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Proenza Schouler: ‘We Don’t Have to Be a Billion-Dollar Brand’

After two seasons showing during Paris couture week, Jack McCollough and Lazaro Hernandez are back in New York with a more practical outlook.
Lazaro Hernandez and Jack McCollough | Source: Danny Weiss
By
  • Lauren Sherman

NEW YORK, United States — For their Autumn 2018 collection, Proenza Schouler's Jack McCollough and Lazaro Hernandez tie-dyed a velvet turtleneck dress. Each of the garments were hand-dipped, one-of-a-kinds and retail for just under $1,400. Expensive for sure, but less than the over 540 dresses currently selling on Net-a-Porter for more than $2,000 each — and a rare runway piece that also drives strong retail sales.

“It was interesting, because it was the most requested editorial look, but it was also the most affordable thing in the collection,” Hernandez explained last week at the label’s Soho headquarters, where Enzo Mari chairs - from his ‘Autoprogettazione” project — artworks by Fred Sandback and Peter Doig offer an on-the-nose reflection of the brand’s positioning as luxury’s answer to New York downtown cool.

“It hit more units than our commercial pieces, which are supposed to be the volume-drivers,” added McCollough. “This piece checked all those boxes. It got us thinking about show clothes in a different way… Maybe this idea of ‘show clothes’ is an old idea anyway.”

What, then, does Proenza have planned for its Monday afternoon runway show?

After trying Paris couture week for two seasons, the designers are back in New York, ready to embark on what they say is a new phase for their 16-year-old brand. In Paris, they courted international buyers but also challenged themselves to bring more couture techniques to their collections. Many of the resulting garments were limited in their commercial reach. "That one dress that was $20,000? It was amazing — a technical feat," said Hernandez, referring to a look that earned top billing in a Steven Meisel shoot for British Vogue. "But then, we sold two?"

We're by no means insinuating that we're going down market in any way.

This season, McCollough and Hernandez say they are focusing on designing clothes that allow them to “speak to more people,” using what they call “humble fabrics,” including washed cottons, but also something more unexpected. “We're by no means insinuating that we're going down market in any way,” McCollough clarified. “It's just kind of a new approach; we're attacking a new part of our customer's life."

The new outlook began to clarify in June, when they showed the first part of their collection to buyers. (When they moved their shows to Paris, they combined their pre-collection and collection teams and started showing in January and July only. However, that proved to be too late on the buying schedule, so they’re back to showing four times a year in June, November, September and February.)

"There were easier pieces to wear, but it was still very recognisable," said Laure Hériard Dubreuil, founder of The Webster, a concept store that has been carrying Proenza Schouler since it opened its first outpost in Miami in 2009. She says many of her international clients turn to the label for a distinctly New York look: "All of my French clients really love it." (European sales make up 30 percent of the overall business.)

Several of Proenza Schouler’s peers in New York are also recalibrating their approach in the face of bruising competition from European luxury brands, the majority of which are backed by multi-billion-dollar conglomerates like Kering and LVMH that give them advantages on everything from back-of-the house logistics and sourcing to retail expansion and media buying.

Private equity firm Castanea Partners took a minority stake in Proenza Schouler in 2015, but are unlikely to back the label in the long-term. "That's the culture of private equity. So yeah, I guess one could argue that the plan for Castanea would be to then sell their stake to a strategic partner who can help us take things to the next level," Hernandez said. "Thom Browne is a really good example and definitely the goal," he added. (Thom Browne recently sold to Zegna in a deal valuing the label at about $500 million, a win for previous backer Sandbridge Capital.)

In the meantime, McCollough and Hernandez are focusing on building a strong independent business with chief executive Judd Crane, who joined the firm two years ago, replacing longtime business partner Shirley Cooke. That has meant making some tough decisions, including closing their store on the Upper East Side and four stores in Asia operated in partnership with Club 21, as well as a second store in Bangkok.

The label now operates two direct sales channels — their website and a store on Greene Street in Soho near their offices — in addition to four stores run by Asian partners. About 20 percent of the business is direct; the rest is generated by 300 wholesale partners. The company says that it's direct-to-consumer business is currently profitable.

Maybe we'll never be a billion-dollar brand, but maybe that's fine.

“We don’t have this huge conglomerate behind us funding expansion, so we just can’t plop down $5 million to open a store in Paris,” Hernandez said. “As the company grows and we have the financial capabilities of opening more direct-to-consumer locations, that's definitely something we want to do, but there are no immediate plans.”

The company declined to reveal revenue figures. While a report in WWD estimated Proenza Schouler’s annual sales to be $85 million in 2015, a person familiar with the company’s balance sheet said the business is smaller than that.

The designers say they are focused on what’s working, including shoes — their fastest growing category — and Proenza Schouler White Label (PSWL), the more casual line that features denim and sporty outerwear. (In reality, they’ve been designing “merch” for years: wispy, tie-dyed T-shirts that have become nearly as strong a brand signature as their PS1 handbag, which first launched in 2008 and was an early revenue driver.)

The success of PSWL has driven sales of apparel, which now makes up 55 percent of overall revenue. (It used to be split evenly between clothes and accessories.) This forthcoming collection, they say, will bridge the gap between their ready-to-wear and streetwear offerings.

And despite the store closures, Asia remains a big opportunity: only 15 percent of the label’s sales come from Asia and the Middle East, and most of that comes from Korea, not China.

The launch of the label’s first fragrance, released in partnership with L’Oréal, has increased global brand recognition, which could provide a boost. Makeup could be next. They’re also thinking about menswear.

But the path ahead for a brand like Proenza Schouler isn't so clear as it once was; they'll need to innovate to survive. “Maybe we’ll never be a billion-dollar brand, but maybe that’s fine,” Hernandez said. “We don’t have to be.”

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