Betsey & Steve: Fashion Week's odd couple

Susan Scafidi in Crain's New York, February 06, 2011

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White knight Steven Madden to grow brand while designer Betsey Johnson focuses on line

By Adrianne Pasquarelli

As Betsey Johnson gears up for New York Fashion Week, she's not losing her trademark spunk and flair for extravagance. Despite the designer's financial baggage—her company was bailed out by new owner Steven Madden Ltd.—she's still typical Betsey, sending out costly, hologram-embedded invitations for her Valentine's Day runway show, while other designers opted for cheap electronic invites.

Late last year, dealing with debt and declining sales, Ms. Johnson turned to Mr. Madden as her white knight. While the core Betsey apparel label should stay intact—Ms. Johnson remains as designer—Mr. Madden is expected to expand the company (which reportedly rakes in $150 million in annual revenue) into accessories. Even before the acquisition, Steven Madden already held the licenses for small handbags under the Betsey Johnson trademarks.

“If they give her the freedom to keep designing, if she's in good spirits and keeps the wacky personality that drives the brand intact, that's terrific,” said Susan Scafidi, director of Fordham University's Fashion Law Institute. “It would have been a mistake for Steve Madden to try to take over the entire company and push the designer out as we've seen in so many tragic takeovers.”

Both Ms. Johnson and Mr. Madden declined to comment for this story.

The two companies are now joined at the hip. Long Island City-based Steven Madden absolved a $48.8 million loan that had been in default in return for trademark and intellectual property ownership, and a 10% equity interest. His plan, according to sources and reports, is to grow the Betsey brand by focusing on shoes, perfume and jewelry. It's a good strategy, since such extras are Mr. Madden's core area of expertise.

His company reported net sales of $184.1 million, a 31% jump over the year-earlier period, for the quarter ended Sept. 30, along with earnings of $22.9 million. In addition, Steven Madden's share price has increased in value by 50% over the past 12 months, and currently trades at around $40.

“Steve Madden has expanded to places where he's cheek by jowl with higher-end merchandise, so he looks like a bargain,” said Ms. Scafidi. “He's ridden the [shoe] wave very well, which is part of why he wants to take Betsey [further] into footwear.”

Pitfalls along the way
Since founding her namesake brand in 1978, Ms. Johnson has had her share of pitfalls. Originally, her ruffled party frocks were only available in select boutiques, but when she tried to go mainstream by expanding into malls, the brand fell into a slow decline. Sales fell further during the recession, as shoppers shied away from shelling out more than $300 for cocktail dresses.

But now, she's back in business. Buyers from stores such as Bloomingdale's and independent shops have remained loyal.

Joanne Stoner, founder of eDressMe, a garment district-based e-commerce store, does well with the brand.

“I selected Betsey because she had an unusual look, that special twist that differentiated her,” Ms. Stoner said. She noted that she's currently looking into carrying some of Mr. Madden's products as well.

Runway return indicates strength
Perhaps the strongest indication of Betsey Johnson's financial stability is her return to the runways of Mercedes-Benz Fashion Week, following absences from three recent seasons.

Showing at the tents is not cheap—a catwalk in the largest of the four event spaces can cost upward of $50,000.

The designer debuted her spring 2011 collections at Lincoln Center in September, and is again hitting the venue next week. Judging by her invitations and the show's Feb. 14 date, fans will not be disappointed.

“I'm sure it'll be a romantic, girly theme with a bit of a rock and roll edge,” said Joanna Manganaro, women's editor at trend-tracking firm Stylesight. “With [her signature] cartwheels.”