SIMON: BIG NAMES, BIG PLANS
Byline: Janet Ozzard
NEW YORK — Arnold Simon is sticking with his blue-chip blue jeans.
Although his public company, Designer Holdings Ltd., holds the licenses for the jeanswear businesses of Calvin Klein and Donna Karan — two of the most powerful names in the industry — Simon said he is not interested in acquiring any more denim brands.
Simon’s office at 1385 Broadway, with its modern leather furniture, framed stock issue certificate and massive polished wood desk, is a bit deceptive — it resembles a lawyer’s lair more than the headquarters of an apparel industry executive.
The focus of the room is a 300-gallon fish tank that is home to 11 brilliant exotic fish, including a vivid orange species given to Simon by a friend who bought it in Vietnam, an elegant but poisonous lion fish and a foot-long black and white eel that slithers among chunks of coral.
“The eel bit someone once,” said the 50-year-old Simon laconically. “He jumped right out of the water and grabbed this guy’s finger. I think he drew blood.”
Simon has seized his share of opportunities as well, and although he says his denim-acquisition days are history, he’s far from finished with the category. In two years, he’s rebuilt Calvin Klein’s dormant designer jeanswear business from a $140 million afterthought to a $460 million powerhouse that’s revived the entire denim business. Now he plans to do the same with DKNY.
Despite two years of rapid growth, the CK Calvin Klein jeanswear business is “far from being exhausted,” he said in a recent interview, while DKNY will enter the fray next fall.
“We’re in the design stage for Donna Karan,” Simon said. “We’re soliciting accounts and setting up shops. We’re planning for 200 in-store shops to start.”
Some 250 are expected to follow in 1998, he said. And that’s just for the U.S. market — Designer Holdings has the worldwide rights to DKNY’s jeanswear business.
But being public demands quarterly growth. While Simon sees plenty of that potential in his jeanswear brands, he’d like to develop other businesses — just not sportswear.
“This is it for me as far as jeanswear,” he said. “We’ll look to two areas in the future — activewear, with some sort of brand, and underwear, which is where my background is. We have a clear growth pattern. We’ll have a huge DK business, we have a huge CK business, and we just took over the CK outlet stores. There are only 14 of those so far, and we’re expecting to open 50 more next year.”
The outlet stores are being overseen by executive vice president Tom Rail, who joined CK Jeanswear from Levi Strauss, where he was director of West Coast stores.
Simon isn’t concerned over the possibility that his two businesses might conflict in the stores.
“CK is a younger customer,” he said. “DKNY is a more mature customer. I’m not saying it’s the older set, but over 18. The people in that business are the Limited, Gap, Eddie Bauer — all these specialty vendors. If the department stores concentrate more on the women’s business, I think they will do well.”
While Simon now has two of the biggest names in the jeans industry in-house, he started out in children’s apparel and underwear in the mid-Seventies. Through a series of acquaintances, he started the Rio jeans business at the beginning of the Eighties, then gained the license for Bill Blass jeans in 1989. They were sold in department stores.
Five years later, Simon was set to sell the Rio/Bill Blass business to Oshkosh B’Gosh, the Wisconsin children’s apparel manufacturer, for $64 million. At the same time that deal was closing, he had a letter of intent out to Calvin Klein about a possible deal for that company’s dormant designer jeans business.
Oshkosh, he said, was originally behind the Calvin Klein deal but backed out at the last minute.
“So the question was whether to take the $64 million or to pursue Calvin Klein,” said Simon. “My thought process was that I didn’t like the idea of doing business with people who didn’t have the insight to see that Calvin could be a very big business.”
At the same time, Fruit of the Loom was aggressively courting Klein and seemed to be closing a deal. Still, said Simon, he didn’t give up.
“I had a feeling the deal wasn’t going to fly when I heard someone from [FTL] say that they intended to spin their own denim. Levi Strauss doesn’t spin its own denim. I lined up the financing with Charterhouse just in case the deal with Calvin worked out.”
A few months later, Simon signed the CK deal. Early this year, he took the company public, forming Designer Holdings Ltd. from Rio/Bill Blass. He has since licensed Rio and sublicensed the Bill Blass business to a new company, Commerce Clothing, which is 25 percent owned by Designer Holdings.
“We knew the moment that we met Arnie Simon for the first time that he was the right choice to be the Calvin Klein jeanswear licensee,” said Barry Schwartz, chairman of Calvin Klein. “His energy level and creativity, combined with unparalleled expertise in manufacturing and production, were qualities we found wanting in others. The track record of Calvin Klein jeans in the U.S. speaks for itself in confirming that we indeed made the right decision.”
The Designer Holdings stock was issued in March 1996 during a particularly strong market, hitting the board at 18. It closed Wednesday at 16, down 1/4 on the New York Stock Exchange.
In its third-quarter results, issued at the end of October, Designer Holdings reported per-share earnings of 35 cents, up from 18 cents the previous year. It had a 68 percent increase in pro forma net sales, to $356.5 million from $211.5 million in the previous year.
Simon said he plans to have 150 CK shop-in-shops by the end of this year and will build an additional 200 each year “for the next several years.”
“We have a big development process. We’re still developing the CK business — adding production, selling more stores. There’s still a lot of growth to be done,” said Simon. “We should ship about $625 million of CK merchandise in 1996. So we’re still growing that business, and we’ll start growing the DKNY business. Hopefully, that will be similar to the CK business. And for DKNY we have the worldwide license, so there’s even more opportunity. We have a great infrastructure in place and a great executive team.”
The executive staff at Designer Holdings includes chief financial officer Maurice Dickson, who joined the company in September 1995 after 14 years at Ellen Tracy, where he held the same title, and chief operating officer Jim Bloise, who joined the company at the end of October from the same post at Mast Industries.
In addition to the CK jeanswear line for women, men, boys and girls, Designer Holdings also makes the CK Khakis line.
Donna Karan said her company chose Designer Holdings for its “expertise and knowledge of the jeans market.”
“We can accelerate the growth of this product line while maintaining the integrity of the brand,” said Karan, who said DKNY was originally conceived as a jeans line.
While Karan has long been reluctant to license her product categories, Simon feels the jeanswear deal will give the designer more confidence in other areas.
“Licensing is the way to go now,” he said. “Calvin Klein has recognized that. You just have to be careful who you license to, and keep an eye on it. Once we get the [DKNY] brand over half a billion, it can give the company a sort of leverage in licensing other areas.”
Simon said he’s also gotten the company’s deliveries under control. Late deliveries had been a problem at the beginning of the CK venture, but now Designer Holdings has the capability to ship half a billion dollars worth of merchandise.
Despite the inherent fluctuations in the denim market, Simon said, he thinks the designer jeans business has steadied since the first boom of the late Seventies.
“Back then, designer jeans meant you had three styles with the designer’s logo on the back and that was it,” he said. “Today, it’s more of a lifestyle. It’s a complete brand.”
The general slowdown in basic jeanswear hasn’t hurt him, he said.
“Basics have slowed down a bit, but our inventory hasn’t piled up,” he said. “We make all our goods domestically, and we don’t own our factories, so we can adjust to demand quickly.
“I have a youthful label, I have a mature label,” he added. “Now I can hit every part of the market.”