrenching,” eventually pulling out of several wholesale accounts before being phased out completely.

A faux-fur line, manufactured by the French firm Tyber, bowed in fall 1995. The company even briefly dabbled in men’s wear in the Eighties. It decided to test the bridge market, launching SJK by St. John in its department store accounts in 1987. But following a disappointing three seasons, the collection was folded into the company’s basics program.

The Eighties were also marked by the company’s new focus on cultivating its marketplace identity. Advertising became less of an afterthought and more of a well-funded priority, with Kelly Gray as its marquee star since 1982. The taped fashion shows began seven years later as a promotional tool for their retail accounts. A then-unknown teenaged Tyra Banks walked the first runway before 50 employees in the headquarters’ showroom. With the U.S. retail scene in a chaos of mergers and closings, the Grays began considering their own boutiques. The first St. John store bowed in 1989 in Palm Desert, about 90 minutes east of Irvine.

The desire to further expand both domestically and abroad, coupled with Robert Gray’s health problems at the time, prompted the family to make another significant move in 1989. That November, Munich-based Escada AG bought an 83.5 percent stake in St. John from the Gray family for $45.6 million, its first American acquisition. Gray joined Escada’s board, and Escada’s chief executive officer, Wolfgang Ley, joined St. John’s. The autonomous arrangement allowed the Grays to continue running the company.

Four years later, when Escada encountered its own financial woes, it decided to sell its 6,843,747 St. John shares for $117 million. Rather than seek out a new buyer, St. John turned to Wall Street. The Grays held onto 1.6 million shares of the company’s approximately 16.6 million shares outstanding when St. John went public on March 10, 1993, at $17 a share.

St. John’s time on Wall Street was a figurative roller-coaster ride, marked by periods of solid, steady growth, as well as a seesawing stock price and even a lawsuit or two from former partners and shareholders. In that period, the company moved into a 161,000-square-foot building housing its headquarters and a 120,000-square-foot adjoining industrial and storage space in Irvine.

It also was at that time that Kelly was elevated to president of St. John Knits from executive vice president and creative director. Some charged nepotism — which her father denies — and the stock fell on the announcement of her appointment in June 1996. “I don’t take things like that seriously,” Robert Gray said recently. “I have tremendous faith in my daughter and great confidence in her ability. The fact that other people couldn’t see that, well, I can’t do anything about that. What people don’t realize is only the stock took the hit. The company did just as well.”

After some years as a Wall Street darling, the company failed to meet its earnings forecasts, and some shareholders grew instantly testy, even suing the company. The lawsuits alleged that St. John and the family made false statements about the success and profitability of the business and forecasts during fiscal 1997 and 1998, which artificially inflated its stock price. St. John eventually settled the shareholders’ class-action lawsuit for $13.75 million in June 2000, calling it “the more prudent course of action” to stop the drain on corporate resources.

By yearend, Robert Gray made an announcement that would once again dramatically change the company’s structure. With Wall Street’s demand that the company grow at a rate of 20 percent annually becoming too much for the nearly vertical company, the ceo said he would return it to private status. Now St. John could grow at its own pace and not that of Wall Street’s demanding expectations.

The family offered $28 a share, or a total of $490 million, for the outstanding shares. Vestar provided the family with the $154 million of equity financing in the buyout plan, under which the offer ultimately rose to $30 a share, or $522 million. In the end, the partners struck a stock buyout deal valued at about $534 million, including fees and expenses. Chase Manhattan Bank and Chase Securities Inc. arranged $340 million of debt financing. Of that, $235 million in debt remains, according to St. John’s chief financial officer, Roger Rupert.

“Companies usually fund stock repurchase with debt or an investor,” said Carla Casella, an analyst at J.P. Morgan Securities. “It was a combination of both in this case. Many apparel manufacturers are public. I can’t say it’s better or worse. The advantage of being private is you don’t have to answer to Wall Street. You can just run your business how you want to run your business. They’ve run it in a way that’s been pretty favorable to bondholders.”

From the start, Vestar has assumed a hands-off role in its partnership with the Grays. With the privatization, the company set a more realistic growth strategy of 8 to 10 percent annually.

Though Gray called his time on the stock market “a good learning experience,” he noted: “I am not happy with Wall Street today, with the way they treat companies. If they have a bad quarter or something, they just slam the stock. You cannot run a business on a quarterly basis — not without doing harm to the company. Look, I never — I very seldom ever — say I wish I hadn’t done this or that. If I had to do everything over again, I’d probably still do it the same way.”

That includes his decision in January 2001 to name a successor to the ceo slot, with the intent of retiring by the following year. The announcement naming Neiman Marcus honcho H.W. Mullins as ceo was quite a surprise, especially since Neiman’s had just promoted Mullins to head up Neiman Marcus Stores.

By the first quarter of 2001, demand for St. John’s wares had boosted income by 157.8 percent to $9.6 million in the first quarter of 2001, and a 28.9 percent rise in sales to $101.2 million. In-house, the Grays began to set in motion plans to aggressively shore up the company’s accessories program, which they identified as the number one area of expansion.

As it turned out, Robert Gray would have to freeze his retirement plans by another year. Only nine months into his new job, Mullins resigned, citing the difficult challenge of shifting from retail to wholesale. “It wasn’t what I expected,” he told WWD. Robert Gray stepped back into the driver’s seat and named his daughter and Fetter co-presidents.

Robert Gray, who will remain on board after his retirement as a consultant and retain a sizable ownership stake in the firm, remains unfazed. He noted that the company maintains tight control over inventory levels and is expanding its retail division, as well as its accessories categories. Even as the president’s office has been occupied in the last year by two individuals who are not Grays, the future of St. John remains in the singularly minded control of its founding family.

Control, in fact, has long been an operative word at St. John. There’s considerable mention of the obsessive quality control on all of its products, which continue to mostly be produced — down to the gold-dipped buttons — in-house. Marie talks of the way her 40-year partner in marriage and business has carefully monitored sales growth. For his part, her husband now talks of keeping clenched-fist control of the debt costs associated with their 1998 stock buyout, only five years into the initial public offering. Even if it doesn’t reflect well on profits, any excess cash is applied to paying off the buyout debt faster, he said.

“We take pride in being control freaks,” declared Kelly Gray. “It’s not such a bad thing. Because of it, when my parents couldn’t find colors vibrant enough, they decided to start dyeing their own yarn. Then, when the yarn came in and it was streaky, they decided they had to twist their own. Being in control has always been about a premium product.”