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Carving Out Their Niches Despite Bad Blood

Former business partners Elie Tahari and Theory's Andrew Rosen may have been locked in legal combat for the last nine months, but their brands appear to have thrived.

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Former business partners Elie Tahari and Theory’s Andrew Rosen may have been locked in legal combat for the last nine months, but their brands appear to have thrived.

Leading consultants said the Tahari and Theory businesses are top lines for their retailers, including Bloomingdale’s, Bergdorf Goodman, Barneys New York and Saks Fifth Avenue. The stores declined to comment on the businesses or the relationship between Tahari and Rosen.

Theory, which is sold on the contemporary floors of department and specialty stores, has extralarge selling space, prominent placement and is positioned next to labels such as Diane von Furstenberg and Vince and Rebecca Taylor.

Tahari has gained ground in the bridge area, also with large shop-in-shops — particularly at Saks in Beverly Hills, where the designer opened a 5,000-square-foot space in May. Tahari is more fashion-forward than many of its neighbors in bridge, such as Ellen Tracy, Eileen Fisher and Dana Buchman. In many cases, retailers choose to place Tahari next to brands like Tory Burch and DKNY. The brand also has an array of new product categories.

“Both of these brands continue to perform very well,” said Harry Bernard, executive vice president and chief marketing officer at Colton Bernard Inc., a San Francisco-based consulting firm. “In women’s, Theory has been a big deal for quite some time now. Women trust the fit and quality and they continue to shop Theory for that reason. Tahari has more of a fashion appeal, but has not been as successful in men’s, where Theory does very well.”

That said, Bernard sees Tahari plugging ahead at a faster pace.

“Elie is far more aggressive and competitive than Andrew,” he said. “His line has more appeal on the floor, which helps a great deal and will benefit him for future growth.”

Andrew Jassin, managing director at the Jassin O’Rourke Group, a New York-based industry consulting firm, agreed that Elie Tahari and Theory are cornerstones in their individual markets.

“They really are both the brands of choice in their markets,” Jassin said. “Tahari is more established and is taking more market share, but Theory does have a lot more room to grow.”

Jassin said that he sees opportunities for both brands to grow through licensing, especially in areas such as home and accessories, which they have yet to tackle.

Rosen and Tahari established Theory in 1997, launching with great-fitting pants with stretch and evolving into a complete sportswear collection using modern silhouettes and innovative fabrics.

Six years later, Rosen and Tahari, who were 50-50 partners, sold the firm to Link International, Theory’s Japanese licensee, and Fast Retailing Co. Ltd., a multibillion-dollar retailer and owner of the Uniqlo brand in Japan and the U.K. The sale price wasn’t disclosed at the time. Link and Fast Retailing purchased 89 percent of the U.S. firm, and Rosen retained 11 percent. Tahari sold his stake and was said to have made more than $50 million in the deal.

In 2005, two years after the purchase, Theory was resold in an initial public offering on the Tokyo Stock Exchange with a market capitalization of $500 million, almost five times the initial sale price. Last September, Tahari sued Rosen and his business colleagues for $182 million in damages in New York State Supreme Court. Tahari sought to recover half of the $500 million market capitalization of Link Theory Holdings, less the amount that he received for his interest in Theory in 2003, as well as royalty payments.

Tahari was said to be upset that he missed out on the public offering, especially since he had been the principal investor in Theory. He alleged “commercial treachery and fraudulent self-dealing.” His complaint charged breach of fiduciary duty, fraud, constructive trust and accounting and unjust enrichment, negligence and breach of contract.

In addition to Rosen, the suit named Chikara Sasaki, Link International, Link Theory Holding Co., U.S. Theory Group, L&F Holdings, Fast Retailing, Global Retailing, Global Investment and Makoto Hata as co-defendants. Tahari alleged in his lawsuit that Rosen misled him into selling Theory for less than the company’s true value, and said in court documents that Rosen and the others in the case stole more than $220 million from him.

The lawsuit was decided overwhelmingly in Rosen’s favor last week. Justice Helen E. Freeman dismissed six claims related to the sale of Theory, but granted one that involves royalties Tahari said he is owed for the sale of Theory clothing in Asia.

In an interview during Theory’s “Going Green” event this month at the company’s flagship at 40 Gansevoort Street in New York’s Meatpacking District, Rosen said that business is moving upward. “This season has been one of the best in a while,” Rosen said.

The spike in business is largely due to the company’s corporate move to Gansevoort Street, where Theory took over an entire building, Rosen said. The store occupies the ground floor of the structure, which allows company executives to keep a close eye on bestsellers. Rosen moved Theory there last fall, after leaving his office space in the W. R. Grace building on West 42nd Street in Midtown Manhattan, where Tahari’s offices remain.

“Since the move, it’s easier to communicate and the space allows us to be more inspired,” he said. “I really believe that the space will allow us to get better and help us to improve and evolve.”

Also working to grow with the hopes of becoming a $1 billion company, Tahari said that his business does well, no matter where he sits on the selling floor. Although he admits that his label really isn’t contemporary, Tahari doesn’t see it as a traditional bridge brand either. Some retailers are confused, as well. Elie Tahari does sit on the contemporary floor in some stores where a bridge floor doesn’t exist.

“If we are on the bridge floor of a particular store, we dominate there,” he said. “Theory tends to dominate in contemporary, but we also do very well when we sit on that floor. In Bergdorf’s, we sit in contemporary and have a lot of space and continue to do well. In New York’s Saks, we have the largest department in their modern bridge area and bring in about $10 million, and that’s just in one store.”

Tahari said that department stores tend to have an archaic way of thinking when it comes to placing a brand on a certain floor.

“In a bridge department you can find Elie Tahari and Tory Burch and Dana Buchman and Ellen Tracy,” he said. “We all hang there because we all sit around the same price points. But that doesn’t mean that the Tahari customer and the Ellen Tracy customer are the same. They are not the same at all. A woman who shops for Ellen Tracy isn’t going to fit into my clothes.”

THEORY

March 2005: Andrew Rosen names former Donna Karan designer Istvan Francer as women’s fashion director.

June 2005: The firm goes public on the Tokyo Stock Exchange.

July 2005: In just one month, shares of Theory Holdings Co. Ltd. rise 25 percent. Wholesale volume climbs to $300 million.

June 2006: Laura O’Connor leaves her post at Urban Outfitters to become president of Theory’s women’s business.

September 2006: Rosen announces the planned launch of Premise, a new bridge line, for spring selling. He projects first-season wholesale volume to be between $4 million and $6 million.

November 2006: Theory opens its worldwide headquarters and flagship at 40 Gansevoort Street, in New York’s Meatpacking District.

March 2007: With 16 stores and 15 outlets in the U.S., Theory opens its first European unit in Paris. Rosen begins aggressive international growth and plans to open stores in Monaco, Athens, Beijing, Shanghai and Hong Kong.

April 2007: Theory inks a deal with French eyewear maker L’Amy to launch optical on a worldwide scale for spring 2008 selling.

June 2007: Theory opens its second store in Southern California, a 4,000-square-foot space on Melrose Avenue in Los Angeles.

ELIE TAHARI

October 2004: After the sale of Theory and some money to invest, Tahari puts in a $400 million bid for Barneys New York. He loses out to Jones Apparel Group and decides to invest in the growth of his own label.

December 2005: Tahari opens a 2,000-square-foot store at Phipps Plaza in Atlanta.

January 2006: Opens a 2,600-square-foot store in Boston’s Copley Plaza, bringing his freestanding store count to five, and announces the launch of an extensive accessories collection that includes shoes and handbags as well as men’s sportswear, ready for a fall launch.

Spring 2006: Tahari launches his first global advertising campaign, photographed by Glen Luchford.

September 2006: The designer launches T Tahari, an exclusive line of better sportswear, in 122 Macy’s stores.

January 2007: Tahari promotes his wife, Rory, to vice chairman from creative director.

February 2007: Tahari inks a deal with S. Rothschild & Co. to manufacture a line of coats and jackets under the Elie Tahari and Tahari labels.

May 2007: Saks Fifth Avenue in Beverly Hills opens its largest in-store boutique for a bridge brand. The 5,000-square-foot shop sells only Elie Tahari.

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