LVMH Will Demote Brusone In Shake-Up at Donna Karan
By TERI AGINS and ALESSANDRA GALLONI
Staff Reporters of THE WALL STREET JOURNAL
Donna Karan International is headed for a management makeover.
LVMH Moet Hennessy Louis Vuitton SA, which last year acquired Donna Karan, is planning to reorganize the management of the American fashion house and replace Chief Executive Giuseppe Brusone, according to people familiar with the matter.
The Paris-based luxury-goods conglomerate is expected to give Fred Wilson, currently head of the LVMH's U.S. fashion division, direct oversight for Donna Karan. Mr. Brusone, whose contract with the French company runs out next year, is likely to stay at the company in an advisory role, these people say. LVMH declined to comment.
The management shake-up is the latest signal that spending a hefty $643 million to buy Donna Karan and her trademarks has turned out to be a fashion faux pas for LVMH, which hoped Donna Karan would propel it into the ready-to-wear apparel business and become a global fashion brand. Even prior to closing the deal last December, LVMH started to have second thoughts as it realized Donna Karan's financial performance was weaker than expected and that the brand had faded, in part because of its ubiquitous presence in discount retail chains -- a position that contradicted the upscale image of LVMH's other fashion brands such as Louis Vuitton, Christian Dior and Fendi.
Nevertheless, LVMH Chairman Bernard Arnault went ahead with the purchase, believing that he could restore Donna Karan to its luxury perch and make it as successful as Giorgio Armani, the venerable Italian fashion house. To that end, he named Mr. Brusone, a former managing director of Armani, to turn around Donna Karan.
The Donna Karan deal has larger significance for LVMH because it is seen as one of the biggest tests of the French company's ability to buy up fashion houses, preserve what made them chic and yet escalate their business into international brands with staying power. The strategy of creating billion-dollar businesses by using fashion-show hype to sell upscale products worked in a boom economy when $800 handbags were a must-have. But now, investors are wondering whether these trophy franchises were worth the prices paid and whether they can be integrated into large conglomerates. No company was as acquisitive as LVMH, the world's largest luxury-goods maker. Under the tenure of Mr. Arnault, an accomplished pianist and arts patron known as the "pope of high fashion," LVMH invested $7.5 billion in five years to form a conglomerate with brands as diverse as Louis Vuitton hand bags, Moët champagne and Givenchy couture gowns.
LVMH's American depositary shares have fallen 50% in the past two years. Earlier this year, LVMH sold its majority holding in the money-losing Phillips auction business, an embarrassing foray that put LVMH in contest with Christie's and Sotheby's. Investors are now urging the company to unload two other money-draining units: Sephora cosmetics and DFS duty-free shops.
LVMH's net profit for the first half of 2002 fell 10% to €214 million -- mostly due to the rising costs of amortizing acquisitions such as Donna Karan and Fendi. The company continues to suffer from the global downturn in luxury goods, cutbacks in international travel and most recently the risk of a military conflict in Iraq. Fortunately for LVMH, the core Louis Vuitton division, which provides most of its profit, has remained resilient, and sales at the group's champagnes and spirits unit are strong this year. and Mr. Arnault has expressed confidence in the conglomerate's profitability for the rest of the year.
One area LVMH still has to develop is a strong apparel business. Succeeding in turning around Donna Karan in the long run would go a long way to establishing the conglomerate's clothing credentials. Indeed, fashion-industry executives said Mr. Arnault had made a wise choice in picking Mr. Brusone to run the show. The well-regarded Italian executive moved quickly to cut production costs and restructure the business by making the company less reliant on special-order sales to discount retailers and closing Donna Karan outlet stores. In an interview earlier this year, he estimated it would take two years to turn the business around.
In recent months, though, Mr. Brusone has made no secret to people inside the fashion industry about his mounting frustrations on the job, as LVMH has postponed plans to invest heavily in Donna Karan, in light of the worsening economy. Mr. Brusone, 58 years old, has also complained to people about Donna Karan, chief designer of her namesake brand, for resisting compliance with his new strategies. Despite selling her business to LVMH, Ms. Karan has an unusual amount of creative control and a minority holding in the LVMH unit that owns Donna Karan International. Ms. Karan couldn't be reached to comment.
Mr. Brusone's departure will come as a surprise to the fashion industry, which has praised him for injecting firmer financial guidelines at Donna Karan, a company known for its sometimes-undisciplined spending. Mr. Wilson, his successor, isn't experienced running an apparel designer brand. The 56-year-old LVMH executive has served as head of the Louis Vuitton brand North American division and spent 19 years within the DFS duty-free operation.
In an interview two weeks ago, Mr. Arnault said LVMH had "started repositioning Donna Karan in the U.S.," indicating that more needed to be done to revive the brand. Indeed, an encouraging sign came at the Donna Karan fashion show recently held in New York. Ms. Karan stunned the audience by departing from her New Age minimalist looks, which had been criticized in recent years, with a parade of colorful feminine dresses in polka dots and vintage prints that retailers and the press called her best collection in years. As Ms. Karan took her runway bow to hearty applause, Mr. Brusone and Yves Carcelle, the head of all LVMH fashion divisions, congratulated each other with a vigorous handshake.
Shameless self-congratulating remark: Please remember where you read about it first...

My remark about Patricia Barros provoked a lot of hate mail. Some clarifications:
1. I didn't claim I was the first to notice Patricia. I merely pointed out she looks like Megan Ewing in the Guess campaign, and is credited only in the European version of the catalogue. I think the first mention of her was in newsmodel.blogspot.com (special thx to BabyBelle), and the item was lifted two days later by Chic News.
2. Patricia is not featured in the Guess site, thus amplifying the confusion between her and Megan Ewing.
3. I didn't claim that Patricia is sexier than Ewing, but than her younger sister, Ana Beatriz Barros. But come to think of it, yes, she might be sexier than Ewing, who seems too young for her role as a bombshell. Ewing's eyes are of course a winning asset, but Patricia has wonderful eyes as well!
4. And finally, the only known portfolio of Patricia can be seen at a Brazilian website I wasn't aware of, The Girl. The direct link to the torrid session of Patricia in an hotel room in Rio can be found here (click on all 8 folders on the left). They also have 4 wallpapers of Patricia that could enhance nicely your desktop, and two very hi-res pics. Special thx to pseudomass and woodnwheel!