The disparate worlds of fashion and finance may collide soon if designer Donna Karan holds the sale of a lifetime--the initial public offering of her company's stock that has been the subject of hot rumors for months.
Neither she nor her partners, Tomio Taki and Frank Mori of the Japanese conglomerate Takihyo, are saying much about the prospect, but many Wall Street and Seventh Avenue insiders believe a deal is imminent.
If it comes to pass, the offering would give the public its first chance to invest in one of the clothing industry's most fabled successes. But watchers of this volatile business caution that, after the investment bankers and company principals reap their rewards, there often is little left for small investors who take the plunge.
A Donna Karan public offering "would be great for the underwriters and a bonanza for the insiders, but eventually . . . the widows and orphans are left holding the bag," said Alan Millstein, publisher of Fashion Network Report, a New York-based industry newsletter.
Despite such notable successes as Liz Claiborne Inc., which went public in 1981, "the track record for most (publicly held) apparel companies is bleak," Millstein said. Even Claiborne, which vaulted to $2 billion in annual sales on the strength of savvy design and marketing, has stumbled of late amid lackluster sales and heavy spending on start-up ventures. The stock price has recently fallen several dollars, closing Wednesday at $36.
Millstein listed a handful of other companies that went public with high hopes, only to unravel because of the recession or fashion missteps: He-Ro Group, which makes sportswear and evening clothes under such labels as Bill Blass, J.G. Hook and Oscar de la Renta Studio; Sam & Libby, the once high-flying shoe company; Bernard Chaus Inc., and Gitano Group.
The prize for most tattered image falls to Leslie Fay Cos., which last month filed for protection from creditors under Chapter 11 of the federal bankruptcy law after an embarrassing internal accounting scandal.
Still, selling stock to a receptive public continues to hold great allure. Companies can, in one fell swoop, garner vast sums to expand their businesses, and founders can quickly realize big gains on years of hard work and creativity.
When Jones Apparel Group, which sells moderately priced women's sportswear under the Jones New York label, went public two years ago, the biggest beneficiary was company Chairman Sidney Kimmel, who amassed a whopping $500-million fortune by selling some stock. He retained a 45% stake.
Karan's devoted fans might wonder what's in it for them. And that's tough to predict.
A stock offering "gives the company the capital to expand," said Jennifer Black Groves, a fashion industry analyst with Black & Co., a Portland, Ore., investment firm.
In the case of Karan, who started her business in 1984 after years as a co-designer for Anne Klein Cos., a stock sale would enable her to fund expansion of her new men's and children's businesses as well as her accessory and fragrance, bath and body product lines. She also has lucrative licensing deals to make hosiery, lingerie and eyeglasses.
For 1992, Karan had sales of $270 million, up from $119 million in 1989. By 1995, revenues could top half a billion dollars, as more overseas markets kick in.
To succeed as a public company, Karan must stick with the design sense and quality that make her simple, elegant, top-of-the-line Donna Karan collection and secondary DKNY brisk sellers.
"If she can keep adding new things that have the uniqueness of her, then the consumer can benefit," Groves said. "But that's a big if."
Public offerings are not for the faint of heart. Some companies fare better without the paperwork and scrutiny that go with being publicly held. Levi Strauss & Co., the giant jeans maker, converted to private ownership in the 1980s after years of answering to shareholders.
"They didn't want investors breathing down their necks and telling them what to do," said Edward F. Johnson, a veteran analyst with Johnson Redbook Service, a division of Lynch Jones & Ryan.
Is Karan up to the task? Analysts are unsure.
"It depends on how much control she's giving up," said industry analyst Groves. "I can only assume that she would be very careful about how she structured it."