CALVIN KLEIN, STEFANEL END BRIDGE AGREEMENT FOR EUROPE, MIDEAST

Byline: Samantha Conti

MILAN — It’s the end of the affair for Calvin Klein and Stefanel.
Both companies issued statements on Wednesday saying they had agreed to end their five-year-old joint venture to distribute and operate the CK bridge sportswear business in Europe and the Mideast, including a string of CK stores there.
The move was an expected step in what is said by sources to be part of Klein’s plan to build a more ambitious European bridge business for women’s and men’s wear, possibly through a joint venture with the Italian conglomerate Holding di Partecipazioni Industriali. The deal with Stefanel, called Sky Co. SpA had not reached the growth expectations the designer had laid out at its inception and was operating at a loss for Stefanel, according to the company.
The much-heralded deal, put together in 1996 by Gabriella Forte, who was then president of Calvin Klein, was meant to lay the foundation for the designer’s business in Europe. Expectations were high: sales projections for the first year were $35 million, and they were planned to climb to between $90 million and $100 million by 1999.
But the realization was far lower, as sales in 2000 reached only $20 million to $25 million, according to a spokeswoman for Stefanel. All figures are calculated at current exchange rates.
In addition, Klein and Stefanel had plans to open about 150 stores in Europe and the Mideast by 2000, via a firm known as CK Retail SpA. In the end, they only opened about 15, including an 18,000-square-foot CK flagship in Milan that was to be the crown jewel of an expansive retail network. Most of the stores are franchises.
According to the Stefanel release, the two companies have agreed to dissolve Sky Co., which distributed the CK collection, and CK Retail.
Stefanel owned 74 percent of Sky Co. while Klein owned 26 percent. Stefanel, however, was widely believed to have financed more than 90 percent of the venture.
CK Retail was owned in part by Sky Co. and by Calvin Klein Inc. The CK collection was produced by K Service SpA, which was owned entirely by Stefanel. That firm has also been dismantled.
Stefanel said in its statement that shutting Sky Co. would “free up resources for the group” and put an end to “negative economic consequences to the balance sheet.”
A Stefanel spokesman declined further comment, but said the CK business accounted for about 10 percent of the company’s sales. Stefanel is quoted on the Italian bourse and closed at $1.22, up 1.37 percent.
In its statement, Calvin Klein Inc. said the company has taken steps to prevent any disruption of the CK Calvin Klein businesses in Europe and the Mideast and will shortly announce a long-term strategy for the continuation and expansion of those businesses. Sky Co. will complete shipping of its spring collection.
The company also said that the Calvin Klein Collection and the CK Calvin Klein Jeans businesses are not affected by the termination of the Sky Co. joint venture.
A Calvin Klein spokesman would not comment further on the reason for the termination of the deal with Stefanel, which was characterized in 1997 by Stefanel chairman Giuseppe Stefanel as a marriage of two companies “with a similar approach to sales, distribution, image and organization.” But industry sources in Milan cited several issues as factors in its ultimate failure.
“The contract was costly and burdensome for Stefanel,” said one source familiar with both companies. “Calvin Klein demanded minimum guaranteed royalties, and in the end, the business never made more than $30 million. All told, it was never a good deal for Stefanel.”
But the designer was also said to be unhappy with the quality of production of the women’s CK sportswear business in Europe.
As reported, Klein is said to be in talks with the Italian group HdP, owner of the clothing manufacturer GFT Net, which, in turn, holds the Calvin Klein men’s wear license. HdP was an early suitor for Klein’s business when he put it up for sale in 1999. Klein, however, failed to come to terms with HdP or other bidders, including Tommy Hilfiger and Warnaco.
Now it appears that GFT Net is the top candidate to take over the CK sportswear business. Reached on Wednesday, a spokeswoman for GFT Net would not comment beyond a statement issued last month in response to similar questions, saying “GFT Net is currently reorganizing the structure of the two companies that oversee the licenses with Calvin Klein: CK Apparel and New Lab SpA.”
While industry sources say other Italian manufacturers such as Ittierre, the company that produces D&G, Versus and GFF, and Marzotto, which produces Gianfranco Ferre Studio, have also been approached about taking on Klein’s bridge collection, HdP’s GFT Net operation appears to be the front-runner.
The chief executive of GFT Net, Roberto Jorio Fili, is the former managing director of Calvin Klein Europe and was instrumental in supporting the Klein-Stefanel venture. Reorganizing the women’s CK license would also be a positive move for GFT, which lost the Armani Collezioni men’s and women’s licenses last year when Armani took his production in-house.
An industry observer here said Klein’s next European partner, whether it’s GFT Net or another company, must be committed to investing in distribution, advertising and retail. “They have to be committed to growing the brand in Europe,” said the source.
Andrea Ciccoli, a luxury goods consultant with Bain, Cuneo & Associati here, said the split should be a lesson for American designers looking to expand in Europe.
“It should be a big wake-up call for a number of American-driven, but not European-targeted, businesses. Partnerships can’t be one-sided. Both sides need to invest in the business if they want it to work,” he said.
The latest American designer to set his sights on Europe is Tommy Hilfiger, who last year announced he was going to open 20 stores, in-store shops and corners by 2002. The designer has teamed up with Incom Group, an Italian clothing manufacturer and distributor, to form T.H. Italia, which will oversee the operation. Incom, which will distribute the Hilfiger lines, owns T.H. Italia.