• WWD / By Lisa Lockwood on March 28, 2017

CEO Talks: G-III’s Morris Goldfarb on DKNY, Donna Karan

G-III is launching DKNY as an exclusive for Macy’s and Donna Karan for other department stores.

Morris Goldfarb George Chinsee

Morris Goldfarb

George Chinsee

Three months after completing the $650 million acquisition of Donna Karan International, Morris Goldfarb, chairman and chief executive officer of G-III Apparel Group Ltd., has revealed his hand for the DKNY and Donna Karan brands.

On Monday, it was disclosed that G-III has forged a deal with Macy’s to carry DKNY women’s apparel, handbags and shoes, in addition to women’s and men’s outerwear and swim exclusively at Macy’s locations in the U.S. and on macys.com. The agreement calls for building in-store shops in the better sportswear departments. The shops will roll into Macy’s in the first quarter of 2018. Before then, Macy’s, as well as other department stores, will carry DKNY until it becomes a Macy’s exclusive.

“Macy’s has been an amazing trading partner for G-III for decades,” said Goldfarb in an exclusive interview with WWD. “We know the inner workings of Macy’s; they’ve truly partnered in building our business in most categories and classifications. The relationship is comfortable for both.”

According to Goldfarb, 2017 is “a bit of a stub year” for DKNY, since there’s merchandise in the pipeline that’s going to Macy’s and other retailers in the third and fourth quarters that was produced by G-III. DKNY will be available for the rest of the year at stores such as Dillard’s, The Bay and Bloomingdale’s. G-III has reached “an understanding” with the other major retailers that when the exclusive with Macy’s begins in the first quarter of 2018, the other retailers will get the Donna Karan brand. (Resort 2016 was Karan’s last designer collection.)

“We’re doing two brands,” said Goldfarb. “We’re launching DKNY for Macy’s and we’re launching Donna Karan for the other department stores. It will go on almost simultaneously.”

Donna Karan, which is being designed in-house by the G-III team, is at a price point that’s above DKNY. “It’s not where Donna Karan sits today. It’s an appropriate price point for Lord & Taylor, Bloomingdale’s and Dillard’s. It’s a notch up from DKNY, but not an incredible reach. It’s different fabrics; the aesthetic is more elegant and sophisticated. We have internal designers who are designing by classifications.”

Retail prices for DKNY range from $129 to $179 for day dresses; $260 to $500 for outerwear, and $148 to $348 for handbags. Fabrics include jersey, neoprene, lace, crepe, chiffon, cotton, textured soft satin, boucle, tech nylon, denim and leather. Donna Karan’s retail range is $180 to $350 for dresses; $350 to $800 for outerwear and $198 to $498 for handbags, far below the price points of what had been Donna Karan Collection when the brand was owned by LVMH Moët Hennessy Louis Vuitton. Fabrics for the new line include jersey, cashmere, silk and leathers.

On Monday, G-III reported a net loss in the fourth quarter of $20.1 million and revenue of $603.3 million. For the year, G-III generated a profit of $51.9 million on revenues of $2.4 billion, up 2 percent from a year ago.

Goldfarb directly controls 7.8 percent of G-III, or 3.8 millions shares. That stake was valued at $74.3 million as of the close Monday, when the company’s quarterly report disappointed, prompting investors to send the stock down 14.1 percent to $19.69.

Despite having several discussions with the person Donna Karan, who stepped down as chief designer of her namesake company in June 2015, Goldfarb said she is not involved in the new Donna Karan brand. “We tried to stay as close to Donna’s heritage as we could. We used her archives, and tried to assemble collections that use her terminology, such as ‘Seven Easy Pieces,’” said Goldfarb.

The Macy’s deal for DKNY, which had been a powerhouse of urban-inspired sportswear in the Nineties but has been challenged in recent years, can be a “win-win” for both parties, he believes. “We wanted to build a model relationship. This is it. There was a confidence level they would fulfill their obligations contractually. They [Macy’s] stepped in fairly early identifying this as an opportunity for them, as well as G-III,” he added.

He said he approached Macy’s “understanding their needs and the pace that retail is changing and the department store business is changing, and they needed solutions for the future, as I did. And they’re of the scale that could support the business I need to rationalize the value of the brand.”

The agreement further strengthens the ties between the two companies. G-III last year struck a multiyear deal with PVH Corp. to make Tommy Hilfiger’s women’s sportswear for exclusive in-store shops at Macy’s, and Macy’s (as well as other department stores) does a big business in Calvin Klein sportswear, which is also made by G-III.

Architectural firm Bergmeyer is designing the DKNY in-store shops, and they’re currently evaluating the number and appropriate locations for them. “It will be in the area near Calvin, Ralph, Michael Kors. It will be a well-profiled brand for Macy’s,” said Goldfarb.

Goldfarb said the company does well when it divides collections into classifications. In addition to the Karan sportswear line, there will be an active piece under Donna Karan. Noting G-III is known “as one of the best coat-makers in the country,” he said there will be a coat classification that will be carried in coat areas. There will be Karan handbags and footwear, which will be launched simultaneously in the third and fourth quarter, he said.

DKNY has several key licensing partners that will stay intact, such as its biggest licensee, Estée Lauder for fragrances. Other licensees are Fossil for watches, Hanes for underwear and hosiery, and Luxottica for eyewear. These products can be sold at Macy’s, in addition to other department and specialty stores. Eventually, Goldfarb expects there will be an exclusive men’s DKNY sportswear department at Macy’s, as well. G-III plans to manufacture DKNY Jeans for Macy’s too. While G-III generates under $75 million in licensing revenues, Goldfarb said that the best part of the DKI acquisition “was the licensing revenue.”

In addition to Macy’s in-store shops, DKNY products can be double-exposed in other departments, such as dresses, performance and coats.

G-III will be distributing DKNY overseas as well. There are global distributors and multibranded retailers where DKNY product is sold. The brand’s international boutiques will have the choice to buy into the broader global line or the product assortment that will be available in the U.S. for Macy’s.

The ceo said Donna Karan and DKNY will create separate branded ad campaigns, developed by Laird + Partners. There will also be classification campaigns, such as the one launched recently for DKNY intimate apparel where Emily Ratajkowski is walking her dog in DKNY lingerie (produced by Hanes). Goldfarb said Trey Laird, ceo and chief creative officer of Laird + Partners, came to his attention because he did the advertising for Karl Lagerfeld Paris, another brand that G-III does. Laird earlier worked in-house at Karan and continued to handle the designer’s campaigns after he went out on his own. “When we looked at the archives it was sensational. We decided to abandon our in-house initiatives and go with Trey,” said Goldfarb. Once the in-store shops are in place at Macy’s, Goldfarb said there will be co-op advertising, and Laird will do the creative.

For the most part, Goldfarb has hired new people for the DKNY and Donna Karan businesses. “There were some wonderful people [at DKI] who were positioned for the luxury sector and marketing primarily to Europe and Southeast Asia. They were a little negligent to how they addressed the U.S. market. The focus for LVMH was different parts of the world,” he said. DKNY headquarters at 240 West 40th Street is currently filled with the staff. “It’s mostly new hires and some of the old people,” he said.

Goldfarb believes that DKNY can easily be a business generating “north of $1 billion in the next three to four years.” He said Donna Karan could perhaps do $500 million within five years. “DKNY has a head start from Macy’s,” he said.

Other plans include opening DKNY performance stores in the first quarter of next year. “I need to find a solution for the sportswear. We know the solution for the performance piece,” he said. He has done very well with Calvin Klein performance stores. They have 48 stores in China that they sold back to PVH and have four in the U.S.

While Wall Street wasn’t enthusiastic about the price G-III paid LVMH for DKI (G-III’s shares have declined 22 percent since the beginning of the year to last week, and the stock has dropped 50 percent in the last 12 months), Goldfarb believes the DKNY and Donna Karan brands have tremendous upside potential. Calling it a “trophy brand” at the time of the acquisition, Goldfarb remains a great believer in the brands’ future.

“I think I paid a very fair price for many reasons,” said Goldfarb. “It suited our future. It was a solution for more permanence in this industry.”

Previously G-III was primarily dependent on licenses from brands ranging from Calvin Klein and Tommy Hilfiger to Ivanka Trump and Vince Camuto. “This [DKI] gave us security that this company can exist for generations,” he said.

G-III is approaching $3 billion in sales this year. “Without maturation of Donna Karan and DKNY we’re well on our way to do that. We have an initiative that will bring Tommy to a number that’s north of $500 million in the next three years, and Calvin Klein is over $1 billion,” he said. Both Hilfiger and Klein women’s wear are licensed businesses of G-III.

Goldfarb made clear that G-III has a model that’s “clearly not LVMH’s model.”

“We took one of the premier brands in the world and clearly one of the premium brands in the U.S., and were able to buy it,” he said.

It is widely believed that there are several American apparel brands where only first names are necessary, and he believes them to be Ralph, Donna, Calvin and Tommy. “To be able to buy one of the four and license two of the four adds to three that we have control of,” said Goldfarb.

Turning to other businesses at G-III, he said that freestanding retail is a trouble spot for the company. “Right now, we’re rightsizing the entire fleet,” he said. He noted that the component of their business that is driven by outlet stores — G.H. Bass and Wilson’s — isn’t doing well.

“We’re closing approximately 60 stores this year. Wilson’s is a third men’s outerwear, a third women’s outerwear and a third accessories and is multibrand. Calvin Klein, Guess and other brands are carried. It’s all outlet. Traffic is not doing well for us. It’s a troubled area for us. We recently repurposed a couple of GH Bass and Wilson’s stores to Karl Lagerfeld and they’re doing well under Lagerfeld (they are outlet stores),” he said. “This year, at a minimum, we’ll be down 20 percent in door count.”

DKNY outlet stores haven’t been doing well and “aren’t commercial enough,” but he is eager to test out the new product.

Although traffic is down in stores, Goldfarb said the company’s wholesale business is picking up market share. “We’re very comfortable living in the department store world. There’s not a department store that doesn’t have an online site to support the brand. They all do,” he said.

Goldfarb gave a quick snapshot of how his other brands were performing:

  • Calvin Klein “is doing amazing,” said Goldfarb. “It’s one of the larger women’s apparel brands in the country and posts double-digit increases every year.” Despite the fact that Kevin Carrigan left Calvin Klein Inc. as global creative director where he was responsible for ck Calvin Klein, Calvin Klein Jeans and Calvin Klein White Label, Goldfarb said it won’t have an impact on his Calvin Klein business. “We design it. Kevin didn’t work for me. We have a design department composed of 50 people. We design by classifications by brand,” he said, noting that the knitwear designer at Calvin Klein is not designing the knitwear for DKNY. “The business units operate as individual business units. The shared part is the back office and sourcing,” said Goldfarb. Carrigan has joined competitor Ralph Lauren where he’s senior vice president, creative director, women’s Lauren and Chaps brands.

  • Hilfiger women’s apparel, which G-III started making this spring, “looks good and is retailing really well.” G-III makes all the women’s apparel, except for the Tommy-Gigi piece that’s manufactured by PVH Corp.

  • The Karl Lagerfeld Paris business is “doing very well,” he said. The collection is sold in such stores as Lord & Taylor, The Bay, Nordstrom and Bloomingdale’s. “It’s in all the classifications, including footwear,” he said. G-III owns 49 percent of Lagerfeld in North America, and 20 percent of the global business, excluding China.

  • G-III is opening more stores for Vilebrequin, the upscale swimwear label that it owns. There are 80 company-owned stores and 80 franchised units. The company just launched men’s Vilebrequin ready-to-wear in 31 doors of Saks Fifth Avenue. The company also produces women’s swimwear, cover-ups and some accessories. It’s distributed to multibranded stores, mostly in Europe.

  • The Ivanka Trump business, a brand that’s been in the news lately as some stores have exited the business, “is selling well,” said Goldfarb.

  • G-III sells some of its brands on Amazon, such as Calvin Klein and Tommy Hilfiger. “We are just beginning to do private label for Amazon with their own registered brands, mostly dresses,” he said.

  • The company’s Andrew Marc brand, which is directly owned, has done well with coats and a growing performance brand. “We tried doing dresses with Andrew Marc and they did not succeed,” he said. He said that they derive some licensing royalty from the Andrew Marc brand and have an online site. It’s dual-gender, and it’s two brands: Marc New York for Macy’s and Lord & Taylor, and Andrew Marc for Neiman’s, Saks and Nordstrom.

  • The team apparel business, which includes NBA and NFL team apparel, is “doing well.” “They always do well. They’re generally stable. There’s the concern about Sears leaving retail and how it will affect us. It will affect us to some degree. Our challenge is to figure it out. We generally do. We’ve changed this model so many times.”

Goldfarb said that for the first time, he has the right to do e-commerce for several of his brands (Lagerfeld Paris, Vilebrequin, DKNY and Bass). Lagerfeld has just launched e-commerce, and Karan “is in a rebuild mode. It exists right now, but it’s a small business and we’re improving on it.” Two of his other main brands, Calvin Klein and Tommy Hilfiger, aren’t owned by G-III so he doesn’t do their e-commerce.

Asked if his goal is to own more brands these days, he said, “My goal is to improve upon every asset we have. We have more than enough to build north of a $5 billion business in the next three years.”

Finally, when questioned when DKI will be accretive to earnings, Goldfarb said that’s a tough call. He said it’s not the trophy brand at this moment, but should be accretive soon. “During year two we expect this acquisition to turn accretive for us,” he said.

#Macys #PVHCorp

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