BIG PLANS FOR SIR PAUL
Byline: James Fallon
LONDON — Sir Paul Smith is getting serious.
Britain’s most successful designer has decided to forsake the wooings of such larger luxury groups as LVMH Moet Hennessy Louis Vuitton, Gucci, Prada and Bulgari and go it alone to realize the full potential of his label. The plan will see a stepped-up expansion program, the goal of which is to double Smith’s sales to almost $600 million worldwide over the next five years.
In an exclusive interview with WWD, Smith outlined the steps that he hopes will make him one of the world’s largest and most successful designer brands:
The opening last week of a 2,500-square-foot flagship store on via Manzoni in Milan. Smith also has opened an 8,000-square-foot showroom and office in Milan.
The planned opening of a flagship store in Paris to go along with his existing unit there. Smith is targeting France and Italy as major markets for future growth.
The search for a site for a flagship store in New York, where Smith has had a small men’s wear store on Fifth Avenue at 16th Street for the last 13 years. The store would be the beginning of a major rollout of all of Smith’s collections in the U.S., a market where he is totally under-developed at this stage.
Continued growth in the Far East, which still accounts for about 65 percent of Smith’s sales. The designer expects to have sales of $333.5 million worldwide this year, including licensed products. Smith recently opened his second store in South Korea and continues to develop new retail concepts for Japan.
The opening later this year of a 13,000-square-foot headquarters building in London.
All the activity stems from Smith’s hiring early last year of Morgan Stanley Dean Witter to conduct an appraisal of the company and determine its attraction for potential bidders. Smith was repeatedly contacted over the years about selling his company but always rejected the overtures. Last year he decided to make the process a more formal one, hence the Morgan Stanley review. It generated a stampede by luxury groups, which came up with offers that valued Smith’s company at more than $250 million.
“One of the things we learned in talking to various potential partners is that we’re actually doing things very well ourselves,” Smith said during lunch near his Covent Garden office and stores, where he’s been based since the late Seventies.
“We’d sit around the table with larger groups and outline our plans and how we had the resources to complete them. All these senior executives would sit there and say, ‘So what do you need us for then?’ We didn’t — they called us, we didn’t call them. So in the end we decided just to proceed as an independent company.”
If possible, the hyper-kinetic Smith seems more energetic than ever during his 30-year career. It’s almost as if he needed someone else to confirm that his company had great potential. Now that he knows that, he’s eager to realize it.
No more so than in the U.S., a market that’s generated a lukewarm reaction from Smith in the past. The designer has been wary of becoming too dependent on the American market following the collapse of a licensing deal he had there in the Eighties. He’s also always been reluctant to engage in the sale-or-return policies that so many American department stores demand. As a result, his women’s wear has little presence in the American market, while his men’s wear store in New York is tiny (although very profitable).
Smith aims to correct that situation within the next three to five years. He hopes to follow the opening of a New York flagship with one in Los Angeles and then to step up his wholesaling in the U.S. of his women’s, men’s and children’s wear and accessories. In the short-term, Smith plans to begin advertising more in America to raise his profile there.
“What other luxury goods companies told us is that we could be a $100 million business in the U.S. very quickly,” Smith said excitedly.
One possibility is to link up with a retail or investment partner just for the American market. Smith points to the purchase of Kate Spade and Laura Mercier by Neiman Marcus as an example of the kind of tie-ups now taking place between designers and investors that aren’t one of the major luxury groups.
“It might take that kind of relationship to fully realize our potential in America,” he said. “It would certainly be something we’d consider.”
In the short-term, though, his priority is to expand in Italy and then in France while continuing to keep his foot on the pedal of his Far Eastern business. The Milan flagship follows the opening of his 2,500-square-foot London flagship on Westbourne Grove in 1999. His senior management advised Smith against opening the Westbourne Grove unit, doubting it could ever succeed. The store combines women’s, men’s and children’s wear with such Smithian touches as toys, books, knickknacks and whatever catches his fancy.
The store has been profitable almost since it opened and proved what Smith has believed for quite some time: As luxury brands widen their distribution, a growing number of consumers are looking for unusual items they can’t buy in every city in the world.
“Customers want special things and experiences they can’t get everywhere,” Smith said. “It’s always worthwhile going into a Paul Smith store because you never know what you’ll find. One friend was in Japan and found a bootleg Led Zeppelin album he’d been searching for while another was in our Paris store and found an old copy of Esquire he wanted.
“We don’t take a cookie-cutter approach. All our stores are individual. The only thing they have in common is that they’re in interesting buildings with interesting interiors and fixtures.”
The Milan store — like the one in Westbourne Grove, designed by British architect Sophie Hicks — is in an 18th century palace with a cloistered courtyard. The store utilizes the palace’s warren of rooms, leaving in place their slanting walls and uneven levels. All the walls are in a deep pink and for fixtures Smith has installed everything from a six-foot-long working man’s table he found in a disused warehouse in Nivorno to a minimalist glass cabinet he bought in Germany.
The space is equally divided between women’s and men’s wear, with about 10 percent of the store being given over to the designer’s expanding children’s wear line. The Milan store carries a wider selection of Smith’s women’s wear line than his Westbourne Grove unit, mainly because Smith has a freestanding women’s wear store in London on Sloane Avenue.
Ashley Long, Smith’s divisional director of finance, said the store is expected to be profitable within 18 months. Smith is proud of the fact that all 264 of his stores worldwide are profitable, contrasting that to the ego-driven flagships of some other designers.
Smith’s balance sheet has always been as strong as his brand. The designer has been canny about property ever since he opened his first store in Nottingham, England, in 1970: He owns the freeholds of all his stores and warehouses in the U.K. as well as those of his stores in Paris, Milan and New York. His company also is completely debt-free.
The designer, 54, is the first to admit he wouldn’t be such a success if it hadn’t been for Japan, where his men’s wear is licensed to Itochu and his women’s wear to Onward Kashiyama. He was one of the first Western designers to target the market and he remains an institution there. Smith’s drive over the next five years will be to lessen his dependence on Japan but he still sees significant room for growth even there.
He will open a 2,400-square-foot freestanding store in Tokyo in March for his main women’s collection, which is produced and sold under license by Onward Kashiyama. It will be his second freestanding store in Japan for his women’s line and there are plans to open eight more over the next five years. The aim is to expand his main women’s line alongside the diffusion collection he sells in Japan under the PS Paul Smith label. There currently are more than 40 freestanding PS Paul Smith women’s wear stores in Japan and Smith said there could be up to 75 once the 10 main line stores are opened.
In addition, the designer will open a freestanding store in South Korea in March and freestanding stores in Tokyo for his R. Newbold and Red Ear jeans labels and his first Paul Smith Covent Garden store for his men’s wear line. Smith plans to open up to six Paul Smith Covent Garden stores, each of which will average 3,000 square feet. He will supplement these with the opening of his first men’s shoe corners in Japan.
The Newbold and Red Ear stores have been designed by Hicks and indicate Smith’s constant search for interesting — if not downright wacky — retail ideas.
The Newbold store will be the first freestanding unit for the line in Japan, where there currently are more than 50 Newbold shops-in-stores. The new store is being positioned as the epitome of Englishness. All the products will be displayed on hooks in front of school blackboards, with the description and price written in chalk on the board. In addition to the Newbold line, the store will carry limited-edition, vintage tops and pants from Britain’s punk era in the Seventies and early Eighties.
The store for the Red Ear label will be even more unusual, with all the clothes hung from stuffed animal heads Smith bought at antiques markets in Britain. “The shop will be called Horn,” Smith said, smiling. “It’s meant to be young and fun.”
Meanwhile, other areas of the Far East are opening up. He’s had stores in Singapore since 1993 under license to Christina Ong’s Club 21 and Ong now is looking at opening a freestanding Paul Smith women’s wear store. Smith also has stores in Hong Kong, Taipei, Seoul and Manila.
In terms of collections, the designer’s main aim is to grow his six-year-old women’s wear line and to ramp up his expansion of his accessories business. Women’s wear remains tiny, accounting for less than 15 percent of his overall sales. Smith said a possibility for his women’s wear line in the future is to turn the Onward Kashiyama license into simply a production one like the arrangement he has with the company for men’s wear. That would enable him to have more control over its sale and distribution.
In accessories, Smith launched men’s shoes and women’s and men’s sunglass collections last September and followed those up in January with the introduction of a women’s lingerie, swimwear and accessories collection. Smith plans to open a freestanding accessories store for women and men in London’s Notting Hill Gate in early fall. He also will convert the basement of his existing women’s wear store on Floral Street into a women’s accessories, lingerie and swimwear area.
“We’ve just begun to scratch the surface in accessories,” Smith said. “We’ve done them for quite some time but never really focused on them in a big way, which is what these stores will do.”
He clearly feels that way about a lot of categories. Smith points out that his denim line PS Paul Smith Jeans has sales of $20 million in the U.K. alone, yet isn’t that widely distributed in continental Europe or America. His men’s suit collection is consistently among the top-selling designer lines in Europe and the Far East while his women’s wear had a 52 percent increase in orders for the spring season and excellent sell-throughs.
The one thing he doesn’t expect to do anytime soon is run out of ideas. The Morgan Stanley study forced Smith to look at all areas of his business and, he admits, of himself.
“You begin to question everything — are you doing things the right way, are you still coming up with new ideas, are you too old to be doing this any longer?” Smith said. “Last year was really exhausting because of that. But we have more and more young kids buying our clothes and I’ve always enjoyed meeting everyone from a 16-year-old to an 80-year-old. You learn from everything you do.
“In the end it didn’t make any sense to sell. Why would I? For the money? Then what would I do? I’ve never been driven by money. How many houses can you have? When I do decide to sell it will be because I’m heading toward retirement.
“For now I’m having too much fun.”