KARAN-DESIGNER HOLDINGS TALKS ARE GOING DOWN TO THE WIRE
Byline: Janet Ozzard
NEW YORK — With a multimillion-dollar jeans deal in the balance, the Donna Karan-Designer Holdings dispute could be resolved.
Negotiations between DKNY Jeans and DH — its designated licensee — were reportedly making progress Thursday, although sources close to the parties indicated that the talks could still go awry.
Either way, today is the deadline to complete the renegotiation of the deal that, as reported, came to a screeching halt this week, when DH announced that “unexpected difficulties” between the parties had arisen. The licensing venture was entered into on Sept. 30.
Arnold Simon, chief executive officer of Designer Holdings, and executives from Donna Karan all declined comment Thursday.
The stakes are enormous.
The fall market for men’s jeanswear has come and gone, and the women’s market opens in two weeks. The men’s portion of the jeans line was to have debuted at the Magic show next week in Las Vegas, but the Karan company would not say if jeans would be part of its 4,500-square-foot booth.
Designer Holdings has already reserved production time, sources said, and fabric deliveries are being stalled at potentially a high cost. Retailers had set aside dollars and retail space to support the new line but may have to divert their budgets elsewhere.
Sources in the denim industry expressed surprise that the deal had hit such serious snags, particularly since Designer Holdings has made great strides with CK Calvin Klein jeans. That business quintupled after the contract was signed with Designer Holding in 1994, with volume going from $120 million to an estimated $625 million last year.
Some insiders say the DKNY Jeans deal has been stalled because of miscommunication between Simon and Donna Karan about exactly what it would cover. Reportedly, while Karan wanted Designer Holdings to manufacture only jeanswear, Simon wanted to produce the entire DKNY Jeans line, including tops and outerwear.
If the deal does fall apart, it will cost the two companies more than time. Under the terms of the 30-year contract it signed, the Karan company received $60 million plus a 7 percent royalty on sales.
The agreement calls for an initial payment of $6 million upon signing, plus an additional $54 million over four years.
The royalties are subject to guaranteed minimums, plus an additional 2 percent administrative fee on international sales.
Last fall, shortly after the contract was signed, Designer Holdings registered a $100 million offering of convertible securities to finance the costs of the license.
The DKNY jeans line was expected to hit $85 million to $95 million in wholesale volume in its first six months, as opposed to the $65 million it does as an in-house division of the DKNY men’s and women’s business. It would have its own in-store shops and an extensive advertising campaign.