Reed Krakoff has accomplished a lot in the past decade. He transformed Coach into a multibillion dollar company, won a CFDA Award for his namesake label and dressed the First Lady on multiple high-profile occasions.
So the news earlier this month that Krakoff’s investors had grown skittish and that he would temporarily suspend operations begs the question: What went wrong? After all, if a designer of Krakoff’s stature, fame — and wealth — couldn’t make it, what hope is there for the little guy?
There were signs that it was not business as usual for the brand following the release of February’s New York Fashion Week show schedule, where Krakoff’s name was nowhere to be found. Instead of staging a fashion show or presentation, Krakoff held a cocktail party feting the opening of his new Greene Street boutique. It was there, when prodded, that the designer owed his exemption from the formal schedule to a recent reassessment of how he conducts business. Rather than subscribing to the industry status quo, Krakoff told WWD that his brand would begin introducing designs on its own delivery schedule. There were explicitly no plans to ever stage a runway show again — a decision on which Krakoff laid a positive spin, saying that it allowed him time to “really just think a little bit and focus” as well as blueprint a new, secondary brand concept.
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But while Krakoff’s comments all but pointed to an impending reassessment of his brand’s entire operations, some sources date the label’s issues to as far back as its beginnings.
Coach Inc. revealed plans to launch the Reed Krakoff label in July 2009, a time when Krakoff was still executive creative director of the brand and the global fashion market was still struggling with the recession. While Coach’s sales were slowing, it remained on a roll and the Krakoff collection was seen as a way to broaden the group’s offerings and take it into a higher price point. “We believe the Reed Krakoff label will define new American luxury, which has a distinctive aesthetic at an attractive price point,” Lew Frankfort, Coach’s then-chairman and chief executive officer, said at the time.
The division would be funded completely by Coach and Krakoff would divide his time between the two brands.
Because Coach was a public company, the only way to justify backing a new brand to the board and Wall Street was to claim Krakoff’s company would rapidly grow to significant scale. “It started the brand from a different place from Day One,” said one source, who requested anonymity.
“Developing a brand from scratch takes time — two years for a designer to find his or her way and five to 10 years to build the brand. But given the circumstances with Coach, Reed’s company had to ramp up much faster,” because of expectations from investors that the brand would have a major impact on Coach’s bottom line in a relatively short time, the source said.
A small string of freestanding stores was planned and the goal was to wholesale to luxury retailers such as Saks Fifth Avenue. The brand would not be carried in Coach’s own stores.
But even as Krakoff was building his own brand, the cracks within Coach’s core label were widening as competitors such as Michael Kors began grabbing greater market share. Graziano de Boni, formerly of Prada and Krakoff’s first ceo, exited the brand after barely a year and was succeeded by luxury veteran Valerie Herman, who had been at Saint Laurent. The move was seen as bolstering the Krakoff brand.
But more and more senior Coach executives felt the group needed to focus primarily on the core brand and couldn’t be distracted by the Krakoff label, a source said. So 18 months ago, Krakoff exited Coach, buying his brand from the group and going off on his own with backing from several private equity players. Suddenly the designer went from being part of a $4.5 billion behemoth — with all the infrastructure and power that provides — to being a small fish in a large pond.
While Krakoff’s sales were growing, eventually reaching about $35 million, the designer did not have the heft needed to negotiate with suppliers, factories, retailers and others. A business staffed and built to grow rapidly to mega-scale suddenly was on its own and having to cope. The Vegas and Tokyo stores were shuttered as Krakoff began to wind the business back to one suitable for its sales volume.
Then there was the private equity question. Sources said Krakoff’s partners were intrigued by the fashion world but private equity is private equity, and eventually they began to realize the money involved to grow a business to scale was more than they were willing to put in. “Fashion is fun, but when you start losing $10 million, $20 million or $30 million, the fun stops pretty quickly,” a source said. “It’s a tough business to invest in. It’s much better to go with a strong strategic partner who has the infrastructure to help the brand grow.”
“What is needed to grow any luxury brand is a clear, consistent message at first and then consistent investment year after year to grow,” another source said. “It takes three to five years — and then 10 or more years — to get a brand really to where it should be.
“Coach didn’t have that time, and the private equity people don’t wait that long.”
Those directly involved in the situation are keeping quiet. Numerous requests for comment from Mark Ein and Mitchell Rales — the two private equity investors who, along with Krakoff, purchased the Krakoff brand from Coach Inc. in 2013 — were not returned. Stacy Van Praagh, Reed Krakoff’s ceo for seven months before quickly leaving the company in November 2014, also declined to provide insight into the situation. Krakoff himself declined to chime in as well.
At the center of this all was the product. Many observers argued the brand’s troubles were a case of too much, too soon. “He was a bit unconventional launching in every category at once, and it was overwhelming for the market,” said Gary Wassner, co-ceo of the Hilldun Corp. and an advisory board member of the CFDA. “He hadn’t built up his clientele and his message wasn’t quite clear.…Had he begun with bags, where he is very strong, and built slowly into a full collection, it would have been accepted more readily and he would have built a following.
“The industry knew and respected him, but I’m not sure the public was quite aware and didn’t accept the product quite as quickly as he’d hoped. It was a timing issue — he needed to ease his way into this market and work from his strengths first and then gradually extend his categories,” added Wassner.
A New York retailer, who chose to remain anonymous, agreed. “I think he is good at everything and he came out of the door wanting to do everything,” they said. “He spread himself too thin, so the customer and press couldn’t focus because there was just too much. There was a lot of good, but people weren’t able to focus on the strength.”
Still, Krakoff managed to achieve retail success, particularly in Europe, during his first few seasons. Sources claimed that the reception in Europe was strong and that in the first three years the brand had good sell-throughs at retailers such as Saks Fifth Avenue. Freestanding stores were opened on Madison Avenue, in Las Vegas and in Tokyo as Coach rushed to grow the label.
Another source said the Krakoff label at some stores was selling at rates close to, or surpassing, the sales performance of major luxury brands like Fendi, Dior, Gucci and Tod’s. Krakoff was given the windows at Saks as well as at Colette in Paris, where his designs were featured twice. “He was going head-to-head at Saks with the top five or six luxury handbag brands and no American brand had ever done that,” the source said.
Handbags were largely considered the brand’s strong spot, with his Boxer bag quickly rising to “It bag” status. “His bag was genius and it never really gave the voice it should because they were always trying to push the clothes,” noted the retailer.
Wassner added: “His initial strength was in accessories, and from personal opinion, he should have launched in accessories and gotten a better handle on what prices the customer was willing to spend and what the reaction was to his aesthetic, and then branched out.”
Despite the popular appeal of Krakoff’s accessories, the handbag arena proved to be exceedingly competitive, with brands like Céline, Valentino and Givenchy all fighting for a slice of the same pie. An example of the cut-throat nature of the business was that Richemont informed Saks that it would not get the Cartier brand unless Saks gave Krakoff’s space in the store to Chloé, which Richemont also owns, a source said. They did.
Ready-to-wear never gained such traction. Early collections were heralded as too similar to minimalist power players, such as Céline and Helmut Lang. While his later seasons garnered more favorable reviews, most made a point to call out Krakoff’s accessories offerings, which often overshadowed his clothes. “Krakoff repeatedly turned to alligator skin for design cues,” WWD wrote in its review of his fall 2013 collection. “He may have slightly overstated the concept, but that could have been his intention. After all, Krakoff’s business has been mainly driven by his accessories, which include many bags in exotics, so it’s hard to blame him for wanting to spread some of that magic.”
Ron Frasch, operating partner at Castanea Partners and former president of Saks Fifth Avenue, noted that while bags were Krakoff’s biggest sellers, ready-to-wear “improved every season; last I heard it was going into Bergdorf Goodman with a shop-in-shop. It took a few seasons for him to find his lane as it does with anyone — you never expect it to be a rocket ship out the gate. It was fine, it was improving every season.”
He said of the clothing: “It wasn’t a big business [for Saks] but what we had, we did well with and were pleased with it. I think Reed, over time, would have been successful had he elected to continue.”
That’s not to say that Krakoff is down for the count — in reality, it could be quite the opposite, in fact. “I think investors might be more anxious [to get on board] because he’s already made the mistakes and presumably has learned from them,” Wassner said. “I don’t think he’d expect an investor just to launch the platform that he already launched and was unsuccessful at. Lessons have been learned.”
Julie Gilhart, a fashion consultant and former fashion director for Barneys New York, noted: “I think we need to allow creative people to experiment in different areas and take what they learn from it and apply it in the future. There is not one creative person I know that is good at every single thing….What Reed did was not bad, it was just tough to compete.”
All things said, retailers are ready for the reinvention of Krakoff. “He’s not the first designer to recalibrate what he’s doing,” said Neiman Marcus executive vice president and fashion director Ken Downing. “I have great respect for people who realize they need to recalibrate what they are doing — to stand back, take a look and reassess, as opposed to going down a path that may not be successful for them. It takes a lot to say, ‘This isn’t working as I anticipated it, so let’s look at it a new way and start over again.’ We wish him nothing but success, and I’m anxious to see what he does going forward.”
And while many designers may have blanched at the news that Krakoff was temporarily winding down his brand, numerous sources stressed that his is a particular situation. “This is a unique set of circumstances,” a person close to Krakoff said. “In a good way, it’s not a situation every designer faces.”
Sources said Krakoff is now examining all his options, possibly seeking a strategic partner who could help with infrastructure and production; talking with investors; mulling over whether he would want to join another big brand, and even considering leaving the industry altogether to become involved in tech or art. Whatever he does this time, though, he wants to make sure it’s the right step.
“I actually think what he has done is quite courageous,” an admirer of Krakoff’s said. “He has the money himself to do it if he wanted to, but he recognizes that to do what he wants — build a new brand in luxury — takes more than money. It takes consistent money and infrastructure. That’s the lesson from all of this.”