Diane von Furstenberg’s Brand Is Left Exposed by the Pandemic

At the end of February, just as the coronavirus was beginning to cast its pall over Europe, an elite crowd that included the likes of Anna Wintour, Jeff Bezos and Seth Meyers gathered in the gilded 19th-century halls of the Ministry of Europe and Foreign Affairs in Paris to watch Diane von Furstenberg be awarded the Légion d’Honneur.

“The woman clothed by Diane von Furstenberg is free in her movement and free to take life in her own hands,” said Christine Lagarde, who wore a red wrap DVF pantsuit while pinning the medal on Ms. von Furstenberg’s velvet dress. She noted that Ms. von Furstenberg, 73, deserved the honor for her service to women’s liberation, for raising $100 million for the renovation of the Statue of Liberty and for what she meant to fashion.

Within four months, the British and French operations of Ms. von Furstenberg’s company had done the European equivalent of filing for Chapter 11 bankruptcy. Just over 60 percent of the corporate and retail staff in the United States, Britain and France was laid off, creditors were complaining vociferously about unpaid bills, and Ms. von Furstenberg was making plans to close 18 of her 19 remaining directly operated U.S. stores. She was transforming her company from one rooted in bricks and mortar to a business focused on the intellectual property value of her brand name, which can be attached to products and e-commerce initiatives.

Her glamorous personal brand had masked the fact that her fashion line had been losing money for years. Her company, like many fashion brands, had been relying on an old business model. When Covid-19 hit and stores were closed, there was nowhere to hide.

“There’s no shame in admitting you are in trouble,” Ms. von Furstenberg said. “It kills me, but it kills everybody. Every designer is calling me. I want to tell people this happens to everybody.”

But there are plenty of unhappy people, from employees who were let go without severance to unpaid vendors, for whom that explanation may not be enough.

According to Ms. von Furstenberg, the company’s financial problems began around 2015 — just after the 40th anniversary of her wrap dress and the publication of her memoir, “The Woman I Wanted to Be.” She had been thinking about her legacy and, she said, listened to advice that her goal should be “to build a big operating business” by following the luxury brand playbook developed by Gucci and Dior: Open flagship stores on important shopping streets in capitals around the world. Between 2013 and 2015, she nearly doubled her number of directly owned stores.

This move saddled the business with expensive rents and yearslong leases at a time when nimble digital brands were rising. The company was also in creative turmoil, with a revolving door of five designers — one of whom did two stints — in 10 years.

“There started to be a real inconsistency in creative direction, and that got very expensive, because we started losing customers,” said Sandra Campos, the label’s chief executive until she left last month.

The company was kept afloat by the wealth of Ms. von Furstenberg and her billionaire husband, Barry Diller. By 2016, Ms. von Furstenberg said, she realized she had made a mistake and began to pull back on retail, though it was not until 2018 that she hired Ms. Campos as chief executive and a restructuring plan was created.

“This is an emotional business, and emotional decisions get made — and she’s a great believer in all people,” Ms. Campos said of Ms. von Furstenberg. “It’s both a strength and a weakness in terms of making decisions that are smart business for the long term.”

They tried to renegotiate and surrender leases, gradually reducing the losses by 65 percent. Though there was more of a focus on e-commerce, it was still only 20 percent of the business. Sales, which had been about $300 million before the 2008 recession, had shrunk to half that.

But as the pandemic began to hit the retail sector, DVF’s problems morphed into a crisis. In January, as the virus forced a lockdown in China, the company began to postpone payments to vendors, struggling with a major loss of revenue from Chinese consumers, who accounted for 20 percent of the brand’s global sales. As the virus crept across Europe, things worsened. By early June, DVF reportedly owed more than $10 million in store rent and millions more to vendors. The company declined to comment on the matter.

“A turnaround in the best of times takes three to five years, patience and consistency of design and strategy,” Ms. Campos said. “Then Covid hits in the middle of it. You may have to make decisions you would not otherwise have made.”

The company started furloughing most of its U.S. employees in March after closing its offices in the meatpacking district of Manhattan, where Ms. von Furstenberg also maintains a pied-à-terre that overlooks the High Line, the city park she was instrumental in creating.

“Every single thing was considered,” said Ms. von Furstenberg, from Chapter 7 liquidations to Chapter 11 bankruptcy to a sale to a company such as Authentic Brands Group, which specializes in stripping valuable brands of their physical dead weight and applying their names to mass-market products. However, in the end, Ms. von Furstenberg said, she felt only the family could ensure the brand’s legacy.

Now the layoffs and issues with vendors have put Ms. von Furstenberg in a delicate position.

Ms. von Furstenberg said she did not blame Ms. Thompson for being upset, and had every intention of paying what was owed — or at least as much as she could — both to her vendors and her staff.

“We will be as fair as we possibly can,” she said. “The smaller people will definitely be handled. I own it — of course I do.”

She had to, she noted; she is writing a new book, called “Own It.”

She added that what she was doing with the brand was “what I should probably have done a while back,” and that she was feeling increasingly positive about the future.

“I can see the light at the end of the tunnel,” Ms. von Furstenberg said. “But things change from morning to night. So who knows? A big wave could come and we would be swamped again.”

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