Donna Karan International Inc. Business Information, Profile, and History

History of Donna Karan International Inc.

Donna Karan International Inc. is a leading American clothing designer and a powerhouse in the international fashion industry. Though founder Donna Karan began her career designing for women, she also designs full clothing lines for men, teens, children, and infants, as well as an extensive line of accessories, beauty products, and home furnishings. Donna Karan International (DKI) also owns and operates freestanding stores in fashion meccas around the world, including New York, Beverly Hills, Las Vegas, and London, with new stores dotting the globe in Japan, Singapore, Switzerland, Saudi Arabia, Taiwan, and the United Arab Emirates. While DKI was acquired by French fashion titan LVMH in 2001, Karan continues as chief designer for the renowned fashion labels bearing her name.

Founding an Empire: 1970s to 1984

Donna Karan New York was created by designer and entrepreneur Donna Karan and her husband Stephan Weiss in 1984. With help from outside investors, Karan and Weiss developed the company into a half-billion-dollar-plus empire in little more than a decade. Karan's quick success, though, was the result of a youth spent in and around the design and fashion industries. Her father, who died when Karan was three years old, was a custom tailor, and her mother was a showroom model and sales representative. Even Karan's stepfather was in the business--he sold women's apparel.

Inspired by her parents and endowed with an innate knack for design, the then Donna Faske enrolled in New York City's Parsons School of Design. At the age of 20, she took a job with fashion industry legend Anne Klein. Her rise at Anne Klein was phenomenal. She instantly found her niche and was able to thrive in the Klein organization. Her energy, determination, and perfectionism helped her to succeed at Klein and later to prosper in her own design business when the industry was largely dominated by men. Anne Klein, who became a sort of idol to Karan, was known as extremely demanding and a perfectionist. It was those common qualities that drew the two women together; after only four years of working together, Karan had become Klein's successor.

While at Klein, Donna Faske married Mark Karan, a clothing boutique owner. In 1974, at the age of 26, she gave birth to her daughter, Gabby. Tragically, just one week after Gabby's birth, Anne Klein died. As Klein's respected protege, Karan was her natural successor. Karan was elevated to head of design and credited with preserving the Klein name and building up the company during the next ten years. During these years Karan worked with a friend from Parsons School of Design, Louis Dell'Olio, to sustain the Anne Klein legacy and branch into new markets. In 1982 the two designers launched a successful line of clothes for working women (dubbed "Anne Klein II"), targeted at the lower-priced market.

With the Anne Klein II line, Karan had designed an entire new collection of clothing. This success, along with the desire to have more creative control, influenced her decision to start her own company. Anne Klein was owned at the time by Japanese textile conglomerate Takihyo. Takihyo's executives were open to the idea of Karan branching out, but she was hesitant to leave the security of Klein. To force her to take the next step, Karan's boss, Frank Mori, fired her in 1984. Takihyo offered her $3 million in capital to launch her own venture, with a 50 percent equity stake.

By 1984 Karan had divorced her first husband and was married to sculptor Stephan Weiss, and the two teamed up as co-chief executives of the new design company. Karan showed her first collection at her own fashion show in 1985, just six months after leaving her post at Klein. The crowd greeted the line with wild applause, whistles, and a standing ovation. The market reacted similarly, generating a huge early demand for Karan's apparel. The major appeal of the clothing was offering working women an elegant, classic alternative to the often quixotic, fanciful, and sometimes uncomfortable designs of the day. For her efforts, Karan was awarded the Council of Fashion Designers of America (CFDA)'s Designer of the Year award.

Taking the Fashion Industry by Storm: 1986-89

Throughout the middle and late 1980s Karan was a savvy risk-taker: breaking new ground by designing practical, comfortable, refined clothing that made women look good, and shying away from bizarre, jaw-dropping fashions and tacky frills. Signature designs included easy-fitting jackets, wrap skirts, and one-piece silk bodysuits. Karan became increasingly known for her ability to create skirts, pants, and other clothing to complement a woman's figure, even if she was not as thin as a model. The down-to-earth approach was well received in the market, where Karan's style was considered refreshing.

By the later years of the decade Karan relied primarily on her Donna Karan New York collection of upscale clothing, originally launched in 1985. The apparel included blazers and blouses ranging in price from $500 to $1,000 or more. In 1987 Karan jumped into the very competitive hosiery business, convinced women would be willing to spend more money for better quality hosiery. Critics balked, but Karan and partner Hanes developed a hosiery that was twice as thick and twice as expensive as what was currently available. Customers were indeed willing to pay for the quality and Karan's hosiery products were well received. Within five years the company was selling more than $30 million in hosiery to wholesalers.

Karan drew on the recognition of her Donna Karan New York collection to launch a second line dubbed "DKNY" in 1989. The DKNY line was designed to provide stylish, casual, and affordable clothing for a less elite market segment. The apparel was still relatively expensive but it brought an entirely new and much broader range of buyers to Karan designs. The line, which was craftily marketed on a background of black-and-white cityscapes that enhanced its urban nature, was one of the most successful launches in fashion history. DKNY helped the fashion firm generate about $115 million in sales for 1989.

Karan's increasing influence on the fashion scene had earned her the title "The Queen of Seventh Avenue" with the press, and the Donna Karan name was considered "red hot" in the apparel retailing industry. Encouraged by the gains, Karan and Weiss pushed ahead with plans for new products ranging from fragrance and accessories to children's clothing. Karan also hoped for further international expansion, since the company had started selling clothes in Germany and Japan as early as 1986, and had opened a chic London boutique in 1989.

Licensing and International Expansion: 1990s

To help make the transition from a family-owned business to a more conventional corporate entity, Karan brought in apparel industry pro Stephen Ruzow, a former Warnaco executive. Among other tasks, Ruzow was hired to eliminate production problems and increase quality control. As the company continued to grow, so did Karan's reputation within the industry and she was once again awarded CFDA's prestigious Designer of the Year award in 1990. Karan and Weiss extended the design house's reach further with the 1992 introduction of men's clothing under Donna Karan New York, then another line under the DKNY label the following year. Critics scoffed at the lines, claiming men would never wear clothes designed by a woman--and yet again they were proved wrong.

DKI began licensing its name for products ranging from intimate apparel and furs to shoes and eyeglasses. The company also launched a more aggressive overseas initiative, started Donna Karan Beauty Company, and tried to market its own fragrance rather than hire an outside marketing firm. Early results from the sales campaign were disappointing and the project was temporarily shelved. The slow start for Karan's fragrance venture was a precursor to a spate of setbacks that plagued the company beginning in 1992. The problems showed up on DKI's bottom line as financial losses and in the organization as late deliveries and insufficient cash flow. Part of the problem was traced to the addition of the men's lines and beauty business, both expensive efforts, which when combined with other initiatives loaded the company with debt. Karan and Weiss were also criticized for their unconventional licensing program, particularly related to the fragrance endeavor. Although sales continued to rise to $260 million in 1992 and well over $300 million in 1993, DKI was bleeding losses and buckling under its debt load.

Confident of Karan's core business strategy, investors stepped in to buoy the enterprise. A group of banks led by Citicorp infused $125 million into the company, while a Singapore-based company invested $21 million in Donna Karan Japan, the company's Japanese subsidiary. DKI scrambled to restructure its debt, cut unnecessary costs, and shuffle its management team. To this end, Karan's husband eventually announced his intent to relinquish his co-CEO position and return to sculpting, although he continued to be active as a legal adviser and in various product developments.

As the company's finances stabilized, sales growth continued at a rampant pace. Annual revenues rose to more than $450 million in 1994, helped by the opening of a London flagship store, and to $550 million in 1995, the year Karan launched Woman to Woman, her in-house magazine. Substantial gains came from several DKI operations, including the DKNY lines and the once-lagging beauty business. The international businesses were also taking off--with distribution centers in Hong Kong, Amsterdam, and Japan, and 15 freestanding stores in Europe, Asia, and the Middle East. Overseas operations were generating about $140 million in revenue by 1995.

In 1996 Donna Karan International went public on the New York Stock Exchange, a crowning achievement for Karan, Weiss, and the designer was hailed once more as CFDA's Designer of the Year and was also honored with the Parsons School of Design Critics Award. The next three years saw the opening of stores in London and Manchester, England; Las Vegas and Beverly Hills; and Short Hills, New Jersey; the introduction of DKNY jeans; the sale of Donna Karan Beauty to Estée Lauder and Donna Karan Japan to Onward Kashiyama; the launch of men's dress shirts with Van Heusen Corporation; a new infants and toddlers line through Esprit de Corp; DKNY underwear and coat collections; a home furnishings line; and a successful fragrance with Estée Lauder. Two scents, DKNY Men and DKNY Women, debuted in 1999; the latter with a bottle designed by Weiss, reminiscent of a woman's (presumably Donna's) back. While the Donna Karan name seemed to be everywhere, with licensing deals on everything from jeans, beauty products, footwear, watches, and furniture--sales and earnings seesawed from 1997 through 1999. Happily, after a slew of losses, DKI ended the century with an upswing in sales to $662 million.

Major Changes in the New Millennium: 2000 Onward

In 2000 rumors began circulating that French luxury group LVMH Moët Hennessey Louis Vuitton, which had been gobbling up major players in the fashion industry, was interested in DKI. The official offer came in December, with LVMH offering Karan and Weiss $450 million for Gabrielle Studio, Inc. (named for Karan's daughter Gabby), which held all of the Karan trademarks. Karan and Weiss counteroffered, slashing $50 million off the price if the deal could be done quickly. LVMH agreed and the purchase was completed in early 2001, so Karan and an ailing Weiss, who was dying of lung cancer, could spend their time outside the boardroom. Weiss died in June and while Karan was devastated by the loss, she went on designing for her next New York show, scheduled for September 11. Due to the World Trade Center tragedy, the show was canceled. Karan met privately with buyers the following week, then traveled to Milan to promote her new designs under the aegis of LVMH.

In November 2001 Karan sold the remainder of her company--the manufacturing and distribution units of DKI--to LVMH for $243 million. She remained chief designer and chief creative officer, while Giuseppe Brusone of Armani came on board as CEO. Karan then stepped back a bit and reshaped her life, spending more time away from New York with her children and grandchildren in the Hamptons. While DKI seemed stable, the firm continued to waver in a weak fashion market. Sales rose and fell, but income remained considerably less than projected. In 2002 Brusone moved up to chairman and LVMH insider Fred Wilson was appointed CEO. Karan herself was rumored to be clashing with LVMH over control of her collections, while the conglomerate reportedly sought new designers to work within DKI's divisions.

Though Donna Karan was still considered one of the Big Three designers in New York, the 2000s were difficult years for DKI and Karan personally. Nevertheless, she had weathered the ups and downs and continued to do what she did best--design sensual, stylish, and comfortable apparel that attracted a wide following.

Principal Divisions: DKNY; DKNY Active; DKNY Baby; DKNY Jeans; DKNY Jeans Juniors; DKNY Kids; DKNY Men; Donna Karan Home; Donna Karan Intimates; Donna Karan Menswear; Donna Karan Studio.

Principal Competitors: AnnTaylor Inc.; Calvin Klein Inc.; Liz Claiborne Inc.; Polo Ralph Lauren.

Chronology

• Key Dates:
• 1984: Karan, with the help of husband Stephan Weiss, forms Donna Karan New York.
• 1985: The first Donna Karan New York collection is introduced; Karan is named Designer of the Year by the CFDA (Council of Fashion Designers of America).
• 1989: DKNY is launched.
• 1990: DKNY Jeans hit stores; Karan's earns second CFDA Designer of the Year award.
• 1992: Karan's first menswear collection, signature fragrance, and DKNY Kids are introduced.
• 1993: DKNY Men, a more casual line of menswear, is introduced.
• 1994: The first DKNY store opens in London.
• 1996: Donna Karan International goes public on the New York Stock Exchange; a DKNY store opens in Manchester, England.
• 1998: DKNY stores open in Beverly Hills, Las Vegas, Manhasset (New York), and Short Hills (New Jersey).
• 1999: Two DKNY fragrances are launched through Estée Lauder; five more stores open across the United States.
• 2000: Four more DKNY stores open, and several new products are rolled out including DKNY jeans for juniors, DKNY watches through Swatch and Fossil, and scarves through Mantero.
• 2001: Fashion group LVMH acquires the company.
• 2002: DKNY Kids is relaunched through a deal with CWF.