Proenza Schouler‘s taken the plunge.
This story first appeared in the June 24, 2015 issue of WWD. Subscribe Today.
After months of wrangling, the hot design company brought on private equity firm Castanea Partners as a minority investor, and made an executive switch in the process.
Shirley Cook, who’s been chief executive officer since Jack McCollough and Lazaro Hernandez founded the company in 2002, is stepping down as part of the transaction and will be replaced on an interim basis by former Saks Fifth Avenue president Ron Frasch, an operating partner at the private equity firm at Castanea.
The deal confirms a May 11 report in WWD that the two parties were in talks.
Proenza Schouler said Cook “played a pivotal role in the development of the brand and recently spearheaded the investment by Castanea Partners and a licensing deal with L’Oréal to launch the brand’s first fragrance.”
The deal marks a key turning point for both sides. Proenza, which is said to have revenues approaching $85 million, takes a big step toward growing into its powerhouse potential with new management and a new partner. This is also Frasch’s first big move as a private equity player. The former chief merchant at Saks joined Castanea in early 2014 and has been beating the bushes for a brand that’s proven itself, but still has potential to grow.
Frasch and Castanea’s managing partner Brian Knez will take seats on Proenza Schouler’s board, joining former Burberry Group ceo Rose Marie Bravo, Irving Place Capital ceo John Howard and Theory Inc. ceo Andrew Rosen.
In 2011, Howard and Rosen led a group of investors that bought a 50 percent stake in Proenza Schouler from Valentino Fashion Group and others.
LVMH Moët Hennessy Louis Vuitton had also been looking to invest in the New York-based fashion house.
Terms of Monday’s deal were not disclosed, but Castanea did note that it was “joining existing investors.” That means the company is getting additional funds to expand operations while current investors are accepting some amount of dilution to their stakes.
McCollough and Hernandez, who serve as the company’s creative directors, described Castanea’s arrival on the scene as a “new chapter.”
“They have a deep understanding of the business and a great respect for our creative vision,” they said. “Together, we are committed to realizing our dream and to developing the Proenza Schouler brand globally.”
The designers, who quickly became fashion darlings and have taken home five Council of Fashion Designers of America awards for their women’s wear and accessories designs, have built a business with more than 250 points of sale in more than 20 countries and 10 freestanding stores.
Frasch said Castanea would work to support the company’s continued growth.
“Jack and Lazaro, together with Shirley, have created a leading luxury brand with an award-winning aesthetic and a compelling mix of categories, channels and geographies,” he said.
Castanea’s Kenz added that the company has “tremendous potential to build on its distinct brand DNA and immense creative talent.”
That “immense creative talent” has translated into immense brand potential, which has had investors across the spectrum kicking the tires.
In April, WWD named Proenza Schoulder one of its six powerhouse brands of tomorrow.
Asked then whether building volume up to $1 billion was a goal for the brand, Hernandez said, “Our partners and investors want us to keep growing and growing and growing. It’s the way people run businesses today. You don’t plateau — ever.”
He added, “The irony of growing is that it takes more money to do so. We’re looking to raise capital. Hopefully by this year, there will be something happening, and we’ll definitely use that to take it to the next level.”
The designers claimed they did not fear a minority ownership situation, but said it was key to keep creative control and know their investors. “I think most of [our investors] realized that if they let us do what we do, they’re going to have a return,” Hernandez said. “The wrong thing for them to do would be to clip our wings. We haven’t let anyone down yet.”
More growth and the potential for a broader appeal is certainly in the future.
This month, the brand inked a fragrance deal with L’Oréal. There’s no date yet for when its first women’s scent will be introduced, but the shift to the beauty counter will open up the brand to a new customer.
“What makes us sometimes sad about what we do right now is that it’s not available to so many people,” McCollough told WWD. “It’s still a niche kind of customer. We’ve done better with the bags because it’s a better price point in a way and something with more function that can be used every day. So I think a fragrance is a product that is even more democratic. It would be nice to reach a broader audience.”
“We’re talking about the idea of possibly men’s down the line as a next step,” McCollough said. “We don’t want to be limited to just being a women’s brand, but you know — one step at a time. We’ve always been very organic; we do things as they happen. If the opportunity presents itself, then we’ll take it. If it doesn’t, we won’t. There’s no rush.”
As companies grow and professional investor houses come in looking for a return on a hot brand, pressure to expand can start to rise.
But for McCollough and Hernandez, who sold their senior collection from The New School’s Parsons School of Design to Barneys New York and managed to grow during the dog days of 2009 by introducing their PS1 bag, pressure is nothing new.