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Being an independent designer in today’s retail environment can be brutal, and Scott Sternberg, founder and designer of Band of Outsiders, is the latest casualty.

This story first appeared in the June 3, 2015 issue of WWD. Subscribe Today.

Last week, the contemporary L.A.-based company laid off much of its staff and confirmed that it won’t be fulfilling orders for the fall season.

The same week Paris men’s wear designer Kris Van Assche decided to shelve his 10-year old signature label to focus on his role as creative head of Dior Homme.

“Times are tough for independent labels,” said Van Assche, citing the challenging market conditions for small-scale fashion brands.

Sternberg was said to be distraught at the recent turn of events, and told WWD last week, “Nobody knows anything at this point but me, and I’ve been advised not to comment at this time.”

While the designer wasn’t elaborating, industry sources said he had been in discussions with investors over the last few months, but a deal never materialized. Even worse, Sternberg apparently had substantial orders for fall, and it was expected to be a big season for him.

But it appears he simply ran out of money.

Well-known for his witty take on preppy with an edge, Sternberg, 40, developed a cult following for Band of Outsiders, which he launched in 2004 with two products, slim-fitting men’s shirts and super-skinny neckties. Eventually, he expanded into full men’s and women’s apparel and accessories collections. In addition to a freestanding store in Tokyo, the designer operated a store at 70 Wooster Street in New York, which is having a sale and is expected to close at the end of the month.

In 2007, Sternberg was one of 10 finalists for the Council of Fashion Designers of America/Vogue Fashion Fund award, and in 2008 he received the CFDA’s Swarovski Award for new men’s wear talent. In 2009, he received the CFDA’s Menswear Designer of the Year award, sharing the accolade with Calvin Klein’s Italo Zucchelli.

Despite his numerous awards, he still struggled financially. “He won two CFDA awards. If that’s not sobering, you can achieve the highest level and still have challenges. It’s rattling to everybody,” said one source.

“This should never have happened,” said Julie Gilhart, who was among the first to buy the brand when she was senior vice president and fashion director at Barneys New York. “Scott has it all — he’s a favored designer with a significant business, no one can deny he owns that short jacket and great shirt, he has a store. He’s done all the things that are right. I’m sure if you dig super deep you’ll find mistakes as with any business, but he’s substantial enough to be able to weather those.”

In Hollywood, where the brand was embraced by Sternberg’s celebrity friends such as Rashida Jones, Aziz Ansari and Adam Scott, stylists too played a role in keeping it in the forefront. “It’s heartbreaking,” said longtime men’s wear stylist Jeanne Yang, who recalls buying the first Band of Outsiders skinny ties in Sternberg’s apartment 11 years ago. “If this guy with immense creativity and business savvy can’t do it, what does that say about the rest of the [businesses]? I think they need to change or do something to support the small business model. How do you compete with the behemoth companies now?”

Said Gilhart, “It’s a question for midsize businesses — after they grow to a certain point and start needing stores, then what? It’s a really big issue for our industry. We spend a lot of time supporting young designers but where is support for the midsize people at a time when they critically need it?”

Band of Outsiders had been busy expanding on several fronts. In 2007, Sternberg launched a women’s wear offshoot called Boy by Band of Outsiders, maintaining the same sartorial wit of his men’s wear pieces. A less expensive line called Girl launched in 2010 as a counterpart to Boy. There might have been some confusion among the two lines, and by 2013 the two women’s lines were merged into one, taking the name, Band of Outsiders. In 2009, Sternberg introduced a line of polo shirts under the label, “This is not a polo shirt,” which developed into a full line of casual men’s clothing.

Sternberg had a knack for collaborations and generating publicity for his stunts. Before launching Band of Outsiders, he had a career in the entertainment industry, working as a talent agent at Creative Agents Agency. At the start of his men’s wear business, he became a media darling and the poster child for California cool. He also signed collaborations with brands such as Sperry Top-Sider, Olympia Le-Tan, Starbucks and Manolo Blahnik. He did a collaboration with Lego and Opening Ceremony in L.A., where he built an in-store shop entirely out of Legos. A cookie fanatic, he also had an ongoing partnership with Christina Tosi of the Momofuku Milk Bar to create custom cookies for his runway shows.

Although he didn’t advertise in mainstream media, he was well-known for his look books, which he would photograph with a Polaroid camera. Each season he shot a different celebrity such as Frank Ocean, Josh Brolin, Amy Adams, Kirsten Dunst and Marisa Tomei. Further, he was a big believer in social media to reach a mass audience and used it frequently.

For example, in 2012, he live-streamed his men’s wear collection on one model in a Parisian shop window for 60 hours straight, making it the “Longest Show Ever.”

Now well into the company’s 11th year, expectations were much higher that the designer would have started to hit his commercial stride. Among men’s brands that launched at similar times were Thom Browne and Duckie Brown (2001), Rag & Bone (2002), Patrik Ervell (2005) and Michael Bastian (2006). While Rag & Bone has skyrocketed since receiving an investment from Andrew Rosen, Brown, Ervell and Bastian haven’t grown at the same rate.

Sources pointed out that Sternberg’s expenses exceeded his volume. He was given advice to expand and build and had begun that, but his sales couldn’t keep up with the growth.

“We really don’t know exactly what the story is yet,” said Michael Bastian, a friend and fellow men’s wear designer. “It’s still really upsetting. The American men’s wear world is very small and we’re all friends. It could honestly be any independent luxury brand.”

Numerous sources expressed surprise at Band’s turn of events, as it appeared Sternberg was headed in the right direction. Some noted that he didn’t have a chief executive officer and probably could have used one to manage the business side. But sometimes that can trip up a brand because experienced, high-powered executives are a big expense. “The Yves Saint Laurent-Pierre Bergé model is very rare,” said one source. “It’s a business. You’ve got to be involved in all business aspects.”

Gary Wassner, ceo of Hilldun Corp. — which factors Band of Outsiders — as well as chairman of Interluxe, said, “He [Sternberg] spent 10 years building a great brand and it had tremendous brand awareness and very loyal customers.” Wassner noted that Sternberg “never built a hierarchy at the top of the company.”

“He had no filter. He was great in design, sales, merchandising; I think he did everything right for the brand side. He never found the right partner on the business side. He had investors who were intelligent but not actively involved in the day-to-day operations. I think he just got tired after 11 years. He was worn out,” Wassner said. Asked if he ran out of money, he said, “It seems so. It was too difficult to keep going without the proper partner.”

Yet Wassner believes there’s a lot of value in the intellectual property. “It’s a great brand name with a very clear point of view.”

Some questioned whether Sternberg could even be called a young brand anymore. For the first three years, he was the “new guy” and “everybody loves the new guy.” Then years four, five and six, it gets real, and hopefully by the time you’re 11 years old, you’ve experienced the up and down cycles. “The business may not be on fire, but you’re approaching standing on your own feet,” said an industry source in the designer community.

Among the difficulties: competing against the big conglomerates such as LVMH Moët Hennessy Louis Vuitton and Kering, and well-financed brands such as Ralph Lauren, Michael Kors, Burberry and Coach. In the average store, 75 percent of brands are run as in-store shops. It leaves very little open-to-buy for the independents. And even though he might have been generating about $15 million in sales, the designer source pointed out, “The money goes fast, you’re doing four shows a year, you have press offices to support. It’s remarkable how fast it can go. It’s hard to keep a brand floating. There’s no glory in supporting something that’s hemorrhaging money.”

Industry sources point to the fact that the business today has changed and become so complex. A brand can no longer exclusively be a wholesaler. Small companies find themselves overextended and it’s hard for them to compete on so many different levels. They need to have their own stores and be competitive in the digital area. It’s all expensive and complicated, and you need deep-pocketed investors. It’s imperative for a designer brand to stay focused, and not diverge too soon, too fast.

“These companies get themselves spread in too many directions before they’re successful in any one,” said a veteran fashion executive.

There are some who felt that the whole traditional men’s preppy trend got too overexposed and became accessible at more affordable price points. J. Crew, for example, was working in that aesthetic for a fraction of the cost. While Sternberg became known for his playful twists on preppy classics, some observers felt he may have become typecast in that genre.

“There’s always room for an independent when they find a white space in the market,” said Robert Burke, ceo of Robert Burke Associates. “What he did initially was really distinctive. The market evolved and the trend is much more toward European-based designer men’s wear, as opposed to traditional preppy or updated preppy.”

According to retailers, the product was well-made, delivered on time, had a loyal following and good sell-throughs.

Kay Lee, owner of the Otte boutiques in New York, said she was shocked when the brand called to cancel its fall delivery. “We order a lot every season. I spend about $20,000 and we have 80 percent sell-through. I always thought they were doing well, and our salesperson told me they had gotten an investor to help open the store, they were growing and opening new accounts.”

“It’s hard to keep a clear head and not follow every trend, but Band of Outsiders had a point of view. In a day and age when there is comfort and repeat business in knowing what you are looking at, they had it. Very few people can make that breakthrough,” said Elyse Walker, who sells the line in her namesake store and on her e-commerce site Forward by Elyse Walker.

But while the brand is sold in top boutiques in 30 countries, as well as Barneys, Saks Fifth Avenue, Bergdorf Goodman, Nordstrom and Opening Ceremony it hadn’t reached the critical mass needed to propel it past the $15 million mark.

“Band was probably positioned too high in terms of the average price point to help them build scale,” said Janki Lalani Gandhi, managing director of investment firm The Sage Group. Its women’s offering in Nordstrom, for example, ranged from $245 to $1,595. For men, a signature unconstructed jacket retailed for $995 and a tailored blazer cost $1,995.

Of course, hindsight is everything, noted Gilhart. “Let’s look back on this for him and for others because we’d hate for this to be a stream of things to come.” As for Sternberg’s prospects, she said, “If I was hiring creative talent, I’d be talking to him this second.”