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Donna Karan, a student at New York™s Parsons School of Design in the late 1960s, began
her design career as an intern for the American fashion designer, Anne Klein. Karan left
school to work for Klein fulltime and was ¬red after only nine months on the job. She
eventually returned, rose to associate designer, and took over the label at Klein™s death
in 1974. At Anne Klein, Karan created the successful Anne Klein II designer clothing
collection. After ¬fteen years with Klein, Karan started her own ¬rm, ¬rst run out of her
living room. In 1985 the ¬rst Donna Karan New York Collection was unveiled to critical
success.
The Donna Karan New York Collection established Karan as a leading designer and
fashion design house. The Collection, made with exclusive luxury fabrics and designed
with an emphasis on comfort and ¬t, was based on Karan™s concept of “seven easy
pieces””a collection of bodysuits, tights, dresses, skirts, blouses, jackets, pants, and ac-
cessories”that when layered in combinations produced a consistent but varied, high
fashion look. Having amassed both numerous design awards and a loyal clientele over
the years, Karan re¬‚ected on the critical and commercial popularity of her designs:
A garment has to work for me, not just on a gorgeous model. . . . My clothes are
meant to be friendly. Regardless of size, regardless of age, regardless of anything.
Something a little bit luxurious that™s not obvious...You™re not supposed to be able
to say: There™s that garment coming down at you. My clothes are about a relation-
ship: about the person who is wearing them and the clothes.6 When I design, I
think about that woman”never, never just about the clothes. . . . For me, design-
ing is a personal expression of who I am”wife, mother, friend, and business per-
son”the many roles women everywhere try to balance. . . . It™s really dif¬cult to
hold on to one™s femininity while at the same time being pushed into a men™s busi-

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5. David Moin, “Space Wars Worry Retailers,” Women™s Wear Daily, October 31, 1996, p. S14.

6. Sidney Schaer, A Design for Herself,” Newsday, May 6, 1991, p. 44.
920 Case: Donna Karan International Inc.




190 Part 4 Additional Cases




ness environment. I understand it better because me too, I am a woman, with all
the insecurity and vulnerability that being a woman brings along with it.7


Business Strategy
The company pursued business through several strategies: building global name and im-
age, brand leveraging, international growth, protecting brand exclusivity, and “head-to-
Donna Karan International




toe” dressing.
• Building global name and image. Donna Karan International™s central focus was to
continue building worldwide recognition for the Donna Karan New York brand and
image in the designer market, and to capitalize on the brand™s publicity and success
to also build bridgewear DKNY brands.
• Brand leveraging. Historically, the company had created successful design collec-
tions and then leveraged that collection™s success and the depth of its design talent
in the larger bridge market. This approach was evidenced by the success of DKNY,
a brand leveraged off the Donna Karan New York brand. The company had used
the strategy to enter the men™s apparel and fragrance and beauty product markets,
and had subsequently increased the company™s customer base and visibility.
• International growth. The Donna Karan name was recognized the world over. In
1996 international business accounted for 37.3 percent of net revenues. The com-
pany established divisions in Europe, Asia, and the Middle East, and expanded in-
ternational sales by licensing free-standing retail stores and investing in the
infrastructure to support sales growth abroad.
• Maintaining brand exclusivity. The company followed several strategies to protect
brand image integrity and avoid market oversaturation. All advertising, marketing,
and public relations efforts were centralized and managed from New York. Further,
to reinforce brand exclusivity, the company limited distribution to a select number
of retailers that included better department stores and boutiques catering to fashion
conscious, high-end clients. Finally, the company selectively pursued licensing
agreements, and maintained an active role in the ventures.
• “Head-to-toe” dressing. Multiple apparel collections, brands, and lines allowed
clients to partake in the Donna Karan luxury lifestyle. Complementary luxury prod-
uct offerings such as fragrance, toiletries, shoes, and accessories were created to
complete the Donna Karan lifestyle ensemble. This strategy also increased brand
awareness and visibility because it encouraged retailers that carried Donna Karan
to add more departments to accommodate the new products.

PRODUCTS AND BRANDS
Donna Karan New York. These luxury designer collections included men™s and
women™s apparel, shoes, and women™s accessories. Women™s apparel fell into two

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7. Julia Carty, “Interview with Donna Karan,” Look International Fashion and Nightlife Magazine , April 1995, p. 20.
921
Case: Donna Karan International Inc.




191
Part 4 Additional Cases




designer collections: Donna Karan New York Collection (black label) and Donna Karan
New York Signature (gold label). The Collection sprang from Karan™s original “seven
easy pieces” and was introduced each spring and fall at fashion shows. The Signature
collection focused on designs for working women and was priced slightly lower than
Collection to appeal to a larger market. Signature was also more widely distributed than
Collection. In 1996 some Collection doors8 were converted to Signature doors to further
limit Collection to only luxury retailers. Exhibit 2 shows retail prices for select brands.
Men™s apparel had two collections: Donna Karan New York (black label) and Donna




Donna Karan International
Karan New York Signature (gold label). The black label had three lines: Couture, hand-
tailored, sparsely distributed apparel; Sartoriale, hand-made for Asian and European
markets; and the widely distributed Donna Karan New York collection. Signature had
designs and quality similar to black label, but used lower cost fabrics, commercial pro-
duction, and was priced lower.
Accessories included jewelry, leather goods, and scarves. This line, which included
men™s accessories, was shaping itself to become a line not dependent on coordinating
with the collections.
The DKNY collection. Created in 1989, this brand included men™s and women™s bridge
apparel and shoes and women™s accessories. DKNY represented a lower priced, casual,
spirited, fashion collection that was linked with the Donna Karan New York luxury de-
signer image. An item-driven brand, DKNY apparel was distributed to different depart-
ments throughout stores that carried it. Representing the company™s largest division,
DKNY accounted for 50.7 percent of 1996 net revenues.
Donna Karan women™s apparel originally had three main lines: DKNY for skirts,
blouses, jackets, denim, core pieces, and activewear; DKNY Jeans that offered ac-
tivewear; and DKNY Petite. The DKNY men™s line was slightly more sophisticated than
the DKNY women labels. DKNY Jeans had historically contributed nearly half of total
revenues to the DKNY women™s group. In June 1996 the DKNY brand was restructured
to encompass ¬ve distinct labels.
The Beauty Division. Started in 1992, it produced a variety of perfumes, creams, lo-
tions, shampoos, and soaps for men and women to complete the Donna Karan New York
lifestyle ensemble under the brands DK Men and Donna Karan New York. The company
tightly controlled product development, production, marketing, and distribution to
maintain quality and protect brand integrity. New products would be innovated and
added to the existing roster.
In the U.S. products were directly distributed by the company, but internationally
through seventeen distribution agreements that required distributors to invest a percent-
age of sales in advertising and marketing each year. The beauty division, which bene¬ted
from the synergies produced from the apparel brands™ advertising efforts, posted 1995
revenues of $30 million, which grew to $44 million in 1996.
Licensed Products. These included pantyhose, socks, women™s intimate apparel, chil-
dren™s apparel, and paper and knitting patterns, and were licensed both domestically and

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6. A door is a single retail outlet.
922 Case: Donna Karan International Inc.




192 Part 4 Additional Cases




internationally under the trademarks Donna Karan New York, DKNY, and DKNY KIDS.
Licensees included ¬rms such as Wacoal America, Inc. and Hanes Hosiery. At the end
of 1996, the company, which had recently licensed out the manufacture and distribution
of its DKNY Jeans label, had six licensing agreements.
The decision to license a product rested on the company™s ability to bring a product
to market, the revenue to be earned, and the company resources available at that time.
The company tried to control as closely as possible the design, quality, advertising, mar-
keting, and distribution of any product licensed to prevent trademark erosion and main-
Donna Karan International




tain quality and consistent advertising and marketing images. Future initiatives included
pursuing licensing opportunities more vigorously.
Donna Karan New York, DKNY, and other brand trademarks were owned by Gabrielle
Studio, Inc., a ¬rm owned by Donna Karan and Stephan Weiss. Donna Karan Interna-
tional Inc. was in an agreement with the studio that allowed it to use and sublicense the
trademarks in perpetuity in exchange for a one-time $5 million payment and annual roy-
alty payments to Karan and Weiss. If payments were not met, the studio could terminate
the agreement. Royalty payments totaled 1.75 percent of the ¬rst $250 million of annual
sales, plus 2.5 percent of the next $500 million in annual sales, plus 3 percent of the next
$750 million in annual sales, plus 3.5 percent of all net sales for such a year in excess of
$1.5 billion.

BRAND RESTRUCTURING. In the fall of 1996, the company introduced the Signa-
ture collection under the Donna Karan New York brand to replace a previous collection,
Essentials, and cater to the executive woman, but at lower prices than Collection to cap-
ture a larger market. The Signature collection would replace all of Essentials and limit
Collection distribution to only high-end luxury retailers.
In 1996, the popular DKNY brand was restructured into ¬ve labels (D, DKNY, DKNY
Classic, DKNY Active, and DKNY Jeans) to liberate the different styles that had emerged
within the DKNY parent brand, ¬ll market voids, capture greater market share, and pro-
vide different price points within DKNY. Exhibit 2 shows retail prices.
The D label created a new apparel market between designer and bridgewear. The
most sophisticated DKNY label, D featured head-to-toe looks, ¬ne detail, and superior
workmanship. The line was selectively distributed. The DKNY label was the core of the
DKNY brand. Classi¬cation driven, ¬‚exible pieces in modern fabrics that addressed a
woman™s everyday needs, it was designed to appeal to a broad client base. DKNY Classic
was an item-oriented line, espousing “seven easy sportswear pieces of life” to go from
weekday to weekend. DKNY Active offered functional and stylish seasonal sports and
athletic wear, including a workout collection. DKNY Jeans focused on denim apparel
and included jeans, dresses, and jackets, and complementary items such as tee shirts.

DISTRIBUTION. Donna Karan followed a strategy of selective and limited product
distribution to select high-end retailers (Saks Fifth Avenue, Bergdorf Goodman, Neiman
Marcus, among others), boutiques, outlets, and international freestanding retail stores to
achieve high product turnover. In 1996 the company™s ten largest retailers made up 62.6
percent of gross sales (up from 60.8 percent in 1995).
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Case: Donna Karan International Inc.




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Part 4 Additional Cases




Generally, product orders were received three to ¬ve months prior to retail delivery.
Product arrived from the manufacturer to one of ¬ve worldwide distribution centers (two
were company owned), underwent ¬nal quality inspections, and then was shipped to re-
tailers. Operations worldwide were linked via computer to provide fast information,
track inventory and product availability at different locations, and oversee production,
receiving, and shipping schedules. Inventory, order, production, and shipping operations
were reviewed bi-weekly.
The company selected retailers based on their exclusivity and ability to satisfactorily




Donna Karan International
promote collections. This might entail customizing stores or in-house displays down to
¬xtures, furniture, and other associated hardware. Working with the retailer and its em-
ployees through account executives, the company helped determine product quantities
and mixes for each retailer, in part informed by company marketing and outreach efforts.
The company often premiered collections at a strictly limited number of retailers. To
stimulate demand the company also had 37 outlet stores which sold excess inventory
without cannibalizing retail sales by offering lines retailers had already marked down.
The company did not have any domestic freestanding retail stores, but was considering
opening such under a license or joint venture agreement.
Internationally, the company had 41 freestanding third-party owned retail stores
through joint ventures, and expected to open an additional 17 such stores in 1997. Op-
erating under the names of Donna Karan New York, DKNY, and Donna Karan, each store
only stocked the product line it was named for. In 1995 Donna Karan International sold
70 percent of its interest in Donna Karan Japan but would manage the Japanese opera-
tions through the year 2000 (to be periodically renewed thereafter) for a fee based on
Donna Karan Japan™s net revenues. Donna Karan Japan would solely distribute product
and provide service in Japan. Twenty-nine stores were slated to open by special agree-
ment in Hong Kong, China, the Philippines, South Korea, Taiwan, and Japan by Decem-
ber 2000.

SOURCING, DESIGN, AND ADVERTISING AND MARKETING
Sourcing. In 1996 the company sourced 42 percent of its raw materials (mostly wo-
ven and knit fabrics and yarns) directly from suppliers and 58 percent from contractors
that acquired material from company approved mills. Most purchased fabric was used,
as production was triggered by client orders. The company did not own production
facilities, and sourced apparel from 500 different manufacturers with whom it had long-
term relationships. No one contractor accounted for more than 10 percent of total pro-
duction. Nearly 50 percent of all raw materials, labor, and ¬nished goods were sourced
from Hong Kong and Asia, 30 percent from the U.S., and the balance from Europe and
elsewhere. Sourcing and production was overseen from New York. Quality control took
place worldwide, at all stages of sourcing and production. Less than one percent of ap-
parel was returned to the company for defects over the period 1994“1996.
Design. Designer Donna Karan was a central source of creative talent and ultimately
responsible for the company™s strategic planning, marketing, and overall fashion direc-
tion. Her creativity, vision, and persona were inextricably linked with that of the com-
924 Case: Donna Karan International Inc.


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