Proenza Schouler In­vestor Switch Nears

● The de­signer brand is said to be close to bring­ing in a new in­vestor as the cur­rent back­ers look for an exit.

WWD Digital Daily - - Front Page - BY EVAN CLARK

De­sign­ers Jack McCol­lough and Lazaro Her­nan­dez are mak­ing some new friends for Proenza Schouler.

WWD has learned the com­pany is in ad­vanced talks with sev­eral po­ten­tial in­vestors who could in­ject new money into the strug­gling busi­ness and buy out ex­ist­ing stock­hold­ers. The de­sign­ers did not re­ply to a re­quest for com­ment Thurs­day.

Proenza Schouler is owned by the de­sign­ing duo as well as pri­vate equity

firm Cas­tanea Part­ners, which bought a mi­nor­ity stake in 2015, and a group led by fi­nanciers John Howard, chief ex­ec­u­tive of­fi­cer of Irv­ing Place Cap­i­tal, and An­drew Rosen, ceo of The­ory (who both took per­sonal stakes in the busi­ness).

The out­side in­vestors are all said to be ready to move on and frus­trated with how the busi­ness has failed to grow and match the brand’s de­signer buzz.

Proenza has long been a fa­vorite of the fash­ion es­tab­lish­ment — win­ning the in­au­gu­ral CFDA/Vogue Fash­ion Fund award in 2004 and rack­ing up five CFDA Fash­ion Awards, in­clud­ing be­ing named Womenswear De­signer of the Year three times.

The hopes of a string of in­vestors — from Howard and Rosen to Cas­tanea and, pre­sum­ably the next new backer or back­ers — have cen­tered around tak­ing that in­dus­try ac­claim and the de­sign tal­ent of Her­nan­dez and McCol­lough to build a mega busi­ness.

At least part of the fi­nan­cial funk at the brand can be at­trib­uted to bad tim­ing. Proenza Schouler came of age when mag­a­zines ruled and then tried to make its big growth push in the era of In­sta­gram. It was also fo­cused on the tra­di­tional model of distribution — whole­sal­ing to de­part­ment and spe­cialty stores as a plethora of di­rect-to-con­sumer la­bels popped up.

And the busi­nesses get­ting the mega val­u­a­tions have sim­ply been com­ing from the more es­tab­lished and well-funded lux­ury groups, à la Ker­ing’s Gucci, or from be­yond the ate­lier, from the so­cial me­dia feed, the tech set or beauty.

On­line lux­ury plat­form Far­fetch went pub­lic in Septem­ber and is val­ued at more than $6 bil­lion and Kylie Cos­met­ics, launched in 2016, helped land the In­ter­net su­per­star Kylie Jen­ner a mag­a­zine cover — Forbes — with a pa­per for­tune of $900 mil­lion.

Proenza Schouler has been a much more tra­di­tional busi­ness in the in­creas­ingly non­tra­di­tional world.

One fash­ion in­vestor who is not in­volved in the busi­ness, but fa­mil­iar with the process, said the com­pany’s “costs are out of con­trol.”

In gen­eral, the brand is seen as be­ing heavy on the art side of the fash­ion equa­tion and light on the com­mer­cial aspect. The brand was said to have sales ap­proach­ing $85 mil­lion when Cas­tanea bought in — but has yet to reach any­where near the po­ten­tial its sup­port­ers see.

Lately the com­pany is said to have been strug­gling fi­nan­cially and crunched for cash. It has been mak­ing moves to re­align its busi­ness and make sure the brand is pre­sented in the proper light, ax­ing its Madi­son Av­enue store and mov­ing its fash­ion show from the Paris cal­en­dar to New York.

Proenza Schouler does have a lim­ited-edi­tion makeup col­lec­tion with Lancôme this fall and a fra­grance busi­ness with L’Oréal that is lu­cra­tive, but over­all the beauty busi­ness is not seen as sig­nif­i­cant.

This sum­mer, Ron Frasch, a di­rec­tor at the com­pany and an oper­at­ing part­ner at Cas­tanea Part­ners, was said to be qui­etly test­ing the mar­ket in­vestor ap­petite for the brand. But Frasch brushed off those ru­mors and said at the time: “Peo­ple are al­ways go­ing to be lis­ten­ing to in­ter­ested part­ners, but we have noth­ing go­ing on at Proenza.”

Frasch, a former pres­i­dent and chief mer­chant at Saks Fifth Av­enue, served as in­terim ceo at Proenza Schouler for a lit­tle more than a year be­fore Judd Crane was brought in two years ago.

There was talk that McCol­lough and Her­nan­dez were dis­sat­is­fied at their own la­bel, but now they are said to be pleased with the prospect of an­other cap­i­tal in­fu­sion and what it can mean for their busi­ness.

Clearly, there is much more to be done — for Proenza Schouler and the in­dus­try at large.

In Septem­ber, WWD asked the de­sign­ers to sum up the state of Amer­i­can fash­ion and they said: “Peo­ple are try­ing to fig­ure out what’s next. The younger gen­er­a­tion of Amer­i­can de­sign­ers seems to have also frac­tured, each go­ing our own way, do­ing what feels right for each of us. Every­one seems to be try­ing to come up with ways to mod­ern­ize the some­times ar­chaic sys­tem of fash­ion, whether that be see-now­buy-now, show­ing dur­ing pre-col­lec­tion mar­kets, which are when the bulk of sales ac­tu­ally oc­cur on a whole­sale level, and most im­por­tantly, how to reach the con­sumers di­rectly, by­pass­ing tra­di­tional me­dia and re­tail­ers.”

Proenza Schouler’s Jack McCol­lough and Lazaro Her­nan­dez.

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