Commentary

G-III Brings Donna Karan Back To NYC For $650 Million

G-III Apparel Group is buying Donna Karan International, the parent of Donna Karan and DKNY, from Paris-based LVMH Moët Hennessy Louis Vuitton for $650 million in a deal announced early this morning that returns the brands to their financial roots in New York City.

“The sale will most likely be regarded as a rare admission of failure on the part of LVMH, which is known for supporting its brands, from Céline to Givenchy, until they find that alchemy of designer and chief executive that transforms a fashion line into a runaway success,” writes Vanessa Friedman in the New York Times. The last label it sold, she reports, was Christian Lacroix in 2005.

Donna Karan “went public in 1996, and LVMH bought it in 2001 for $643 million as part of a drive into the United States market. But the French company struggled with it over the years, and good will among American consumers did not translate into big sales,” Friedman writes.

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“LVMH shelved the Donna Karan line after its founder departed last year, with plans to focus on the DKNY brand, the New York Post reported on July 20. It also said that the company had decided to sell both brands after seven months of ‘disappointing performance’ under new designers Maxwell Osborne and Dao-Yi Chow,” write Bloomberg’s Thomas Mulier and Corinne Gretler.

“One Of New York’s Coolest Design Duos” were taking the line “Into A Fresh New Direction,” a Vogue headline proclaimed last December over an engaging profile by Robert Sullivan. But, apparently, it wasn’t an immediately lucrative one. 

“Selling DKNY is a way to get rid of a problem at a time when the market is tough,” wrote Luca Solca, an analyst at Exane BNP Paribas, in a note cited by Bloomberg and others. “Getting rid of loss-making businesses is second best to turning them around, but better than keeping them in the group as a perpetual drag.”

As you might expect, G-III chairman, CEO and president Morris Goldfarb was decidedly more upbeat in his statement in the release announcing the deal.

Donna Karan’s “lifestyle aesthetic resonates well with consumers throughout the world,” Goldfarb said in part. “Donna Karan brings increased scale and diversification, while providing incremental growth on top of our portfolio of some of the best fashion brands in the world.” 

New York-based G-III’s owned brands include Vilebrequin, Andrew Marc, Marc New York, Bass, G.H. Bass, Weejuns, G-III Sports by Carl Banks, Eliza J, Black Rivet and Jessica Howard. G-III has fashion licenses under the Calvin Klein, Tommy Hilfiger, Karl Lagerfeld, Kenneth Cole, Cole Haan, Guess?, Jones New York, Jessica Simpson, Vince Camuto, Ivanka Trump, Ellen Tracy, Kensie, Levi's and Dockers brands. 

LVMH, the world's largest luxury group, owns Dior, Givenchy and Louis Vuitton as well as Moët champagne and Hennessy cognac, the Daily Mailreports.

“Founded in 1984 by Donna Karan, the label came to define the professional working woman's wardrobe with its sleek and sophisticated mix-and-match pieces. The designer expanded the Donna Karan New York brand by creating a less expensive clothing line for younger women called DKNY,” report Reuters’ Dominique Vidalon and Astrid Wendlandt .

“Over time, the Donna Karan brand lost touch with its customers as its brightly patterned African-inspired designs confused an identity based on jersey dresses, bodysuits and wrap skirts, fashion editors said,” Vidalon and Wendlandt continue. “And sister label DKNY struggled to compete with so-called accessible luxury brands Michael Kors and Tory Burch and edgier New York newcomers such as Alexander Wang.”

Goldman analyst Richard Edwards says in a note this morning that the sale “is likely to be taken as a small positive by the market for LVMH given the limited results in restructuring the DKI brand, enabling the company to refocus its resources onto its other restructuring brands, including Marc Jacobs, Tag Heuer and DFS [a duty free retailer],” reportsThe Street’s Paul Whitfield.

The ultimate fate of designers Osborne and Chow is up in the air, although they and CEO Caroline Brown will remain with the brand through the transition, an LVMH spokesperson tells the NYT’s Friedman. The transaction is expected to close in late 2016 or early 2017.

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