He’s not a blood relative, but Hubert W. Mullins says he already is starting to feel like a member of the extended family at upscale women’s clothier St. John Knits Inc.
The former chairman and chief executive of the stores division of Neiman Marcus Group Inc., Mullins replaced founder Bob Gray as chief executive of Irvine-based St. John in February. Gray remains the company’s chairman.
Best known for its luxury knit suits and couture dresses, worn by the likes of Sen. Hillary Clinton and Diane Sawyer, St. John Knits now is poised to undergo changes under Mullins. His charge includes expanding and diversifying its range of products, growing the retail division and expanding its presence in the international marketplace.
Mullins says he has no concerns about working for a close-knit family-run business as he becomes the 39-year-old company’s second chief executive.
“I do feel like I’m part of the family,” said Mullins who says he was happy to move from Dallas to his new home in Newport Coast. “They have made me feel like part of the family. They welcomed me to Orange County both socially and professionally. If we are all in town, we have lunch together every day.”
Mullins ended his 10-year career at Neiman Marcus Stores in December, just 11 months after being promoted to chairman and chief executive. It was while working at Neiman that he got to know Gray, one of his suppliers.
“I think that we developed a mutual business respect and relationship for one another,” Mullins said.
He was impressed by the company’s obsession with quality and says it was “consistently the best-performing apparel line day in and day out” at Neiman.
Holly L. Guthrie, an analyst for Janney Montgomery Scott Inc. in Philadelphia, covers Neiman Marcus and previously covered St. John Knits.
“I think Bob was looking for someone like Hugh to step in and fill his shoes,” she said, adding, “I don’t think he will ever retire. He will always be on the board and involved with the company.”
Mullins’ appointment also puts to rest rumors that the 34-year-old Kelly Gray, St. John’s president, would eventually fill her father’s highly polished loafers.
“Kelly doesn’t have any interest in becoming the CEO; her interest is in the creative side of the business,” Mullins said.
Guthrie said a family succession was not in the cards.
“St. John needed someone more similar to Bob Gray,” she said. “If you look at Kelly’s talents, they are just not in line with what you need to be the chief executive of the company. She’s a wonderful designer, very creative, so it’s good that they recognize her strengths and weaknesses and go outside and bring in someone for what they cannot do internally.”
Mullins is scheduled to make his first public appearance this Wednesday at the company’s semi-annual fashion show held before some 1,500 St. John Knit customers, admirers and buyers at the Bren Events Center at the University of California, Irvine.
But behind the glitz of St. John’s annual runway show, Mullins is poised to leverage its powerful ready-to-wear business just as its competitors Gucci Group NV, Christian Dior SA, I Pellettieri d’Italia SPA’s Prada and Chanel SA have done. His charge is to expand and develop St. John’s accessory lines,including plans to eventually launch its first cosmetics line,grow its international business and further develop its chain of 23 fashion boutiques, 10 outlets and three St. John Home stores.
“If we have a weakness, it is we are not as diversified as we should be and are too dependent on the traditional St. John evening and sportswear business,” Mullins said. “We are an apparel company, but other big designer brands are more diversified. So that’s the weakness. We are doing things well, but have been doing it in the same way for years and people like to see something different.”
Jim Kelley, managing director of Vestar Capital Partners, a New York-based investment firm that backed the Grays in their July 1999 management buyout of shareholders for $522 million, says Mullins was chosen to lead St. John into the future. Mullins played an important role at Neiman Marcus, developing its accessory and ancillary product lines and he gets along well with the Gray family, he said.
“St. John is underdeveloped in terms of its handbags, shoes and such, so there’s a real opportunity to grow those divisions as well as our international business,” Kelley said. “These are all skills Hugh can bring to the existing team and take us to the next level. We look to double the business over the next five to seven years and he has the ability to do that.”
Although St. John has been performing well this past year, Kelley acknowledges the pending economic slowdown is a concern and extending the brand into new categories will be a challenge.
“We haven’t proved we can extend the St. John brand beyond ready-to-wear,” Kelley said.
But Mullins is ready to prove it.
“I believe we have a great opportunity to develop new products other than ready-to-wear such as accessories, shoes, handbags, jewelry and eventually cosmetics,” Mullins said. “I have background in those businesses, so it makes sense if those are the company’s objectives that I might be a good person to accomplish that. I understand the relationships with big customers and there are a lot of elements to the job that I already possessed. We already have a small business in accessories such as jewelry and shoes, but they are small compared to the size of the apparel business.”
Mullins’ experience at Neiman Marcus,which has a majority stake in Kate Spade Accessories and Laura Mercier Cosmetics,will serve St. John well.
“There is a whole brand St. John could develop similar to Kate Spade and Chanel, which have done a phenomenal job with their accessories and its cosmetics lines,” Guthrie said. “I think it’s a smarter move as opposed to trying to develop a bridge line that they didn’t do successfully.”
The Neiman Marcus Group is a specialty retailer with $2.55 billion in annual sales and 31 U.S. stores, including five in California, and another two Bergdorf Goodman units. It is one of St. John’s biggest customers, accounting for more than 10% of St. John’s overall revenue. Mullins joined Neiman in 1991 as vice president and divisional merchandise manager and took on his most recent position in February 2000.
But Mullins was looking for a new challenge and saw the opportunity at St. John as a way to expand his skills.
“It’s not often that you get the opportunity to come into a company where it has been performing well and the existing CEO and founder is there to tutor and mentor you as you develop the skills to run the company I’m surprised at how much freedom (Bob Gray) has already given me. He has told people to come to me first, but I am learning the business and so he will be involved in decisions.”
Founded in 1962 by Bob Gray, 75, who remains active as its chairman, and his wife Marie Gray, 64, the company’s chief designer and secretary, St. John Knits has evolved into a high-end fashion house with $330 million in annual sales. The Grays daughter, Kelly Gray, is St. John’s president, creative director and its signature spokesmodel whose fashion shoots take her to far-flung international locations such as a recent shoot held in Indonesia.
Five years ago, her appointment to president at 29 led to a backlash from Wall Street investors who took its stock price down 7.5% in a single day of trading. But one year later, the company’s stock price hit an all-time high of 53.13 a share.
Today St. John’s is 93% privately held,with the Grays owning a 15% stake and Vestar Capital holding a 78% chunk,and the remainder trading over the counter.
In its first full year since going essentially private, St. John Knits has made some impressive strides. For the year ended Oct. 29, the company grew profits 46% to $19.6 million (before $15.1 million in one-time transaction fees and costs). Sales were up 14% to $336.5 million, reflecting increased sales by company-owned retail stores and sales growth at existing domestic retail customers. The company’s stock price has gained 14 points since Mullins’ appointment was announced Jan. 4 and was trading at its 52-week high of 39 last week, up from the 17 level a year ago.
For the company’s first quarter ended Jan. 28, St. John saw sales increase 29% to $101.2 million, while net income surged 160% to $9.6 million, a gain the company attributed to increased labor efficiency.
The upswing comes after several years of missteps and struggles. In 1997, St. John’s foray into a lower-priced SJK clothing line for younger women never caught on and was later discontinued. That same year, the company hired Amen Wardy Jr. to head up a six-unit home furnishings subsidiary, Amen Wardy Home Stores, but the division was unprofitable, Wardy was fired and the matter was settled in the courts in 1999. The chain was cut back to three stores and converted to St. John Home.
Then there was a brush with defects found on some of its stylish garments in 1998, and a share-price dive that year that sparked a shareholder suit.
Now a privately held company, St. John Knits need no longer answer to Wall Street. And with further investments by Vestar, the company is poised to expand its brand into new categories.
Mullins sees opportunity for St. John Knits in its retail division here and abroad.
He hadn’t been at his new post for a week when he boarded a plane to Germany to visit the company’s boutique in Dousseldorf. The visit prompted the former Neiman Marcus executive to seriously consider the company’s further expansion into international markets.
“That division is less than a third of total volume,” he said. “We want that to grow it to at least 50% and probably more. There is plenty of potential both here and in Europe and Asia. When you have your own boutiques, it’s like having a laboratory to try new things before selling to another customer.”
Mullins also wants to further develop the company’s home store business.
“There’s a great opportunity there because many of our customers have second homes and the interest in apparel has not been a growing thing, but home and gifts is a rapidly growing biz,” he said. “We still need to identify what we want that business to look like.”
According to financial records, Mullins earned a $648,000 salary and a $750,000 bonus at Neiman Marcus in fiscal 2000 where he headed up the company’s $2.14 billion retail operating division. Bob Gray earned $1.6 million salary last year as CEO and chairman of the smaller St. John Knits.
“Soon after we bought the company in July (1999), we started thinking together with the Grays about how to go about replacing Bob Gray,” Vestar’s Kelley said. “He’s a hard act to follow, but the family knew Mullins. When he became available coming out of Neiman’s we knew we had to snap him up and were delighted that someone of his caliber would join the team. He’s a terrific complement to Kelly and Marie Gray and rest of the team there.” n
