Tory Burch LLC wants to keep things private.
Despite what the industry expected from Roger Farah’s arrival at Tory Burch LLC a year ago as co-chief executive officer, both he and Tory Burch, chairman, co-ceo and designer, said they have no plans to go public and they enjoy running a privately held firm.
Farah, the former vice chairman of Ralph Lauren Corp. who is credited with transforming Lauren into a global powerhouse, said Burch doesn’t need public funding, and both he and Burch said they appreciate the luxury of deciding what opportunities they want to pursue on their own timetable. The fast-growing 11-year-old accessories and apparel brand is expected to generate sales of more than $1 billion this year, according to sources.
In a wide-ranging interview with Ed Nardoza, editor in chief of WWD, Burch and Farah discussed such topics as the importance of technology to building Burch’s brand, and what the next 10 years look like for the company. At the top of the agenda are further global development of Tory Sport, fragrance and watches, as well as strengthening their Asian business, e-commerce and mobile.
Here’s what they had to say.
WWD: Why don’t we get the elephant in the room out of the room immediately: the IPO. The industry kind of expects it and wants it, and yet you both seem to be sending out a different signal that this is not in the cards.
T.B.: I think being private is a luxury and that is something I have always thought. When I heard news that Roger might be leaving Ralph, I called him out of the blue and asked him for breakfast. Two hours later, I realized we were completely aligned on that. Everyone in the industry and beyond thought that Roger came to us to help us take the company public, and that’s just not the case. He actually came with expertise that I didn’t have and is so additive to our company, but it’s really to maintain a private company for as long as possible, right Roger?
R.F.: The reality is we have tremendous plans for the future that are better achieved in the privacy of a private company. We don’t need the money. We have no borrowings. We have tremendous cash flows so we can support all our dreams and hopes. So for us, the objective is, ‘really, what do the next 10 years look like?’ We both feel at his point, it’s better accomplished with total focus on what’s right for the business. Having run public companies for 20 years, a good 30 percent of the time can be spent on public company issues. And it’s very refreshing for me personally that Tory and I, from the minute we met, were aligned on that. I did not feel the need to respond to the interest of the industry or potential investors because we are very clear on what we have to do with the company and don’t need the public funding. There’s really no motivation for it as this point.
T.B.: Also, Roger mentioned he would never work at a public company again.
R.F.: That is true.
WWD: As they say, never say never. Can this company continue to grow? Some of the published numbers say that you’ve crossed the $1 billion threshold, and estimates on the company and its value have been in a nice sweet spot between $3 billion and $4 billion. How big can this company get, and do you have a timetable?
T.B.: One important thing is we don’t want to grow just for growth’s sake. It’s about the long term. We do want to see healthy growth, but it has to be the right growth. We’re constantly looking through that lens. We have so much area for growth. We haven’t even touched Asia in a significant way, although we have a lot of stores in Asia, but not nearly where we could be. We have tremendous room in Europe and the U.S., and we just recently launched our sport line that is a whole new concept.
R.F.: We are only an 11-year-old brand. The care and feeding of that brand is equally important as compounding sales growth. It’s really about the synchronization and sequencing of opportunities. What do we do next and do it really well, and what do we do after that, as opposed to just respond. One of the things that Tory said early on and is repeated, “for every 100 things that come in over the course of the year – partnerships or opportunities to do business — the company’s been very selective about what they choose to do and want to do them well.” We have to grow our talent base, we have to grow our operating infrastructure, all of which has to keep pace with top-line growth. Because great brands do this over decades. While I don’t know another 10-year-period where Tory could have had this phenomenal performance, the fact is we’re really looking at this as a long-term play and trying to do it the right way.
T.B.: And to that point, we’re looking at the company as the first 10 years, and now the next 10 years. I think it’s a very different thing to think about what the next 10 years will look like.
WWD: Is it a balance that you both have to strike between product extensions, store openings and wholesale? Are those three items of all equal importance? Or is there more emphasis in terms of what you focus your time and energy on?
T.B.: I think it’s all the above, and I also think e-commerce and digital platforms are really what we’ve been thinking about for awhile. We launched with e-commerce 11 years ago, and people thought we were crazy and no one would shop online. Now we’re thinking what does a digital company mean, and what does it mean in our industry?
R.F.: We’ve launched in the last 12 months, very key product categories like watches, like beauty, like sport. We really have to get behind those and make sure they’re up and running and the strategy is right and the execution is right. We think all of those can be global opportunities. Again, it’s about doing it right first and then move on to the next opportunity.
WWD: I think you deserve a fair amount of credit for being one of the pioneers with the fashion and digital space. You spoke at one of our summits early on when we devoted the whole two days to digital, and we had some outrage in the audience because people said this would only amount to 1 percent of sales, why were we spending so much time on this?
T.B.: When was that?
WWD: That was a while ago. Let’s not date ourselves. You bought in very early and were innovative in an early way. What did you intuit back then, what works now and what doesn’t work?
T.B.: I think e-commerce was a way for us to build a relationship with our customer. We wanted it to be about storytelling, and that was a perfect way for that, too. It’s now 20 percent of our business and growing and we launched it in 17 countries a year-and-a-half ago. We feel that that and mobile are two of the areas we really want to focus on. And also looking at Instagram; they’re going to do commerce and think about the implications of that. The customer has so much information all the time. We have to be able to be flexible enough to move with the environment.
WWD: The big question still, and the story I mentioned earlier whether fashion is overheated or not, we had an interesting quote from Tommy Hilfiger, where he said the impressions of his show from last month were 845 million, and he said, “these numbers are staggering. Whether it’s a business or not, we don’t know,” and that was from Tommy. What about ROI ? Everybody accepts it’s a form of communication and necessary contact with the consumer now. The return on investment still seems elusive.
R.F.: I don’t agree with that. I think it’s proven in today’s world that the customer’s in charge, and this is the primary way of talking to that customer. I was talking to our senior management group a month ago, and in my 40 years in the business, it went from stores really being dominant and being in charge, whether that was Bloomingdale’s or Saks or others. They set the fashion, they shopped the world and told the customer what was important and told the customer when to shop and how to buy it. Then the middle period was really brands and designers set the message and set the fashions. I think we’re now in an era where the customer is in charge. And the customer is going to decide when they want to shop, when they want information, at what price they want to shop. I think it’s irrefutable that this is really the future. How you do it, in your own brand, in your own way, is a challenge. We have a unique advantage with Tory because they feel a personal connection to her. Not many companies have that. This kind of communication with the customer whether it’s just for information, or a commercial transaction, Tory resonates with them. They think they’re talking to her. They think they’re hearing what’s important to her. In this new paradigm with the customer in charge, I think we have a unique advantage.
WWD: Let’s go back a little bit to how you two found one another. Roger was the “white whale” on every search firm for a number of years. Two names that surface again and again, and we talk to search executives all the time, they were Roger Farah and Rose Marie Bravo. Roger, you could have picked your next assignment when you left Ralph. What was it about Tory, and Tory, what was it about Roger specifically, and what [did you feel] he would add to your company?
T.B.: I can start with it since I approached Roger. I’ve always admired Roger and I didn’t ever meet you until I called to meet you for breakfast. His track record, of course, but it was his reputation as well and the way he was with people. For me, it’s a lot about culture. Our company is based on that. I thought it would be not only a cultural fit, but an extraordinary asset as we take the company into the future.
R.F.: It was very difficult for me to make the decision to retire. But two different times running public companies over 20 years, I knew I really needed to do something different, and I wasn’t sure what it was. And Tory called and I was curious about her, and what were her priorities. I thought maybe she was looking for advice or looking for a board member, and I really had no intention of going back to full-time work.
T.B.: Or take the company public?
R.F.: That would have ended the breakfast. We just started talking about life and philosophies and where she was and the kind of company she wanted to build. I said to Tory that I really thought she can be an American Chanel. And that over time, we have that kind of opportunity. For me to go back to full-time work, it was really about, would it be fun to do it? Did I like the people that I would be working with, and could I bring value? Tory’s company was built with Brigitte Kleine, who’s the president and is a fabulous executive, and Robert Isen, executive vice president, general counsel and head of business development. They really didn’t need me. They were doing fine without me and were very gracious about welcoming me and inviting me into this company that was performing. I thought I had experiences in my past that might be additive. And these were people who were honorable and trustworthy and wanted to treat their brand right and their employees right. That with ‘I don’t want to go public.’”
WWD: How have you applied some of the experiences from Ralph? How has that helped you?
R.F.: Tory actually worked at Ralph, too, for six or seven years. My years there were extraordinary in that Ralph is the ultimate dreamer. He dreams big and he dreams in color. A lot of people talk about a lifestyle, but Ralph really did it. I learned a lot from him in terms of how to do that on a global scale, and of course, hopefully I made my contribution over that time as well. But Ralph was a 30-year-old brand before he went public. He had deep, established roots in terms of who he was and what the brand was from a design point of view, and then we had to build a global business around it. What attracted me to Tory is not only her passion and her commitment, and she’s tireless, it’s that it’s really the beginning of her journey. The fun that comes from doing that. And it’s not the same. We’re not trying to replicate and be a me-too brand. I think we want to do it in a unique and special way. I’m trying to add value to Tory, Robert and Brigitte, and the team. It’s a very female-dominated team. Seventy five percent of the company is women, and quite frankly, they’re very young. The average age is 27. I went from at one point in my life being the whiz kid, and now I’m the old guy in the corner with the gray hair. It’s been quite a journey for me.
WWD: You touch on culture a little bit, Tory. Is there still a glass ceiling in the fashion industry? We’ve found there’s been progress certainly in the design studio, but less so in the board room. What’s your sense of this?
T.B.: Of course there is, in every industry. It’s a work in progress and there’s a long way to go. I don’t think it should ever be about gender what you’re paid. It should be about the quality of work. That said, there are many other challenges. I think it’s important that when women want to work they’re given the opportunity, and equal opportunity, and I think there’s a long way to go.
WWD: You want to preserve an entrepreneurial culture at the company. Can you talk about the culture of the company and its origins, and how do you preserve that when you cross the $1 billion threshold?
T.B.: We based it on my father, Buddy and we call it Buddy Values. It’s about honesty, being straightforward and also expecting excellent work. It’s sort of that fine balance. How do we keep that entrepreneurial spirit and that start-up mentality, but also be focused enough to take it into the future. It’s hard to keep the culture, and it’s something we work extremely hard on all the time. We do culture surveys. I just did a 360. It’s tough, you hear feedback. It’s not always the feedback you want to hear. You have to be open to that, and really listen to our team. It can change very quickly.
R.F.: I think the current generation coming into the workforce now is different. They don’t see themselves working at a company for a lifetime. What they’re asking to do, is to be interested, to participate, what they find are company values are very important. When I went to Ralph, we had about 2,000 people, and when I left we had 30,000. We have about 3,000 employees today. So you can touch many of them. The impression they get from senior leaders, not just Tory and I, but the whole company, sets a tone. We want to win and we want to achieve. We’re not letting ourselves off the hook in some soft and mushy way, but we want to do it for the right consideration for the team. They are the future. If we don’t train them and we don’t educate them, and just sort of grade them pass/fail, we have failed as leaders.
T.B.: Roger is an excellent teacher, and people really respect hearing his point of view. It’s a really interesting additive point of view when you talk about culture. One of the things that’s really positive for our culture and the bottom line is our foundation. That was something that was part of the business plan from the beginning. But we’ve been very careful about using it for marketing. We launched it five years ago, and wanted to have real substance before we started to talk about it. We really feel it does now. What it has done for the culture is pretty extraordinary. It attracts people who want to work at our company, and it’s great for our employees. It’s also great for the consumer. It’s really a win-win. If we can be role models for other start-ups to really think about giving back, and social responsibility is part of the DNA of who they are, that would be a great thing, and early on.
WWD POLL: We asked the audience if it was a good idea to take the company public, an overwhelmingly majority (85 percent) said no, stay just the way you are. We also asked why not? The tyranny of quarterly targets was a reason not to go public (37 percent), followed by loss of control (32 percent). Can you talk about that?
T.B.: Control of distribution and trying to make quarterly earnings. Roger’s done it, and it doesn’t sound appealing to me personally to have to make decisions based on numbers. I think it’s about integrity from a distribution and product standpoint.
R.F.: When you’re design- and merchant-driven, you’re never going to be right all the time. The demands of Wall Street are predictable, articulated pattern of earnings. I think the best we can do is create this unbelievable world-class infrastructure, this pristine balance sheet that gives us a cushion for the ups and downs of fashion which is inevitable. I think trying to explain that to investors who on average hold stock for about six months is a very difficult dynamic. I used to have 200 or 300 shareholder meetings a year, for 20 years, so I have a good feel for what’s important to shareholders. They’re not always in easy alignment with the fashion business.
T.B.: I would imagine, Roger, I would be a little too sensitive to take the company public. I’d take everything personally.
R.F.: You survived the 360.
Audience Question: Do you see sportswear as a big growth driver for fashion brands. If so, is the focus on style or performance?
T.B.: I am superexcited about our sport line. The concept is real performance meets style. We are doing both. A big component of it is what we’re calling “Coming and Going,” which is the way women are dressing. We see a shift in the way women are dressing. And young girls. We go to college campuses, they’re wearing sport clothing all day. It’s been a really exciting thing for me to work on. It’s taken three years with the team. My biggest strength is surrounding myself with superstars like Roger and also our sport team has done an extraordinary job. We feel it’s a huge opportunity for us.
Audience Question: Would you partner with Target for a capsule collection?
T.B.: Of course.
R.F.: I don’t think so.
T.B.: That’s how it works. I love Target, it’s such an inspiring company. I think our price point is not a designer price point, so there’s no huge difference in our opening price point.
R.F.: Those designer capsule collections over the last five or seven years in different iterations have been extraordinarily successful. We have a lot on our plate, and one of our operating words would be “focus” going forward. To the extent taking on side projects, is probably more of the reason I wouldn’t be in favor of it than an association with Target wouldn’t be cool.
Audience Question: If you are now focused on the next 10 years, how far can you realistically look ahead in a market that changes so quickly?
T.B.: I think it’s hard. Technology alone, it’s very difficult to understand what that would look like a year from now. We have to be careful with what we invest in, and think about what will have longevity and what makes sense for us. There are new things coming out every day that sound interesting and exciting. When you think about mobile, that’s something that we feel very strongly about.