Sources close to LVMH Moet Hennessy Louis Vuitton, which acquired Karan’s business last year, strongly hinted that a change is in the works and that Karan could assume a more strategic role within the company by the end of the year, responsible for its global image and becoming an even more public face of the company. Jane Chung, who designs DKNY, could be in line to take over the design of Donna Karan, they said.
It’s a touchy subject at Karan’s Seventh Avenue headquarters, where much of the staff was holed up on Friday in human resources meetings to discuss the ongoing merger of the company into the LVMH infrastructure. Karan’s spokeswoman denied that Chung had been tapped to take over the collection and said it is highly unlikely that Karan would give up control.
“Donna is chief creative officer and design director of the company,” a spokeswoman for the designer said Sunday. “The role is the same as it was before the merger.”
Yet rumors in Paris and New York continued to fuel the fire, with indications that the replacement talks may be driven by LVMH. That could lead to a showdown of karmic proportions between the designer and conglomerate if Karan feels the new owners are pushing her to the sidelines. On the other hand, some sources indicated that a more strategic role could be welcomed by the designer.
LVMH declined to comment on the succession issue. Reached late Friday in Paris, Yves Carcelle, head of LVMH’s fashion and leather goods business group, said, “We don’t comment on rumors.”
It’s already been a tense year marked by setbacks and potholes, both personal and professional, during the transition of Karan’s company into the LVMH fold. Senior managers within the company have described a chaotic atmosphere with conflicting directions from both the old and new guards, as well as draining morale among longtime staffers who have balked at new cost-cutting measures, such as the unexpected decision by LVMH to eliminate bonuses promised to many employees last year.
The suggestion of a potential successor to Karan, just two months after the completion of the $643 million acquisition, comes as a further surprise. To some, it might echo the sudden departure of Jil Sander from her signature collection following its sale to the Prada Group, but the circumstances at Donna Karan appear to be vastly different.
Karan, who is 53 and established her own line in 1984, has often joked about retiring from the business due to the frustration she has felt over many of the accepted business norms of the apparel industry. She is also a perfectionist who agonizes over the smallest details of her collections, and it’s no secret that Karan has been searching for a design director for Collection for several seasons to help reduce her creative load, particularly following a traumatizing few years for her business.
The company had been struggling for several years since it went public, resulting in a change in strategy toward licensed divisions and broader product distribution to help offset royalty payments made to the designer. Some observers questioned the direction of several of the licenses, with fears they might ultimately damage the Donna Karan and DKNY brands. Well after the deal was struck with LVMH to acquire Karan’s publicly traded stock, LVMH executives were said to be surprised to learn the level of off-price distribution of the brands, as well as unexpectedly high expenses related to the management of the company. In its final quarterly report as a public company, Donna Karan reported substantial third-quarter losses of $53.7 million and a sales decline of 13 percent.
When the deal closed in November, LVMH initiated a corporate restructuring of the brand that included layoffs of 7 percent of Karan’s staff and a review of its licensing structure.
John D. Idol, a licensing expert who was chief executive officer of Donna Karan at the time the designer and her late husband, Stephan Weiss, orchestrated the deal with LVMH, had engineered the majority of Karan’s brand extensions. As expected, he left the company shortly after the deal was announced, joining Kasper ASL as ceo. Idol, who was both credited for creating a significant revenue stream for the company but also criticized for an often hostile relationship with the designer, left with a compensation package worth $12.2 million, but LVMH balked on its payment, citing “his performance under his contract.”
Idol filed a breach of contract suit against LVMH in December. It was also learned last year that the company did not plan to pay out year-end bonuses that were promised to employees, many of them made by Idol to divisional heads that he had brought on board. According to a proxy filed in October, LVMH did not pay any bonuses following fiscal 2000 to any DKI directors, officers or employees, past or present, noting that the conglomerate had also reduced the fees it paid to directors and counsel in connection with the merger.
Meanwhile, Giuseppe (Pino) Brusone, who was named by LVMH as Karan’s ceo in July, initiated a number of steps to shore up the company’s operations. He announced the layoffs in December, cutting 140 jobs that affected nearly every department, including four senior executive positions. He cited both the downturn in the American luxury market, as well as the transition of the company into LVMH as reasons for eliminating the positions.
Brusone and Karan are said to enjoy a more palatable working relationship than the past management, and Brusone said during a recent interview that his management style was more in tune with the creative mindset.
“I know the reality of creative people,” he said. “You cannot say ‘No.’ You have to show them how something can be done, but in a softer way.”
Brusone also stressed that he plans to review Karan’s licensing structure and intends on holding its partners to a strategy focused on upgrading the overall image of Karan’s labels, leading to speculation that some licenses may be scaled back or eliminated. The level of comfort among its largest partners, like Liz Claiborne, Estee Lauder Cos., Fossil and Fairbrooke Enterprises, varies, although none of the licensees have yet reported any changes in the brands.
Some deals have proven to be successful partnerships, such as the 1997 agreement it formed with Estee Lauder. Karan had started her own beauty company in 1992 and had originally intended to keep it in-house, but its losses were substantial. In the four-plus years since Lauder has owned the business, the company has introduced a number of new initiatives under the Karan banner, including a DKNY fragrance franchise that has resulted in both men’s and women’s scents. The company has also placed a great emphasis on building the Cashmere Mist franchise, which Karan introduced in 1994.
“This is an incredibly exciting time for Donna personally, as a designer, for her business and for the beauty business,” said Jane Hertzmark, senior vice president and general manager of Donna Karan Cosmetics. “There’s a convergence of all forces and it’s been an exciting time. We’ve enjoyed a lot of success with all aspects of the beauty business.
“When we took over, we started with building the Cashmere Mist business, and it’s grown by leaps and bounds. In fact, Cashmere Mist was one of the top performing fragrances at retail over the holidays, and it is still one of the fastest-growing fragrances in the U.S. That’s pretty exciting for an eight-year-old brand. The DKNY franchises have also been very successful. We have very aggressive launch plans over the next three years, with major additions to the brand planned.”
Of the transition, Hertzmark said: “LVMH has been incredibly gracious and welcoming, and we’re continuing with everything we had been planning. We’ve also had several very constructive meetings with Pino Brusone, and he is obviously a very astute businessman with great plans for all aspects of the Donna Karan business. We’re very much looking forward to working with the team going forward.”
While Lauder executives wouldn’t break out the division’s volume from the company’s overall volume, industry sources estimated that it is now doing about $65 million at wholesale.
A spokesman for Fossil, which makes and markets DKNY watches, said his company views the LVMH take-over as “a positive” and said the firm doesn’t anticipate any changes in direction for the DKNY line or that business. A Claiborne spokeswoman declined to comment. – Eric Wilson with contributions by Miles Socha, Paris; Julie Naughton, Melanie Kletter and Kristen Larson, New York.