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Michael’s Latest Project: Kors Out to Build 100-Store Chain

Michael Kors is looking to turn his recognition as a judge on "Project Runway" into the financial success that has eluded him over the years.

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NEW YORK — “Can I get your autograph, Michael?”

Soccer moms and skateboard kids alike circled Michael Kors at The Westchester mall last week, hugging the designer, posing for a snapshot with him and lauding his star turn as the photogenic judge on “Project Runway.” Kors was at the White Plains, N.Y., mall to open his second lifestyle concept boutique, and the reaction of passersby is an indication of Kors’ profile being at an all-time high.

Where he was once labeled as the designer darling of the Park Avenue princess, Bravo’s hit TV show has catapulted Kors into the mainstream. Now the designer of luxe American sportswear faces the ultimate challenge: to translate his newfound recognition among TV junkies into a financial hit.

Over the past 25 years, Kors has struggled to build his business into significant volume, with several licensing deals failing to take off to support his small, but generally well-received, Collection business. Collection continues to be an important but still small business; the bridge Kors Michael Kors line faltered except for its licensed footwear, and the better-priced women’s and men’s Michael Michael Kors line, launched with much fanfare in 2004, got off to a rocky start, prompting multiple layoffs and the shutdown of Michael men’s wear earlier this year.

When Lawrence Stroll and Silas Chou bought the company in 2003, executives spoke of the brand’s $1 billion potential. Market sources indicated that goal is still light-years away, but Kors is now taking several strategic steps to grow his business and cash in on the heightened awareness of his name. Among the biggest moves is that, just like so many other designer brands in this new Darwinian climate, he’s turning himself into a retailer with his new lifestyle stores.

The concept was unveiled at the NorthPark Center in Dallas last month, followed by the Westchester unit. Kors plans to take the multitier concept to The Pier at Caesars in Atlantic City in October, and the Town Center Mall in Boca Raton, Fla., in November. According to John Idol, chief executive officer and a partner in Michael Kors Inc., the plan is to have 100 such stores by 2009.

The stores send a clear signal of where executives see the bread and butter of the company’s future — handbags and shoes. Idol said accessories account for 60 percent of the company’s total volume and the plan is to boost that to 75 to 80 percent in the next two or three years. To that end, the new stores focus heavily on accessories and mix items from the designer’s three tiers: the top-level Michael Kors Collection, the bridge Kors Michael Kors and the better Michael Michael Kors. The store cross-merchandises the three by trend rather than tier, and retail prices range from $24.50 for a tank top to $12,000 for a crocodile handbag. Kors maintained that this was a deliberate move to reflect changing consumer buying patterns.

“Everyone does the talk but no one walks the walk,” he said. “Everyone says it’s all about the mix, and that she wears couture with denim, or sable with flip-flops. This is how a lot of people want to shop, but no retailers ever follow through with it.”

The stores, Kors said, will help him develop a new generation of customers who may only buy a $38 key fob now but, once acquainted with the brand, will one day become loyal Collection shoppers. And Kors needs quite a few of those new customers if he and his business partners want to reach that $1 billion goal. While one industry source pegged Kors’ total retail sales at about $500 million, other market observers estimated they fall far short of that figure. Many remained skeptical that sales are exceeding the $100 million mark at wholesale.

“These stores open us up to an enormous group of people who know the name but perhaps haven’t had the chance to see the clothes or the product that often,” Kors said. “In certain instances, they have never seen it all under one roof. It broadens our horizon.”

The 3,000-square-foot Westchester unit, which was created by architect Michael Neuman, has an inviting all-white interior, with polished white marble floors, zebra-fabric-covered furniture, brushed steel fixtures, Lucite shelves and ebony wood tables. While the store is peppered with a piece of clothing here or there, there’s no mistaking the concept is focused on accessories, which account for 70 percent of the merchandise on display. The clothing on tap does not require extensive fittings, such as peacoats, fur vests and jeans.

The store’s merchandise is organized by a theme, which changes every eight weeks. For the launch, it is Twisted Preppy, suede boots, stacked wedges and peacoats. Upon entry, the customer faces a flat screen displaying the current Collection runway show. In front of the running reel are two rectangular display tables set up like a runway, with top items that mirror the mood of the season, as well as accoutrements to underscore that mood, such as vintage editions of the J.D. Salinger classic “The Catcher in the Rye” or DVDs of “Love Story.”

Each store also has exclusive items. In Westchester, these include the Jet Set Michael monogram travel collection, from $30 for a wallet to $450 for a large duffle; a Michael Kors argyle mink vest for $7,000; a Michael Kors sheared mink rugby scarf for $1,995, and Michael jeans for $129.50.

Kors said he came up with the multipriced concept when thinking about the Michael better line.

“I would look at a shoe at $99 and realize there is nothing wrong with it,” he said. “That’s very American. This is the land of Norman Norrell and Levi Strauss. My attitude was, why not mix it up? Normally, when you think about it, she’d have to shop in five stores to get this mix, and who has time?”

Sales projections for the new Westchester unit are $1,000 a square foot. All lifestyle stores initially will be located in malls, but Idol didn’t rule out street-level locations, with plans to eventually open two to three such boutiques in New York, and further units in Chicago, San Francisco and Miami.

And the retail expansion isn’t the only push Kors is making to grow his business. The company launched an e-commerce site earlier this month with Neiman Marcus Direct, offering a similar mix of accessories from the three lines, including fragrances and select apparel. Come February, Kors will launch his first catalogue, also with Neiman Marcus, which will be shipped to approximately 750,000 shoppers. It is expected to appear each spring, fall and holiday.

The moves are aimed at growing a business that some industry observers still consider challenged.

Idol conceded the Michael women’s apparel business was difficult in its first year, but claimed it is now back on track. At the launch, there were reports of delivery problems, inconsistent fit, excess inventory at retail and layoffs. One source said that, in the first year, a large amount of Michael inventory made its way to off-price retailers.

“The customer expected a product that was much younger, much faster, much more trend driven,” Idol said. “The minute we changed the philosophical design of that product, the product really was very successful.

“The layoffs were a complete and total misconception,” he added. “When you start a company from scratch and go quickly, you set up your staff a certain way, and quite frankly, we probably had a few too many people on the back end of the company. But we readjusted quickly.”

According to Idol, Michael is sold in about 400 doors, including Macy’s, Lord & Taylor and Nordstrom.

“I think they’re still trying to evolve and develop and identify their formula,” said Andrea Goldreyer, a market analyst for better sportswear at the Doneger Group, the large buying office here, of the better line. “But they have certain categories that have been consistent, such as their halter business, which has been a key item; their tunics, and their pants. We have great hopes. Certainly the potential is there, but we will have to evaluate spring and see how that goes.”

As for continued speculation about woes in the Collection business, Idol noted that it “experienced tremendous growth in dollar sales and door growth.” Collection is sold in about 75 doors, including Neiman Marcus, Bergdorf Goodman, Saks Fifth Avenue, Nordstrom and Intermix. The company currently has four Collection stores: Manhattan; Beverly Hills; Manhasset, N.Y., and Dubai. Idol said there are plans to open at least another five to six more U.S. Collection units in cities such as San Francisco; Bal Harbour, Fla., and Costa Mesa, Calif.

“We had a difficult spring season, which was part of some missteps we made,” Idol conceded. “Our pricing got a little out of line and was probably about 15 percent too high. We picked some fabrics that were probably a bit too expensive. We were a little surprised — she [the customer] stopped and said, ‘No, I am not going to pay for it.’ We have readjusted our prices for the fall and our business has been pretty good.”

Ron Frasch, vice chairman and chief merchant at Saks Fifth Avenue, echoed the sentiment. “We came off a terrific August, and we are working very closely with John and his team to get this business built again. They are really making the right strides,” Frasch said. “Michael Kors as a brand is very important, but when you go through a change, it takes a few seasons to get it right, which is what has been happening under John’s leadership.”

Frasch also noted that Kors footwear and Collection footwear and handbags have performed particularly well recently.

Jim Gold, president and ceo of Bergdorf Goodman, said Kors is a “large and important business for us.”

“Michael Kors’ fashion is consistent, straightforward and lifestyle driven,” said Gold. “Core classifications such as luxurious knits, denim and suitings are great key item styles at attractive price points. He also has excellent deliveries.”

Gold added that Collection has growth potential at Bergdorf’s.

“There is definitely a client for great American sportswear,” he said. “Michael’s customer is extremely loyal and loves the fact that Michael knows exactly who she is and how she wants to dress for every occasion.”

Idol said he has no intention of adding licenses to Kors, unless they are in categories that require them. On Friday, the company is launching its first home collection of sheets and towels with a shop-in-shop at Bloomingdale’s. The collection is manufactured under license with Revman Industries.

“I was the one who said we will get to $1 billion,” Idol recalled. “In all truth, while the past two years have been the hardest, it’s hard to take something small to big. The next phase will be more difficult, because now you have to execute. You have the platform to take the company and double and triple it. We’re up to the challenge.”

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