There’s no sign of an MBO just yet at Karen Millen, but big plans are afoot at the premium womenswear chain.
With persistent industry whispers of an MBO, management changes and a repositioning exercise at Karen Millen, Drapers had plenty to talk about when we took a lift up three floors to see its chief executive Mike Shearwood and chief creative officer Gemma Metheringham at Telephone House, the building near Old Street that is home to both businesses.
In autumn 2012, Shearwood stepped back from his role as chief executive of Aurora, owner of Coast, Oasis and Warehouse, to take the reins at Karen Millen, which was spun off from Aurora in 2011. Then in March last year Aurora restructured and chairman Derek Lovelock and chief financial officer Richard Glanville also announced plans to step down over a 12 to 18-month transition period, with chief executives appointed for each retailer.
At the time, Shearwood was described by his colleagues as being “in a very strong position” to buy Karen Millen, with the appointment of Andrew Ware, former senior corporate finance partner at accountancy firm BDO, as chief financial officer in April fanning the flames of speculation further.
However, nearly one year on and there is still no sign of an MBO. So what’s happening? “I can honestly say we have not had a conversation at all about acquiring the business,” Shearwood insists. “We have been very open with them [Karen Millen’s owners] to say that, at some stage in the future, we would have a desire to do a management buyout. And they have said we absolutely can understand that and, at some point in the future, we will look to realise the value of this asset. And that is about as far as it has gone.”
One of the reasons for the lack of movement could be that Karen Millen is 90% owned by the winding-up committee of now-defunct Icelandic bank Kaupthing - which is looking to maximise the value of its assets for its creditors - with the Aurora and Karen Millen management team owning the remainder. Shearwood sits on the board of both Aurora and Karen Millen, as do non-executive chairman Lovelock and non-executive director Glanville, alongside executive directors Metheringham and Ware, independent non-executive director Fabian Mansson and two representatives from Kaupthing.
Nick Hood, business risk analyst at Company Watch, says that management teams running any business with a significant outside investor face real challenges in aligning their commercial agenda with the financial expectations of the money men.
He says: “This scenario is particularly interesting when it involves negotiating with government and creditor representatives, who are several years into trying to unravel the affairs of an insolvent Icelandic bank. This is especially so at a time when all major retailers are dealing with a rapidly evolving market, where constant and heavy investment is required to stay up with the internet sales curve and deliver an effective multichannel offering to consumers.”
However, Shearwood and Metheringham assert that, while Kaupthing is an active partner, it does not dictate strategy, adding that it has “never held us back” in terms of investment and that they are unified in their objectives.
Right now, that objective is repositioning the business in the UK, where it has 48 stores, eight outlets and 31 concessions in department stores Selfridges, Harrods, House of Fraser, Fenwick and a number of independents. They are hoping to change the perception of Karen Millen from a formalwear and dresses retailer and bring it in line with the more bridge brand status it enjoys internationally. “I think [that perception] is one of the biggest issues the brand has had,” explains Shearwood.
Metheringham adds that the Karen Millen collection, which retails from £45 for a T-shirt to £1,500 for a limited-edition shearling coat, has always had a strong casualwear offer of knits, coats, leathers, jackets and T-shirts, but that message is not getting across to the UK consumer. Neither is the quality behind the product, underpinned by Karen Millen’s in-house workshop.
Metheringham believes there has been a disconnect between the brand image and the product quality - garments are made from Italian, French and Japanese fabrics. “You can engineer the quality, which I know sounds like a masculine word. But I think it’s important because engineering the quality is about how the clothes feel and that’s what gives them the investment quality. We want it to be the thing that defines the brand,” she says.
To address this disconnect, Karen Millen worked with photographer David Bailey and stylist Katy England for its autumn 13 campaign, which showcased a more pared-down aesthetic. The womenswear retailer has teamed up with the duo again for spring 14, which sees a continuation of the concept with simple portrait shots that let the clothes do the talking.
“I think you get a real sense of where the brand is moving. What we have been saying is the essence is the same but the attitude has changed,” says Metheringham. “It’s confident but smiling, strong but easy. Where Karen Millen was always associated with quite a strong, structured image, it has just softened and relaxed, which is I think in line with where fashion is.”
Honor Westnedge, senior retail analyst at market research firm Verdict, says the move is a good opportunity for Karen Millen to grow the business in the UK by promoting its diverse offer, but adds that it must be careful not to lose its USP as a destination retailer for formalwear and dresses.
“Reiss was in the same position [in 2009] when it launched sub-brand 1971, so doing something like that could be an option if
it wants to appeal to new casualwear customers outside of its loyal fanbase.”
As part of the focus on updating the brand image, in August Karen Millen set about changing its branding for the first time in 25 years, including the font, logo and colours - as well as the black logo, a vibrant yellow is being used as the accent colour set against white.
The UK repositioning will be manifested in a 8,000 sq ft flagship store in Knightsbridge, London, which will open at Easter and coincide with the launch of a New York flagship on Fifth Avenue.
In London, Karen Millen has taken the lease for the three-storey, triple-fronted former Benetton unit at 23-27 Brompton Road in Knightsbridge, sandwiched between Harvey Nichols and Harrods.
The flagship will be the first to house the entire collection and will feature a pop-up atelier in the basement, similar to the made-to-measure tailoring and leather Karen Millen pop-ups seen in Selfridges last August and in February this year. “Our stores have [previously] been quite fixed, quite inflexible, quite solid. We want this to be more of a creative, experiential space. So it might launch in spring/summer looking one way, and then as we go into autumn/winter we might transform it,” says Metheringham.
“It’s an ideal location for Karen Millen because it’s one of the most international shopping districts in the world,” explains Shearwood. “We have a very large business in the Middle East, Russia and in southeast Asia. And that area in particular is very heavily shopped by clients from those destinations.”
International remains a key focus for Karen Millen, with nearly 70% of sales now overseas. Total sales for the 53 weeks to the end of March 2013 were flat at £260m and EBITDA fell from £15m to £13.5m, a decline which was attributed to the investment of more than £2m into “people, processes, technology and the brand”.
Karen Millen will be in 65 countries this year, with 40 stores set to open including the London and New York flagships, a new Australian store, entry into Canada and also into Central America and Southeast Asia via franchise agreements. This will take its global portfolio to 400 stores and the retailer will again collaborate with luxury department stores Galleries Lafayette in Paris and De Bijenkorf in the Netherlands on pop-ups this spring.
Shearwood says a goal has not been set for what the split between domestic and international should look like in five years’ time, but that digital will play a big part.
In the UK, online accounts for about 15% of turnover and Karen Millen operates local language websites in Australia, the US, Sweden, Germany, France, Holland, Spain and Russia. “I think it is about expanding sensibly and intelligently, and a big part of that will be about digital,” he says.
“We are possibly one of the first apparel brands to offer our franchise partners a franchise website,” he says, adding that ecommerce in overseas territories can conflict with franchise agreements for some retailers.
So while there may be no word on an MBO - yet - Shearwood and Metheringham are set to ready Karen Millen for its next stage of growth.