LOS ANGELES — A second generation is officially assuming the reins at St. John Knits International, withRobert E. Gray, founding chief executive officer and chairman, turning over ceo duties to his daughter, Kelly Gray, and Bruce Fetter, who has been chief operating officer and co-president of the company with Kelly since last October.

The younger Gray, 36, has served as creative director and signature model for the brand her parents founded in 1962.

Fetter, 47, retains his chief operating officer title, while Kelly Gray remains creative director.

Robert Gray surprised staff at St. John headquarters in Irvine, Calif., Monday afternoon when he made the announcement of his retirement and the executive promotions over a cake celebrating his 77th birthday.

"It was teary and emotional for every one," said Kelly Gray, who had known about the decision since Friday. "I’m not sure the reality has quite sunk in yet. It really hasn’t for me."

In fact, it was for reasons as simple as his birthday that the senior Gray said he decided to choose that moment to make it official. "Kelly and Bruce have proven in the last 12 months that they’re very capable. They’re doing a great job," he said.

He remains honorary chairman of the board as well as a consultant, although he stresses he "definitely will not have anything to do with the day-to-day responsibilities."

Jim Kelley, co-founder and partner in Vestar Capital Partner, a majority stockholder in St. John, has been named chairman. The private equity firm joined the Gray family in 1999 in a stock buyout that gave 77 percent to Vestar, 16 percent to the Grays and left the remaining 7 percent to be publicly traded over the counter.

In addition, many of Robert Gray’s financial duties will be taken over by Roger Ruppert, senior vice president and chief financial officer, who has been appointed executive vice president and cfo. "With Kelly and Bruce moving up, we thought we needed another person in upper management," said Robert Gray. "He was the logical person."

Added Kelly Gray: "Roger is one person in the company whose respect I worked very hard to earn."But the founding daughter has also had to work hard and fast to gain the respect of critics who questioned her appointment to president in 1996, a decision that wasn’t helped when the stock at the then-publicly traded company had a single-day drop of 7.5 percent in value. Yet, that appeared like old news recently with third-quarter reports of net income nearly doubling and jumps in sales and retail revenues.

In essence, neither Kelly Gray’s nor Fetter’s responsibilities will changemuch from what they have been in the last year. Gray will continue to oversee sales, advertising, merchandising, product development and the retail environments, while Fetter focuses on the operating side, including human resources, real estate, construction and production.

"For all intents and purposes, this is business as usual. Kelly and I have been running the business for the last 12 months, and Bob Gray’s role has been on more of an advisory level," said Fetter, who joined the company in early 1997 as vice president of distribution.

Gray said she’s much more aware of one reality: "There’s more accountability. It’s our name on the check."

And her face in the ads. Even as co-ceo, she said she has "no plans to hang up her pumps yet." Still, she conceded, "there are many challenges in front of us."

She and Fetter have been developing the revived ventures into footwear and accessories (former Calvin Klein accessory senior vice president Peter Macri was recently appointed to senior vice president, nonapparel, at St. John), as well as expansions into Japan and Europe. While the latter is mapped out in a three-year strategy, Japan is on the schedule today. A letter of intent went out last week on a 3,300-square-foot space in Tokyo’s Ginza shopping district, according to Fetter, slated for St. John’s first flagship there. Two smaller signature stores now operate in the city.

"It will be our first chance to show the entire St. John product line," said Fetter, who expects to have the flagship opened by spring 2003. "And we’ll be able to demonstrate to our key retail partners there that more space for St. John is the logical move to make."Although the company patriarch will retain his secretary and office, he said he intends to become "a more full-time boater." He can also now accompany his wife and company cofounder, Marie Gray, who continues as head designer, on her business travels.

Gray was forced to step back last October following the surprise resignation after only nine months on the job of H.W. Mullins, the first non-family member to helm the company and a former chairman and ceo of Neiman Marcus, St. John’s largest resource.

"You know, this is the second time I retired," he said. "This time it’s going to stick."

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