For Kay Hong, signing on as chief executive officer of Proenza Schouler was all about her belief in the superior talent of the brand’s founding designers Jack McCollough and Lazaro Hernandez. That — and chemistry.
“I said to the Mudrick team, ‘Look, if there’s not a great chemistry between Jack and Lazaro and me in terms of how we view the business and what we think the opportunities are, then this isn’t going to work,” she recalled in a conversation last week that dovetailed with the designers’ exclusive interview with WWD.
She referred to Mudrick Capital Management, which specializes in distressed investments, and is the lead investor in the designers’ buyback of their company from parties including Andrew Rosen, Irving Place Capital ceo John Howard and private equity firm Castanea Partners, with which Ron Frasch was involved.
A couple of marathon days spent getting to know the designing duo and their business convinced her to go for it, and Hong succeeded Judd Crane, whose two-year tenure ended with the buyback. She marked her one-year anniversary in the position earlier this month. It’s been a busy year.
Hong arrived from outside the luxury sector, her prior work focused on small-box specialty retail with companies including Talbots, Harry & David and Torrid. While her reputation is as a turnaround expert, she declined to characterize the Proenza business so dramatically. “I took it as an opportunity to grow a business that I don’t think had achieved its full potential — a brand with tremendous potential with two creative people that have, frankly, limitless potential. I think Jack and Lazaro are two of the most intriguing creative people out there, and so the opportunity to work with them was a huge part of the allure.”
In her research on the company, she found deep opportunity as well as hefty challenges, the latter starting with a lack of clarity over the identity of the customer. “In some seasons it felt like they were speaking to a certain audience and then a season later it felt like a completely different woman,” Hong said. Clarifying their base became priority number one, and was accomplished swiftly in those initial meetings with the designers. They defined the Proenza customer as, in Hernandez’s words, “the intelligent, adult urban woman.”
Hong was similarly confused by White Label, Proenza Schouler’s advanced contemporary line, previously named PSWL. She loved its casual attitude, but considered its “junior” look and streetwear aesthetic antithetical to the Proenza oeuvre. “Those components didn’t feel like they fit,” she noted. “What did feel really relevant was the fact that it was casual. Our main-line designer brand is quite elevated. It’s very tailored and quite dressy. That woman is buying casual clothes. There is a whole section of her wardrobe that the main line does not address, which is this whole casual piece.”
Hong articulated a clinical breakdown of what she thought White Label should be, noting among advance contemporary brands on the market a divide between “a lot of neutral” and “hyper-feminine, very floral and super feminine details,” with little “in terms of a solid print and pattern vehicle [delivered] in an elevated, sophisticated way.” Given Proenza’s affinity for color and prints, she saw this as “a white space for us, so that is what we have evolved it into.”
The new direction is resonating with retailers. “White Label is addressing a need for the Proenza woman that is incremental, and that’s the most important thing,” said Elizabeth von der Goltz, global buying director at Net-a-porter. “Their new direction as a whole speaks to the off-duty woman, which they never fully addressed in the past. This has really resonated with the Net-a-porter woman.”
While Hong sees significant growth opportunity across all of Proenza’s divisions (internally, the brand’s various categories — the main line, White Label, Accessories — are referred to as “divisions”), “we feel that [the White Label] price point and sensibility have a disproportionate growth opportunity.”
Accessories comprise another area rich with potential that needed refocusing. For all the mileage the brand has gotten from the PS1 bag in the 10 years since its launch, Hong arrived to an overall-confusing product range that lacked the benefit of executive commitment. “Similar to the inconsistency relative to the customer, I think that in the past with the bags, we’ve had inconsistency in terms of standing for a particular message,” she said.
She noted that first, the PS1 and later the PS11 spawned countless variations but, “as it’s been described to me, and as I’ve noticed as a customer, we’d launch a new bag and pull it back if it wasn’t effective. What we’re trying to do now is establish a strong message to build on, so that it’s a very clear offering to the customer.” She cited as example the duffel bag, launched last spring with round crossbody and trapeze shapes. The brand is about to introduce additional offerings, “an adorable little shrunken trapeze that you can wear as a crossbody or on your wrist,” and a “proper day bag” with a zip top and multiple compartments. An essential element: recognizable hardware.
“It comes down to confidently offering a design-driven product assortment that satisfies the functional needs of why she is buying a bag in the first place,” Hong said, adding that it takes time and a broader assortment “to establish to the customer that this is something we believe in. We want to establish a strong baseline bag business. We have great accessories credibility with the market. We haven’t had the right assortment offering for that customer base.”
Then there was the matter of getting the product to the customer, and cleaning up processes counterproductive to that goal. Hong noted that Lazaro and McCollough were upfront from the start about deficiencies in that area. “That definitely became a big focal point in terms of our energy,” she said. “Over this last year, we’ve implemented a whole new ERP system, which is a very common system in the fashion industry. We had been on this very old, outdated platform that was highly customized and difficult to use. It’s really hard to have the customer vote on your product when it’s not delivering within a competitive window with everyone else.”
To that end, Hong maintains that many operational fundamentals had been “under-invested in,” and that now, “fortunately, we have an investor who understood and agreed that those things were really important things to focus on and fix.”
Hand in hand with implementing the new system, Hong saw the necessity to build a team up to implementing the changes. “It’s one thing to have a system that works more seamlessly. You ultimately need to have people who are able to operate and execute around the system,” she said, noting that the first results were seen for pre-fall 2019, which had “an exceptionally strong” sell-through.
“On an operational basis, there have been major improvements with deliveries coming in much earlier, which makes a huge difference,” said von der Goltz. “For fall-winter 2019, [Net-a-porter’s] dress category increased by 18 percent, and cruise 2020 saw the brand grow by 60 percent compared to last year.”
As for “macro challenges,” Hong acknowledged the impact of the dissolution of Barneys New York as we know it, and said that despite the travails of the traditional major-store wholesale model, “even within those businesses, you can strongly grow your own business.”
As for direct-to-consumer, she views it as essential yet for a small luxury brand, “very challenging to do profitably.” And she offered that it harbors “a dirty secret — that a lot of people use their e-commerce web sites to clear excess,” That said, Proenza’s e-commerce channel is “growing pretty nicely,” with recent double-digit growth in its full-price business.
After a year of clarifying the customer identity, refocusing the fashion message and honing back-of-house processes, Hong is optimistic that, even at this intensely challenging moment for American fashion and small brands in general, Proenza Schouler can grow and thrive. “You have to leverage the fact that we have a really great, talented design duo. Then you establish the right product DNA and offering [to address] the customer’s needs,” Hong said. “It all starts with the product.”