St. John Knits, Inc.

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St. John Knits, Inc.

17832 Gillette
Irvine, California 92714
U.S.A.
(714) 263-9730
Fax: (714) 263-9798

Public Company
Incorporated: 1963
Employees: 2,420
Sales: $127.9 million
, Stock Exchanges: New York
SICs: 2331 Women’s and Misses’ Blouses and Shirts; 2335
Women’s, Juniors’ and Misses’ Dresses; 2339 Women’s
and Misses’ Outerwear, Not Elsewhere Classified; 5621
Women’s Clothing Stores

A swiftly rising competitor in the apparel industry, St. John Knits, Inc. designs and manufacturers women’s apparel and accessories, selling clothing, bracelets, earrings, necklaces, and other fashion items through a chain of its own stores and through major department stores. Founded by a former model and her husband, St. John Knits operated for decades by marketing its designer clothing and accessories exclusively through department stores. In the 1990s the scope of the company’s operations was widened when it began opening its own stores, creating a flourishing concern that stood well-positioned for consistent growth in the years ahead.

When she was 25 years old, Marie St. John was working as a model in Los Angeles, getting ready to marry her fiancé, Robert E. Gray, and about to start an enterprise that three decades later would prosper as a more than $125 million-a-year business. At the onset, the origins of the company resembled entrepreneurism in its classic form: a flourishing, multi-million-dollar company created from nothing, a half-by-chance, half-by-design bid to wedge an upstart, start-up company into a business world dominated by established corporate gentry, with the odds of success intimidatingly low, the sting of failure painfully close at hand.

For St. John and Gray, however, the fledgling years of their company, St. John Knits, were not quite as dramatic, at least in terms of the impending failure that lent entrepreneurism its dramatic flavor. Success came unexpectedly to the company, and it arrived early and easily, perhaps one of the reasons that from the outset St. John Knits pursued a course of moderate, methodical expansion. For years the company’s management, led by St. John and Gray, kept St. John Knits’ growth in check, refusing to mount an aggressive expansion program even as the St. John brand name became a status symbol for women across the country. Controlled growth would govern St. John Knits formative decades of development and still hold sway over the company’s strategic plans during the 1990s, but the first few weeks in the company’s history were harried days, frenetic days that first hinted at the riches Marie St. John and Robert Gray would later enjoy.

In 1962, at age 25, Marie St. John acted upon her disenchantment with the styles and prices of women’s clothing hanging on the racks of retail establishments in the Los Angeles area by making her own knit clothes by hand. St. John began making clothes more in line with her sense of fashion: simple, straight knit skirts with matching short-sleeved tops. Quickly, St. John discovered that she was not the only one who preferred her self-designed clothes. Other models approached St. John, complementing her clothing and expressing an interest in purchasing their own, prompting St. John to purchase a $450 knitting loom. Using her loom, she began meeting the demand for her basic yet classic knit skirts and tops, and in the process kindled the spark that created the formation of St. John Knits.

Prompted by the demand for her personal line of clothing, St. John asked her fiancé for help in carrying out an idea of hers. Gray, auspiciously, was a self-employed salesman of women’s apparel lines to department stores, but he was reluctant to use his professional experience to help fulfill his future wife’s plan of selling her clothing to department stores. As he later reflected to a Forbes reporter, explaining his mindset in 1962, “I took her dresses to retailers only to stop her nonsense and convince her that no one was going to buy them.” Gray was flat wrong. For the next 35 years he would spend his days meeting the demand for his fiancee’s clothing.

With nothing to prove but a lesson in the hardships of the retail clothing industry, Gray took St. John’s samples to work with him and came back at the end of the day with 30-day delivery orders for 84 dresses signed on for by Bullock’s and a fashionable local retailer. Retailers had been impressed by St. John’s Chanel-inspired, timeless line of clothing that could endure the seasonal vagaries of fashion, but St. John had no time to be impressed. Eighty-four dresses had to be made in 30 days, a production volume that St. John later explained would take her, alone at her knitting loom, over a year to fulfill. Clearly, more elaborate plans had to be made, or the deadline would pass and, as it later became known, an incredibly lucrative opportunity would be missed.

St. John headed to the loom, while Gray proceeded to raise the financial means to make the production of 84 dresses a realistic aspiration. He borrowed $5,000, then purchased additional knitting looms and rented manufacturing space with the hope of meeting the unexpected, pressing demand for St. John’s clothing. With the space and equipment secured, Gray set himself to the task of assembling the personnel to complete the job, hiring his mother, St. John’s mother, and another knitter. Soon the family group began production, their hurried efforts marking the beginning of St. John Knits, Inc., incorporated in 1963 in the same month Gray and St. John were married.

Once the company completed production of its first wave of orders, less hectic days followed, with Gray assuming control over production, sales, and financial matters and St. John taking on the responsibility of designing the clothes for the company that bore her name. Early on, the couple decided they would design and sell four lines of clothing each year, ranging from tailored-look dresses, suits, and separates to more casual sportswear, with each line comprising 20 different items and styles. The couple also decided to pursue a moderate course toward expansion, opting for slow, measured growth and eschewing the potential pitfall of borrowing money to finance their business efforts, a strategy that would control St. John Knits’ growth as the company’s clothing lines became increasingly popular and began recording success outside the Los Angeles area.

By the end of St. John Knits’ first year of business, the Irvine, California-based company had collected $92,000 in sales and earned $18,500, recording inaugural financial totals that had been achieved largely through word-of-mouth advertising, Gray’s connections with retailers, and only a modicum of paid-for advertising. Instead of jumping the gun and allowing initial success to breed overambitious growth, Gray and St. John focused their efforts on developing the company’s products, not on developing promotional campaigns, an approach that enabled Gray in particular to closely monitor St. John Knits’ development. Gray also demonstrated his desire for control over the company’s operations by opting against contracting a third-party manufacturer to produce the company’s line of clothing. A popular practice among clothing companies was to locate the cheapest manufacturing source available, usually somewhere in the Far East; but Gray decided his and his wife’s company would manufacture its own clothes in Irvine, allowing Gray maximum control over every of aspect of St. John Knits’ operation.

With St. John spearheading the creative end of the business and Gray attending to the company’s daily operation, St. John Knits’ carved a lasting place for itself in the business world by selling to large, established retailers such as Jacobson’s and Lord & Taylor, cultivating a relationship that would propel its growth for decades. Underpinning its respected standing among retailers were the company’s distinctive lines of clothing, which began to attract a devout clientele drawn to Marie St. John’s classically conservative fashion style. As one retail consultant explained, “For ladies who lunch, a St. John knit is almost like a uniform, a status symbol,” which neatly described the company’s typical retail customer and conveyed the essence of the clothes’ success: generations of women made the inclusion of a St. John knit in their wardrobe a must.

Driven by the money spent by “ladies who lunch,” St. John Knits’ annual sales marched methodically upward, reaching $1 million by 1969 and arriving at the next financial benchmark, $10 million in sales, in 1980. Throughout the first two decades of St. John Knits’ existence, the company’s expansion had been financed entirely out of cash flow, with registered, in-the-books success fueling the gradual expansion of the company’s operations and generating growth. Moreover, by avoiding outside financial assistance, Gray and St. John had retained absolute control over their company and would continue to do so for nearly another decade. However, as the company’s 30th anniversary approached, an opportunity presented itself that neither Gray nor St. John could resist. With their decision to take advantage of the opportunity, the couple relinquished some of their control, but the benefits of their decision were quickly demonstrated, ushering in a new era in St. John Knits’ history.

In 1989, Munich-based Escada AG, a manufacturer of luxury women’s apparel and accessories, offered to purchase an 80 percent stake in the company, presenting Gray and St. John with the chance to collect $45 million for ceding control to Escada. The German designer and maker of ready-to-wear designer sportswear had been founded in 1976 by Wolfgang Ley, a German businessman, and his designer wife, Margaretha, both of whom were intent on the aggressive expansion of their company throughout the world when they approached Gray and St. John. Aside from the similarities between the two companies—each was led by a businessman husband and a designer wife—Gray and St. John were attracted by the offer because the $45 million would enable them to open St. John Knits retail stores for the first time, opening up a vast new avenue for geographic and financial growth for their company. Accordingly, Gray and St. John agreed to the Leys’ offer, and in 1990 Escada purchased an 80 percent interest in St. John Knits, leaving Gray and St. John at their company’s helm to orchestrate the establishment of St. John Knits stores.

The first St. John Knits store opened in Palm Desert, California, followed by a string of other boutiques, including the opening of a store on prestigious Fifth Avenue in New York City and another in Munich, the company’s first overseas boutique. While the company developed a retail branch of operations, it continued to sell its lines of clothing to department stores, the company’s mainstay business for the previous three decades. St. John Knits’ product lines had expanded by the early 1990s to include a line of brightly colored day wear and a line of evening wear, carried by three major department stores—Saks Fifth Avenue, Neiman Marcus Group, and Nordstrom, Inc.—which represented the company’s largest customers. St. John Knits employees still handled nearly all of the production processes required to keep the company running, including the dying and spinning of yarn, the casting of buttons, and the manufacture of buckles, bracelets, earrings, necklaces, and other accessories, continuing a long-standing policy not abandoned after the company’s acquisition by Escada.

Annual sales increased as the scope of the company’s operations expanded, rising modestly from $57.9 million in 1990 to $65.8 million in 1991, then leaping to $80 million in 1992. In its 30th anniversary year, St. John Knits’ annual sales eclipsed $100 million, much to the delight of the corporate offices in Irvine. With ten boutiques in operation and strong sales to major department stores robustly propelling the company forward, there were numerous reasons to rejoice in what St. John Knits had accomplished during its first 30 years of operation. However, against this ebullient backdrop the fate of the company unexpectedly became uncertain.

The reason for this uncertainty did not stem from St. John Knits, but from Escada. The German parent company had fallen on hard times, hobbled by declining sales and mounting debt. The company reported an operating loss of $61.3 million in 1992, a serious blow exacerbated by prodigious debt incurred from international expansion. Between 1990, when Escada purchased a majority interest in St. John Knits, and the end of 1992, the company’s debt had tripled, and by the beginning of 1993 its stock had been stripped of nearly 90 percent of its value from the previous year, creating a desperate need for an infusion of cash. As a result, Wolfgang Ley, who had frequently referred to St. John Knits as “the jewel of Escada” sold his company’s stake in the knitwear manufacturer in March 1993, marking the beginning of St. John Knits’ operation as a publicly-owned company.

Gray and St. John retained 20 percent of the company’s stock after the public offering, remaining in control of the company they had founded 30 years earlier and continuing to record enviable success in the wake of Escada’s divestiture. In 1994, sales soared to $127.9 million, while the company’s net income swelled to $14.9 million, an impressive increase from the $1.7 million posted in 1990. St. John Knits’ legacy of success continued into 1995, with first quarter sales increasing 33 percent and profits jumping 42 percent, fueling expectations that the remainder of the 1990s would bring prosperous years of growth.

In September 1995, St. John Knits signed a lease to open a store on Wilshire Boulevard in Beverly Hills, aptly located between a Saks Fifth Avenue store and a Neiman Marcus store, the company’s two largest department store customers. As St. John Knits moved forward to the anticipated March 1996 opening of the Beverly Hills store, the company’s 17th, Gray and St. John were attempting to target a younger customer than the typical St. John Knit customer, women in their 40s. To help engender this shift in the company’s customer base, the couple was expected to pass the reins of leadership to their daughter Kelly Gray, a 28-year-old senior vice-president and creative director of the company who had begun working at St. John Knits at age 12. Kelly Gray was slated to assume control of the company in 1998, marking the beginning of a new era of leadership in the company’s history and the beginning of a daughter’s bid to build upon the success created by her parents, as she stewarded St. John Knits into the 21st century.