Derek Lam Interview: A Bold Expansion for Derek Lam

[PoppyAzura]

A Bold Expansion for Derek Lam

By VANESSA O'CONNELL

Derek Lam had just crossed the line into fashion stardom—and profitability—when the global economy fell, taking sales of high-priced clothing and accessories with it.

The 43-year-old American, who founded his eponymous label in 2003, creates womenswear at the uppermost price tier. A silk jersey sleeveless V-neck dress sells for $1,790. His styles are sold in 124 stores, such as Neiman Marcus and Barneys New York, up from 73 stores in 2005.

After turning its first profit in 2007, Derek Lam LLC barely broke even in 2008 and began losing money again this year. To finance growth, the New York fashion house last year sold a majority stake in the company to Labelux Group, a luxury-goods investment group based in Vienna and Milan that owns the footwear business Bally. That financing enabled Mr. Lam and his life partner, CEO Jan Schlottmann, 44, to expand their 45-employee firm. Derek Lam LLC opened its first freestanding store in May in downtown Manhattan—a risky move in the recession. They launched their first ad campaign in glossy fashion magazines last month.

This Sunday, the designer, who is also a creative director at Tod's, will join other big labels unveiling spring styles at his first runway show held in Bryant Park, the official venue of New York Fashion Week. In an interview, Mr. Lam and his CEO explained why their recent losses are actually "investments."
WSJ: Which moves paid off for you this year?

Lam: One of the smartest moves was to open the store. It has given us a whole new platform to present to the whole world all the work I have done. We still have great retail partners: Barneys, Bergdorf's, Saks. But they can only buy within the realm of their floor space and what works for them. To have a store allows me to come in and say, oh, this is what Derek Lam is about. It's an environment that speaks strongly, reinforces the brand, the product range.

I really think that direct retail is the way to go. The plan is to open a few more stores.

WSJ: Why?

Lam: You capitalize on it as a laboratory. I am in the store almost every afternoon. What are people gravitating towards? What are people saying in terms of the clothing? How does it fit? Does the architecture and the clothing and the product feel like it is cohesive?

I don't know many New York fashion designers who have that opportunity, because of the neighborhood or the square footage you need. But this was something very important to me. That you could pass by your own window and say, OK, I am satisfied. Or I am not. Or this is something we can capitalize on! See the sales numbers?

WSJ: What would you have done differently this year?

Lam: There was the question about whether or not we should be on Madison Avenue, which is a high-traffic luxury street, or to be downtown, Crosby Street, on an unknown corner that is my favorite corner in terms of New York. I said, "We are not going to have our headquarters on Madison Avenue. It is impossible, in terms of having the store and the company offices above. This is our laboratory." Whether we would be generating more business in a high-traffic-expected location is up for evaluation. But we send a lot of clothes uptown.

WSJ: What are you doing now?

Lam: We are definitely scaling back, in terms of the amount of advertising we wanted to do or opening more stores right off the bat. We originally planned to open two stores. And we said we really need to see how this works before we jump in.

Advertising, there was a question. Should we wait because of the economy? Should we do it? We said let's take advantage of the fact that maybe the magazines are smaller. Your ad doesn't get lost. Contrary to what other people would say—that it's a bad time to advertise—it is setting a foundation.

In the recession, we are finding that vendors, contractors, are more open to somebody coming in who is new and enthusiastic, as opposed to when everything is big dollars, big scale, and you're lower on the totem pole. We can take that to our advantage. That also helps with costs.

If we need a faster delivery because we want to fill a reorder, before it was kind of, 'Oh no, there's a long lead time and we are not going to be able to slot you in.' Now they are a little bit more open. We take advantage of that.

WSJ: How did the downturn and the credit crisis affect your firm?

Lam: We were scared, definitely, because our goal is to always deliver merchandise to stores very early. When Jan and I started, a friend told me inventory will kill you. Inventory that is in your warehouse is going to kill you. You just need to get it out there. It will be overwhelming if you don't. For us, we are weighing the balance and the risks. But there are people shopping still. In smaller numbers, but slowly and surely we are seeing it.

Schlottmann: We are seeing a great improvement in fall. Spring was really tough. Resort and spring were tough, not good.

WSJ: What are people buying?
Lam: Jersey dresses have been doing amazing. Our top three best sellers are draped jersey dresses. I am always looking for what is the next new thing in jersey. It's the miracle fabric. I think it speaks very much for now. It's body-conscious but also has some softness. It is feminine, easy to wear. It fits a lot of body types. It started with people wearing jersey tops in a bootleg jean and now it has almost turned into an all-jersey wardrobe. So jersey is a big thing for us.

Coats we have always loved. I think that is one of the things that is kind of nonsensical. Why do you need a new winter coat? But I think coats, especially in the Northeast, when people are out in the street, it is a huge wardrobe refreshener.

 

[PoppyAzura]

WSJ: Is the relationship with retailers tense?

Lam: We have conversations about … what number do we have to be at? And they give you the number. If you want to make a presence on the floor, this is the number that you need to generate. So they do have an impact in terms of our merchandising plan.
For large department stores, it is tough, because it is such a big floor and there's a sea of clothing. And you know what works for them because they have a customer that can wade through that sea of clothing and say this is what I would like to see in my wardrobe again.

WSJ: How bad are your losses?

Lam: Losses means that you misplaced it. Or that it fell off the back of the truck. We didn't lose it. We are investing in it. We have something to show for it, which is the store. This headquarters, which we think is an important move. The advertising.
There's something to show for the money spent. It's not like it went out the window on wings. But I guess that's a technicality.

WSJ: How did Labelux come on board?

Lam: In 2007, I was one of the runner-ups for the Vogue Fashion Fund award. Part of the prize, besides the cash, which was very nice, was the mentorship. At that time, Domenico [De Sole] and Tom [Ford] were leaving Gucci. I never had met Domenico before. I had only read about him, heard about him. I thought, I don't think he is going to retire just yet. Let's take advantage of the fact that he is in between. And he signed on board. I called, asked him to do it. It was supposed to be only a one-year mentorship, but he really turned it out. He is really cool with us.

Schlottmann: He introduced us to Labelux, which is owned by Joh A. Benckiser, which owns Coty. They had both Bally and Solange Azagury-Partridge. Two very different brands. One very mature but one jewelry.

Lam: We always said we wanted to keep it for ourselves. We wanted to build the brand. We just had a whim, oh let's be designers, let's build a fashion house, and let's have fun. It was really kind of saying we feel we can do this business in a new way, an interesting way that we can be very satisfied and happy with. So we had our goals, our benchmarks.
At a certain point we realized we really want this to be something that is going to be big. That's our destiny. For the brand. Not for us. That it required investment, but not only monetary investment.

[With Labelux], there's an understanding of luxury, the opportunities to branch out in other areas. And there's a European sense that we were missing. We wanted a European sensibility in terms of quality of the product and of the distribution and of the main focus of the product on the main line. A lot of American brands are really more built on the secondary line, financially.

WSJ: Have retailers pushed you to lower your price points?

Lam: They know that it's a very difficult thing to ask a luxury brand to do, because they understand the amount of labor, the materials. But they'll ask for better margins. So we'll have conversations about better margins. What's the retail price value that we have to consider?

We'll say, OK, is this something that we can continue, in terms of looking beyond just one season cycle? We'll look at the margins, thinking in the long term that the customer will come back again and again. So that will win out in the end.

WSJ: Are there differences between European shoppers and American?

Lam: There is a difference. Europeans are more practical. They really look at luxury as something that not only is valued but also that really works for them—the name, the fabrication, the fit, the length. They are much more on the street than Americans.
The American fashion shopper is really more emotional in their shopping. Look at shoes, those crazy high-heel shoes. Europeans are like, "I am not walking down a cobblestone street in Belgium in those shoes. But they're great to look at." Americans are like, "Well, I am just getting in my car."

WSJ: Are you still using your original factory?

Lam: Yes. It is a family business in Italy. I have known them for almost 20 years. They encouraged me to start my own business. Even there, it used to be it was all manual. They laid out the patterns to fit on to the fabric to figure out the consumption. So let's say your garment fit it all together by hand and by eye, and it was OK two yards. Then you would order your fabric based on that consumption. Through computers now, the computer fits each piece. So there's less wastage.

I have no qualms about working with outside resources, unconventional resources, if I felt t the intrinsic integrity and the value stayed to the level I expect for a luxury product. We have an amazing factory that does small leather goods for us out of Asia. But our handbags are made in Italy because there's a certain kind of dimensional quality that the Italians just know how to work leather. And shoes. They can build shoes that last like nobody else. They just have that tradition. That remains in Italy.

Our knitwear is done in China. The machinery is more sophisticated now in China than it is in Italy. Don't let the Italians know. The machinery is great. You can do very light knits there now. Looking at people like Phillip Lim and Alexander Wang, we see that fashion can be made in Asia. It doesn't have to be expensive. It used to be bridge or contemporary. It was always kind of secondary. That kind of Made in China, Made in Asia. But actually fashion is about the style. Sometimes it is just about the style.

WSJ: Are you feeling more favorable about secondary, or "bridge," lines in this economy?

Lam: I worked on Michael Kors's secondary line for four years. It was incredibly difficult for wholesale. With bridge it is much more of a numbers game. And I always feel when it comes to a numbers game you are always kind of cutting costs, the cost of fabric. Who can manufacture it less expensively?

For me the secondary line would be going back to the technology. How do we use technology that could be less labor-intensive—because that's really where a lot of the cost of making clothing is—to our advantage? So it is still a great product, beautifully made but less labor-intensive. I don't know what that means yet. I haven't found the technology I am thinking about.

I am also thinking what is the added benefit of the secondary line? I don't want it to be just a knockoff of what I do. Does this maintain the traditions of beautifully made clothing, beautiful fabrics, but combining the new technology so that it becomes accessible?

I want it to be not "let's just do this beautiful dress that I had two seasons ago with less expensive fabric and let's just see what the numbers are." But I would like it to be a design challenge. And also to be something that is interesting.

WSJ: Have you been hurt by the rash of small boutique closings?
Lam: Small stores in the U.S. are having a really, really hard time. It's good not to lose those specialty stores. If you only have department stores, the ubiquity of the sameness doesn't again give anybody choice. We're seeing a lot of business being driven into the Internet—and we're looking into that.

Before, we were like, how do we do Web sales? Do we have to do the inventory ourselves and answer the email ourselves? The technology is, there are companies that come in and take care of that for you. They photograph the garment in multi-dimension and they have someone on the phone. If a customer is calling, they will be able to explain the product. Not- Oh God! Where's Derek? He needs to explain this dress! I'll just put it on. Or, find somebody in the design office!

Net-a-Porter.com is fabulous for us. So is Neiman Marcus [online] direct. You think, hmm, maybe it should all just be direct with phone numbers? Put the whole store on the internet?

WSJ: Is fashion struggling for relevance in the downturn?

Lam: Fashion is always an easy target in terms of how do we quantify the excess before the collapse of the economy. It's an easy target because it's so visible.
When we were driving out to the beach, I was thinking, why do we need so many different brands of cars? The most utilitarian object—which we all should be driving the same object to get from point A to point B—and yet people choose to express their identity, for whatever reason, through their choice. And that's like fashion.

People are buying Hummers. What is a Hummer doing in Milan? Oh my God, it's not even going to make it down the street, or around the corner. So that's excess. You can see that in every industry.

There is a lot of product out there, but the audience is not the same as before, where shoppers follow the designer, they follow the brand. People want choice. They are so used to it now. Nobody is going just to one site on a blog. They are going to several sites.

Fashion is like apps. I go to iPhone and I am like looking through the apps and I am like, I don't know if I really needed this, but this looks really interesting, an application for whatever. I think fashion is a pre-app app. You want a lot of choice, and you might not think you want to look at a Derek Lam thing, but you might want to because it's there. I think it's just fundamentally a sign of our modern times. There's a lot of applications out there. More than you can ever download.

I compare it to the film industry. You have your independent filmmakers, like us, small, who want to continue to be kind of independent and in the spirit of what the brand's about. And if you get a blockbuster, you control that. And you have the big studio movies, which are the big brands. There's room for both.

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[KarlBear]

Thanks for posting!

 

[lucy92]

i thought he sounded very defensive in this interview probably because his company is losing a ton of money.

i think he needs to change his business model.

 

[mikeijames]

i sometimes feel that derek lam has the potential one day to become what michael kors has become today. he already has a knack for dressing this century's version of the buttoned-up sophisticated lady that's interested in standing apart from the pack but not interested in looking like a fashion experiment. if he continues on this route and can bend the tide of american fashion toward his vision, he has the potential to explode into a very mainstream line like michael kors did.

also, it must be said, i find it admirable that -- like douglas hannant -- he's such a great counterweight in fashion for some of the stereotypical images others may have for the excessive partyboy gay fashion guy.

 

[lucy92]

i agree, he seems a bit hoity-toity in interviews ive read.

he's already had one "It" bag (the bag with the rams horn on it). its too bad he hasnt been able to parlay that into big sales.

 

[michyed]

i thought he sounded very defensive in this interview probably because his company is losing a ton of money.

i think he needs to change his business model.

Yeah very defensive- it's kinda sad though... I think he is an amazing designer and all of his collections have been impressive.