Donna Karan CEO: From Tax Lawyer to Fashion Boss

At first glance, Jeffry Aronsson appears an unlikely pick for CEO of one of the world’s most famous fashion houses. He looks like – well, a lawyer.

Donna Karan’s CEO got into the fashion world by accident, when Oscar de la Renta tapped him for help in licensing and other transactions. “I could see him looking at my polyester plaids before polyester was known as Lycra,” said Aronsson.

As the two bonded, Aronsson’s many questions and ideas challenged the designer to begin to think about his business differently. At some point Aronsson was asked to execute one of his ideas, and his success generated additional responsibilities. Soon he was performing duties having little or nothing to do with law. After hinting broadly for several years, de la Renta offered Aronsson the top job. The outsider and tax lawyer had been commissioned to the ultimate insider post.

The designer’s firm was a mess. It had racked up heavy debt and the banks were less than accommodating. In his humble way, Aronsson approached the banks, saying, “I [can] promise you [integrity on commitments and] clarity in communications but I need you to loosen the collar a little.” The approach worked. Five years later the debt was paid off, the size of the company had tripled and de la Renta had launched into new areas and new divisions.

Retailers were the toughest struggle, Aronsson said. Forced to admit he didn’t know much about the fashion business, Aronsson had to navigate around terms like “seasonal reconciliation”. Aronsson was persistent in his questions and always kept his commitments, and eventually sales rose.
This caught the eye of LVMH Mo‰t Hennessy – Louis Vuitton, the world’s largest luxury goods company and home to famous brands including Christian Dior, Givenchy, and Donna Karan. The company wanted Aronsson’s expertise at the helm of up-and-coming designer Marc Jacobs. In January 2003, Aronsson took the job, which turned out to be “like riding a rocketship – a thrill a second,” he told HBS students. But he wasn’t destined to stay long.

Several months later, Fred Wilson quit his post as President and Chairman of Donna Karan to head Saks Fifth Avenue. Aronsson was appointed CEO of Donna Karan.

By this time the luxury goods market was heating up and a new class of shopper was gaining clout. “The new luxury shoppers”, as the Boston Consulting Group calls them, earn from $50,000 to $150,000. The new group cares about both luxury and value. Standard & Poor’s calls them “cross-shoppers – shopping in Wal-Mart and Costco for toilet paper and socks, and in Neiman Marcus for Juicy Couture and Prada.”

BCG estimates the domestic market at $525 billion, having grown almost 20 percent from 2003. By 2010 the market may be as high as $1 trillion.

When he joined Aronsson was the fourth CEO to run Donna Karan in four years. Again, he approached the situation humbly and asked to be given time to perform. “It was if our handlers put us both [Aronsson and Donna Karan] together in a room and they left,” said Aronsson. “How are you?” Karan asked. Aronsson replied he felt a little awkward, as if he were 16 years old, his parents had introduced him to the daughter of their best friend’s and that they were supposed to get along. They got clicked immediately.

Karan’s clothes are “very much tied into the persona of Donna herself,” said Aronsson. She is about women designing for women, using an “artisan hand” to create “functional luxury” and fashion.

The business is segmented into luxury designer clothing (think events with black ties and tails), a less expensive lifestyle brand exuding luxury and value, and DKNY jeans, a license with Liz Claiborne. Last fall the company also launched an accessories business, spurred by the success of a Donna Karan handbag called “the Hudson”, which rapidly became the “it” bag to own.

And of course, Donna Karan is synonymous with New York City. “Just to deal with the energy of New York you’ve gotta move,” Karan proclaims on video.

Despite his years of industry experience, Abramsson hasn’t stopped asking questions. Last year the company launched a “road trip” advertising campaign in which a young man and woman leave New York to move out west. Abramsson believed the ad wasn’t being true to the brand or to its New York roots. The campaign was scrapped and the Spring collection was presented in the context of the New York lifestyle.
In addition to maintaining brand integrity, how the brand is communicated in the store is critically important, according to Aronsson. With less control, the designer still has to communicate the lifestyle. For example, Donna Karan sales at Bloomingdales were on a downward trend. Aronsson met with them and reviewed the numbers. “I don’t think the answer is on this piece of paper. Let’s go down to the floor,” he suggested.

The point of sale (POS) area was the problem. Aronsson showed them how to merchandise the area and communicate the Donna Karan lifestyle to customers.

The other way the designer expresses the lifestyle is in her own stores, including one on Newbury Street in Boston. The company is constantly testing new layouts all over the world.

Licensing is an area that has proven quite profitable. Aronsson explains that it is “a very tricky area, because you are taking your brand and entrusting it to someone else who may not share all of the common interests in your brand.” Here he suggests forming relationships around “integrity and a shared passion for doing the right thing.”

Among Donna Karan’s licencees are Estee Lauder (fragrance), Fossil men’s and women’s watches, Liz Clairborne (activewear), Phillips-Van Heusen (men’s shirts), Oxford Industries (children’s clothes), Luxottica (eyewear), and Sara Lee (hosiery).

April 4, 2005
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