Donna Karan Company
Donna Karan Company
Sales: $550 million (1995)
SICs: 2311 Men’s & Boys’ Suits, Coats, & Overcoats; 2329 Men’s & Boys’ Clothing, Not Elsewhere Classified; 2331 Women’s/Misses’ Blouses & Shirts; 2337 Women’s/Misses’ Suits & Coats; 2339 Women’s/Misses’ Outerwear, Not Elsewhere Classified; 2844 Perfumes, Cosmetics & Other Toilet Preparations
Donna Karan Company is a leading American clothing designer and a powerhouse in the international women’s fashion industry. The company, run by the woman whose name it bears, also designs men’s clothing, operates a beauty company, supports several retail stores, sells its own perfume, and designs various fashion accessories, among other endeavors. Popular company brand names include DKNY. Donna Karan Co. was growing rapidly in the mid-1990s by penetrating new product markets and expanding overseas.
Donna Karan Co. was created by designer and entrepreneur Donna Karan, who started the company in 1984. With help from outside investors, she and her husband developed the company into a half-billion-dollar fashion force 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. Karan’s stepfather, moreover, sold women’s apparel.
Inspired by her parents and endowed with an innate knack for design, Karan 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. Karan’s rise at Anne Klein was phenomenal. She instantly found her niche and was able to thrive in the Klein organization. “Her hair was blowing, the fabrics were flying …,” recalled Burt Wayne, head of the Anne Klein design studio, in the December 21, 1992, Time, of the first time he met Karan. “You could instantly see Donna’s enthusiasm— and her tenacity.” Karan’s energy, determination, and perfectionism helped her to succeed at Klein and later to prosper in her own design business, despite the fact that the design field was 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 Karan and Klein together. Indeed, after only four years at the company, Karan became Anne Klein’s successor.
While at Klein, Karan married Mark Karan, a clothing-boutique owner. In 1974, at the age of 26, she gave birth to her first child, Gabby. Tragically, just one week after the baby was born, Anne Klein died. Karan, Klein’s respected protege, was the natural successor. She was elevated to head of design and has been credited with preserving the Klein name and helping to build the company during the next ten years. During that time 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, for example, they launched a successful line of clothes for working women (dubbed “Anne Klein II”) targeted at the lower-priced market.
For the first time in her career, 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 on her own, but Karan was hesitant to leave the security of Klein. So, in 1984, Karan’s boss, Frank Mori, effectively fired her. Simultaneously, Takihyo offered to front $3 million in start-up capital to help Karan launch her own venture. Karan was offered a 50 percent equity stake. “It was like, ‘The bad news is you’re fired. And the good news is you have your own company’,” Mori recalled in Time.
By 1984 Karan was married to her second husband, sculptor Stephan Weiss, and he teamed up with Karan—they shared the chief executive slot—to start 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 chief appeal of the clothing was that it offered working women an elegant, classic alternative to the often quixotic, fanciful designs of the day.
Throughout the mid- and late 1980s Donna Karan was known as 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. Importantly, Karan (herself a size 12) became known for her ability to create skirts, pants, and other clothing that complemented a woman’s figure, even if she wasn’t as thin as a model. The down-to-earth approach was well received in the market, where Karan’s style was considered refreshing. “I am accessible,” Karan said in a 1989 Time article. “I see myself as a person who stays up all night and worries about her daughter and her husband, and would like to get the carpeting ordered.”
During the late 1980s Karan relied primarily on her Donna Karan New York collection of upscale clothing. That apparel included blazers and blouses, for example, that ranged from $500 to $1000 or more in price. At the same time, she pursued other avenues that piggy-backed on the success of the Donna Karan line. In 1987, for example, Karan jumped into the hyper-competitive hosiery business. Karan was convinced, despite critics’ protests, that women would be willing to spend more money to get thicker hosiery that would hide sags and other unattractive features. Karan, in partnership with Hanes, developed a hose that was twice as thick and twice as expensive as normal hosiery. Customers were willing to pay for the quality, and the product was well received. Within five years the company was selling more than $30 million worth of the hose to wholesalers.
In 1989 Karan drew on the recognition of her Donna Karan New York collection to launch a second line dubbed ‘DKNY.’ The DKNY line was designed to provide stylish, casual, and affordable clothing that would appeal to a less elite market segment. The apparel was still relatively expensive—a school blazer sold for about $450, a pair of jeans was priced at $85, and a plaid wool jacket went for $350—but it brought an entirely new and much broader group of buyers to Donna Karan Co. 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. Begun in early 1989, DKNY helped Donna Karan Co. generate about $115 million in sales for the year.
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 gains, Karan and Weiss pushed ahead with new products ranging from perfume and accessories to children’s clothing. In addition, Karan was hoping to expand overseas. The company was already selling clothes in a chic London boutique in 1989 and had started selling clothes to stores in Germany and Japan as early as 1986, but Karan wanted to aggressively market throughout Europe and Asia.
To help the company make the transition from a sort of 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 that were causing some quality control glitches in the company’s clothing lines. Meanwhile, Karan continued to extend the company’s reach. Among her boldest moves was her 1991 introduction of men’s clothing under the DKNY label. Critics chastised the move, claiming that men would never wear the label of a woman designer, yet the effort was ultimately a success. Popular items in the men’s line included a $475 leather vest and $600 cashmere crewneck sweaters.
Besides moving into men’s and children’s clothing, Karan began licensing its name for products ranging from intimate apparel and furs to shoes and eyeglasses. The company also launched a more aggressive international expansion initiative, started a beauty business, and tried to market its own perfume. The perfume effort was a big risk for the company because of the expense typically required to fund a perfume start-up. Most companies hired an outside company to market their perfume in exchange for a small percentage of royalties. Karan Co., in contrast, tried to market the perfume itself. Early results from the sales campaign were disappointing.
The slow start for Karan’s perfume venture was just a precursor to a spate of setbacks that plagued the company beginning in 1992. The problems showed up on Karan Co.’s bottom line as financial losses and in the organization as late deliveries and insufficient cash flow. Part of the problem could be traced to Karan’s 1992 addition of the men’s lines and the start-up of the beauty business. Those expensive efforts, combined with other initiatives, loaded the company with debt that sapped cash flow and profits. Furthermore, Karan and Weiss were criticized for their unconventional licensing program, particularly related to the perfume endeavor. Although sales continued to rise rapidly, to $260 million in 1992 and well over $300 million in 1993, Donna Karan Co. was bleeding losses and buckling under its debt load.
Confident of Karan’s core business strategy, investors stepped in to buoy the enterprise. Importantly, a group of banks led by Citicorp injected $125 million into the company. Likewise, a Singapore-based company invested $21 million in Donna Karan Japan, the company’s Japanese subsidiary. Meanwhile, Donna Karan Co. scrambled to restructure its debt, cut unnecessary costs, and shuffle its management team. To that 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 development initiatives.
As Donna Karan Co.’s finances stabilized, sales growth continued at a rampant pace. Annual revenues rose to more than $450 million in 1992, and then to $550 million in 1995. The gains came from several of Karan’s operations. The DKNY line continued to excel, for example, and even the lagging beauty business began posting profits for the first time in 1995. In addition, the company had revised its licensing strategy. Karan’s international business, moreover, was taking off. With distribution centers in Hong Kong, Amsterdam, and Japan, as well as 15 freestanding stores in Europe, Asia, and the Middle East, the company was generating about $140 million in overseas revenue by 1995.
For the late 1990s, Karan was planning aggressive growth overseas. The company’s portion of overseas revenues, in fact, was scheduled to rise to at least 50 percent before the turn of the century, and Karan expected to be generating $300 million in sales in Asia, alone. Karan projected sales of $1 billion annually by the year 2000. Among new ventures, early in 1996 Karan launched a home page on the World Wide Web. “Fashionsavvy, conscious women around the world are responding to what I’m saying,” Karan said in the December 18, 1995, U.S. News & World Report. “The totality of it just keeps growing and growing.”
Donna Karan New York; Donna Karan Japan; The Donna Karan Beauty Company; Donna Karan Hosiery; The Donna Karan Shoe Company; Donna Karan Menswear; DKNY Men.
“Donna Karan: Empress of Seventh Avenue,” Gala, December 29, 1994, pp. 69-74.
Foley, Bridget, “Donna’s Joint Venture,” WWD, June 22, 1992, p. 4.
_____, “Donna’s Quest,” W, August 1995, p. 96.
Gault, Ylonda, “Donna Karan Sells Her New York Style,” Crain’s New York Business, May 1, 1995, p. 24.
Rudolph, Barbara. “High Style for the 9-5 Set: Donna Karan Sells Working Women a Look of Their Own,” Time, October 23, 1989, p. 70.
_____, “Donna Inc.,” Time, December 21, 1992, p. 54.
Seider. Jill Jordan, “Donna Karan’s Chic Design for Success,” U.S. News & World Report, December 18, 1995, pp. 59-60.