Steve Russo is a gambler.
This story first appeared in the December 19, 2011 issue of WWD. Subscribe Today.
The man behind the backpacks emblazoned with characters from Marvel Comics, SpongeBob Squarepants and Hello Kitty is the new kingpin of the contemporary handbag market, a sector known for being overcrowded, highly competitive and unfocused from a fashion standpoint.
Under Artisan House, the upscale spin off of his lucrative children’s accessories firm Fab Starpoint, Russo has quietly amassed a portfolio of five contemporary handbag brands —and is in the process of signing a sixth before the year is up.
This month, Artisan House, which already owned Isabella Fiore and Danielle Nicole, bought handbag and apparel brand Foley + Corinna. It also signed renewable multiyear licensing deals with Gwen Stefani’s L.A.M.B. brand and with Charlotte Ronson, which will launch its first handbag collection this fall.
While there are many companies out there with a hefty portfolio of handbag brands, Artisan House’s conglomeration of specifically contemporary ones is rare — and risky considering the competitive nature of the space for smaller brands, according to Russo and retail experts.
“After the market crashed and the dust settled, I saw that the contemporary market became a couple of brands dominating the space and the midsized brands started to lose the ability to support the retailers,” Russo said, explaining that smaller brands were neither able to meet the gross margin requirements of department stores, nor were they able to obtain credit from banks to grow their businesses. This caused many independent brands to wilt away, as consumers drastically pulled back their spending.
The contemporary space, which in part is defined by its attainable price points that range from $100 to under $1,000, has quickly become the sweet spot for handbags, and it hasn’t gone unnoticed by large retailers, which have thronged to the market on a mass scale.
With independent brands having trouble finding their footing, many brands like Coach, the Marc by Marc Jacobs line and fast fashion’s H&M quickly picked up share, dominating the contemporary market.
“I saw this as an opportunity to put Artisan House together,” Russo said. “No matter how much the industry is suffering, consumers didn’t move out of the country. They are spending less, but the consumer is there.”
According to Russo, by aggregating a fleet of smaller, buzz-worthy brands, he will be able to approach large retailers with some clout.
“The things we’re trying to do at Artisan House, if it came from someone’s pockets, I don’t know if they’d have the blood for it,” he said, referring to the fact that his new endeavor is funded by Fab, which he calls Artisan House’s “sugar daddy.” That business brings in north of $100 million in annual revenues.
Although Foley + Corinna, Charlotte Ronson and L.A.M.B. are very different brands, one common point is that they come with built-in consumer awareness and wholesale revenues of below $10 million. Without changing the creative teams or the identity of the brands, Russo said Artisan House will help manage business operations, including sourcing and distribution.
According to Foley + Corinna designers Dana Foley and Anna Corinna, that’s exactly what their brand needs.
“Dana and I come from such a varied background, it would take us a lifetime to realize the intricacies and infrastructure of business,” Corinna said. “Now we will get to do what we do best — the creative and vision — and let AH grow and support and guide the business where it should go.”
This includes helping Foley + Corinna open a second store — the first is on Stanton Street in New York — as well as growing the brand’s offerings and expanding its reach in department stores and online.
For L.A.M.B., Artisan House will work to reposition the brand to appeal to a more fashion-oriented consumer, a move the brand’s founder Gwen Stefani has been eager to implement for some time.
“Artisan House has been great in giving me total creative freedom. They are passionate about great design, quality and value,” the designer and pop singer told WWD.
Along with L.A.M.B., Stefani took her other handbag line, Harajuku Lovers, to Russo’s Fab, effectively severing ties with Schifter + Partners, the company that helped to launch both brands.
Schifter + Partners declined to comment.
“We felt like L.A.M.B. was very young,” said Artisan House president Laura Mays. “It became increasingly difficult for Gwen to wear the product and feel good about it. Her aesthetic has evolved. We didn’t want to go back into the market with the same product.”
Looking to expand its reach, L.A.M.B., which recently collaborated on a punk-inspired spring 2012 jewelry line with Noir, has added more “edge” and “sophistication” to its handbag collection, according to Mays, who added that handbag price points would remain under $500.
Shoppers will see Artisan House’s influence on Foley + Corinna and L.A.M.B. in their spring 2012 collections
For Charlotte Ronson, having a handbag collection will be a new endeavor. Although the brand is still in the process of designing the first collection of bags, it estimates prices will be in the $150 to $350 range.
The launch collection will consist of roughly six groups with three to six pieces per group and will include styles ranging from hobos, clutches, cross body bags and totes to cosmetic bags, small leather goods and accessories like iPhone cases and tablet covers.
According to Ronson, materials for the bags will include leather, suede, beadings and embroideries and also incorporate fabrics and prints from the brand’s ready-to-wear collection.
“There are so many trends right now in the market, it’s almost too much,” Ronson said of the contemporary market. “I want to create designs that have longevity and use fabrics and leathers that wear well with age and love.”
The brand expects that its fall and holiday 2012 collections will rake in total retail revenues of $1.5 million. For 2013, its first full year, it anticipates retail sales of $3 million, and in 2014, it predicts sales of $5 million.
“I can see handbags growing into a significant part of our overall revenue,” said Charlotte Ronson ceo Aaron Nir. “We feel there’s a real place in the market for Charlotte Ronson handbags because we feel like the consumer is looking for brands with a strong point of view and voice.”
Nir approached Russo when he saw the quality of Artisan House’s upcoming spring collaborations.
“When we look at a licensee, we look at two things: We look at the business side, what kind of relationships they have, and we look at if they have the creative chops,” he said. “Steve is a doer. He’s a very bright, capable businessman, who knows a lot about our brand.”
But Artisan House has had a bit of trouble getting off the ground. Founded in 2008, the brand recently lost its Carlos Falchi license to LF USA and has had trouble bringing relevance to its Isabella Fiore line, which it bought three years ago.
“A lot of these businesses never got to critical mass,” Howard Feller, partner at investment banking and strategic advisory firm Marketing Management Group said of Artisan House’s fleet. “A lot of people looked at these brands.”
Somewhat skeptical, Feller, who specializes in turnaround consulting, added that Artisan House’s “timing is interesting.”
“I think Steve will have the same issues that any wholesaler has, keeping margin in the business,” he said. “Being in that [contemporary] zone requires a whole new level of expertise” than Russo’s other business, Fab.
Russo believes that sort of criticism is par for the course.
“People may look at me and say, he’s the guy who makes Hello Kitty backpacks,” said Russo, admitting that although he is well versed in retail, this new endeavor will be a challenge.
“I’m learning, but we just believe in our ideas of really putting great product in front of the consumer,” he said. “There is a reason why the word ‘artisan’ had to go into the name of the company. No matter how much we grow and how quickly we grow, we can’t lose sight of who we are — artisans.”