The big investors in designer Reed Krakoff’s four-year-old signature brand have no hands-on experience in the fashion industry. They are Washington boys whose business expertise lies in such nonglamorous fields as security, technology and the early detection of dental decay. But last year, when Krakoff wanted to assume full ownership of his label, the designer partnered with local entrepreneurs Mark Ein and Mitchell Rales.
The announcement came in the form of a perfunctory press release, with the names of the investors tucked discreetly into the verbiage. First, there was Krakoff, a millionaire many times over thanks to his tenure as creative director of Coach. Rales, the silver-haired co-founder of Danaher Corp., also built Potomac’s Glenstone Museum. He is a renowned art collector — a passion he shares with Krakoff, who kept a Louise Nevelson labyrinthine sculpture in his office at Coach and Lalanne sheep in his New York townhouse, a residence he recently sold for $51 million. The investor group also includes T. Rowe Price’s New Horizons Fund, which is led by Baltimore-based Henry Ellenbogen. But it is Ein, founder of Venturehouse Group and owner of the Washington Kastles tennis team, who serves as chairman of the Reed Krakoff Company. He is the most vocal champion of the designer and his elegant handbags and modernist ready-to-wear. He is also the most unlikely.
As if to underscore the nonfashion grounding of Ein, Venturehouse is housed in an architecturally elegant building in Penn Quarter, with ostentatiously bland public spaces. To walk into nearly any fashion company in New York is to enter a space that has been laboriously decorated, from the lighting to the precise number and genus of flowers arranged on the receptionist’s desk.
In contrast, Ein’s meeting room consists of an industrial gray rug under a wooden conference table marred by water stains. There is no visible flora. The only glimmer of fashion is the stack of Reed Krakoff mood books, with their close-up photographs of brooding models, tucked in the corner on a shelf.
The collaboration with Ein and Rales stands out because the two men are not known fashion investors, nor are they headquartered in a fashion capital where they are privy to a constant stream of industry buzz.
That distance, however, is the point.
Krakoff, 50, says he appreciates partners with skills in the financial and real estate worlds, areas that are key to building a luxury brand. “They’ve really broadened my thinking,” he says of Ein and Rales.
It’s also “incredibly provocative to have people come in who are really embedded in the digital space,” Krakoff continues. “There are things happening in different industries, and how do you take the best practices and have them speak to a luxury consumer? We need to do things in a different way. We need to be iconoclastic to really make a mark in the business.”
Krakoff has never been the typical fashion designer driven solely by the pursuit of creative bravado. He tends to speak bluntly and without flourishes — lacking fashion’s propensity for charismatic aphorisms. Tall and lean, with buzz-cut dark hair, austere black glasses, a wife and three children, Krakoff is that rare breed of designer who has equal respect for the balance sheet as for the sketch pad. As such, he serves as both creative director and chief executive officer of his company.
Before leaving to focus on the signature label he founded in 2010, Krakoff spent 16 years at Coach. He, along with chief executive Lew Frankfort, transformed Coach from a $500 million company that sold practically indestructible, classic handbags into one with sales of more than $5 billion. With a background at Ralph Lauren and Tommy Hilfiger, Krakoff helped Coach exploit a once-neglected niche. Most high-end designer labels traffic in handbags that have an entry-level price point of $1,000. Meanwhile, the mass market thrives on $100 bags. Krakoff injected Coach with a generous dose of fashion while keeping prices averaging about $400. The result was a company that ably played both ends of the marketplace.
For a time, Coach was a star in fashion circles and on Wall Street. But its success eventually became its worst enemy — at least critically. As customers clamored for the Coach brand, designs covered in outsize logos began to dominate. When Krakoff decided to launch his own label, the industry responded with curiosity and no small amount of disdain for a millionaire designer who, it seemed, was greedy for more and was planning to get it through a vanity label.
Founded under the umbrella of Coach, Krakoff’s first collection was received coolly. It was technically sure-footed, but it lacked a clear point of view. The outerwear, shoes and handbags were sporty and luxurious, but the pure ready-to-wear looked heavy and cumbersome. In the last few seasons, however, the collection has begun to find its way with garments that have greater ease while maintaining flourishes such as leather harnesses, fur insets and whip belts that give the clothes an urbane edge. Not surprisingly, given Krakoff’s background, the bags — priced in the realm of $1,600, but with rarefied offerings such as an anaconda duffel at nearly $6,000 — have become a commercial hit. But the designer says the ready-to-wear is the company’s fastest-growing category.
“We have no relationship. I’ve never even met her,” Krakoff says of Obama. “We never had any communication when she chose to wear our clothes; it was very natural and organic and real.”
That made it all the more flattering, he says.
“It’s not something you can quantify, but it’s a huge benefit, because she’s self-confident in how she dresses and she embodies the type of woman we strive to dress: strong, confident and outgoing.”
Krakoff’s aim is to build a distinctly American luxury brand that competes with the best of Europe’s old guard. The reality, however, is that few American brands have made headway in the arena of Hermès, Gucci, Fendi, Chanel and the like, where value is often measured by intangibles such as history, mythology and the length of waiting lists.
“We’re challenging every aspect of our business, from how we invest money to which stores we’re in,” Krakoff says. “We’re not competing against multibillion-dollar luxury brands on their turf.”
Krakoff and his investors are trying to determine ways to use social media, e-commerce, digital technology and yet-to-be-imagined apps to their advantage. If there are specific initiatives in the wings, the privately held company isn’t sharing. But the questions essentially boil down to: What is the value of an enormous number of Facebook fans or Twitter followers? How do you create a luxury brand’s identity online and then have it thrive there? How do you develop your own exceptional e-commerce experience — rather than relying on, say, Net-a-Porter? They are still trying to figure all that out.
“What I can bring is a fresh perspective,” Ein says. “Most of the innovation will be around the business model. . . . We’re thinking about how to use digital in a new way in the luxury sector. For a long time, that wasn’t a top priority and for valid reasons.
“I’m not sure you can be a luxury brand and be wholly digital,” Ein adds, “but the balance may be different — shifting slightly more toward digital. We want stores to be profitable, not just marketing vehicles. But to be credible to the customer we’re going after, you have to have that physical presence.” To that point, the brand has a flagship boutique in New York, is opening one in Paris and is planning a Washington store.
But long before the brand is ready to cut the ribbon on a local shop, Krakoff was in town to party with fellow art enthusiasts and woo potential customers. He was a guest of honor at the annual Phillips Collection gala Friday. And Sunday, he presented his fall 2014 collection at Saks Jandel to benefit CharityWorks. An audience of mostly women murmured in hushed tones as they concentrated on Krakoff’s sleeveless blazers, fur-trimmed ankle boots and body-slimming dresses. These were clothes to wear, not merely to titillate.
The unlikely partnership between Krakoff and Ein had its beginnings in the late 1980s, when the two men each had a share in the same Long Island beach house. The friendship has lasted for three decades. Ein is the finance guy — baby-faced with sandy hair, a medium build and reliable suits. When Ein founded Venturehouse, he asked Krakoff for his aesthetic judgment of the new firm’s logo. And when Krakoff was considering buying his brand from Coach, he turned to Ein as a sounding board. That conversation began early last year, and after eight months of meetings and deliberations, Ein decided to invest. It did not hurt that his wife, Sally, and his mother were admirers of the label.
Ein introduced Krakoff to Rales, a longtime friend. The contemporary art collector with the highly attuned sense of the visual admired Krakoff’s aesthetic — timeless but not dull — and met with him at Glenstone.
The tipping point for this out-of-character investment was Krakoff’s creative sense coupled with his understanding of how to build a business. Rales declined to be quoted for this story.
The Reed Krakoff Company lies somewhere between a start-up and an established brand. It has had the advantage of a founder with an outsize reputation in the industry, personal wealth and a sharp eye for business. And from its founding under Coach, it has had deep — although not bottomless — financial resources.
Krakoff’s training at Coach impressed investors so much that they are optimistic enough to envision a three- to five-year timetable for in-the-black success. It is not unusual, however, for fashion companies to take a decade or more to reach profitability; some, such as Christian Lacroix, never do.
“I’m in New York a day or two a week,” Ein says. “Reed and I talk daily or every other day about something. We get a disproportionate number of opportunities because of his background. I want to be more active than the typical investor, but there’s a line I don’t cross.”
Ein makes no aesthetic judgments about products. His first fashion show was a revelation.
“It’s a lot of work for a short amount of time,” Ein observes of the 15-minute spectacle. “I thought it was the intermission. And it was over.”
Then he quickly adds: “But I understand why it’s important.”