LVMH is selling off Donna Karan International, the owner of DKNY, to G-III Apparel Group in a deal that is valuing the troubled brand for $650 million.
It’s not entirely a surprise: Donna Karan had been losing money for years, operating in a tough business environment. Luxury analysts say DKNY’s annual sales (LVMH does not break out individual company performance) came in at about $450 million. So G-III is paying about $1 to $1.5 times annual revenue, less than the 1.9 times LVMH paid when it bought the company in 2001 for $643 million.)
“We believe the DKNY brand has a dynamic position in the market, and when G-III approached us about acquiring the brand, we concluded that the time was right and that G-III was the right steward going forward,” said Toni Belloni, group managing director of LVMH, in a statement.
Here’s what to take away from the sale:
High-end fashion brands are in a tough market.
LVMH does not typically get rid of brands, said Luca Solca, managing director and sector head for global luxury goods at Exane BNP Paribas. Indeed, the last time it did so was in 2005, when it sold Christian Lacroix. The fact that it sold the struggling Donna Karan company is proof of how tough the market really is for luxury right now, said Solca. “It’s been all about mass fashion,” he said. According to Bloomberg Intelligence, shares in global luxury-goods makers have dropped 13 percent in the last year (compared with a 3 percent increase in the S&P 500.) In fact, LVMH has managed to keep things going because of a strong makeup and liquor/wine business.
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The jury is still out on accessible luxury.
Accessible luxury brands — those that fall between high-end and mass-market — were for a while heralded as the savior for the troubled market. That includes brands like Michael Kors, Tory Burch, or Furla for example. (More brands want to be known as accessible luxury even outside fashion, such as Jaguar, which has made that the underpinning of an entire global campaign.)
That was why LVMH focused its attention, particularly after founder Donna Karan left the company last year, on DKNY, opting to shelve her designer line. But it wasn’t enough to force a turnaround, giving credence to a growing number of critics of contemporary luxury who say the lifespan for the category is short.
“In theory” the market is more suited to mid-priced and accessible luxury brands, said Solca. “But in practice, this is not the typical LVMH DNA.”
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LVMH is still disconnected from American luxury.
LVMH’s other big problem child is Marc Jacobs — the only American brand it now owns. (According to Reuters, Marc Jacobs may be in bigger trouble than DKNY.) That doesn’t necessarily mean that an offloading of Marc Jacobs is imminent, but that the French house, which has seen momentum at Fendi, Celine, Givenchy, Dior and Kenzo, doesn’t quite get American brands yet. In an investor note, Thomas Chauvet, an analyst at Citi, said that the deal may indicate more sales by LVMH, potentially of duty-free business Miami Cruise and maybe even Marc Jacobs.
Donna Karan is of particular interest: The brand went public in 1996 and was bought by LVMH as a big push into the American market. But it continued to struggle — and there were personal issues too, with Karan famously telling the New York Times that “Vuitton has given me the cold shoulder” about a year before she stepped down.
