Editor's note: Kenneth Cole hatched his eponymous brand in 1982 from the back of a trailer. Almost 20 years after taking his fashion company public--at its height, it reached a market cap of around $850 million--he took it private again in 2012, when it was valued at $280 million. Earlier this year Cole, 61, relinquished the CEO title (for the second time) of the now billion-dollar brand, maintaining his role as chief creative officer. Cole spoke recently about the seductions and pitfalls of being a public company, and why he believes private companies have more strategic swagger.
--As told to Jeff Chu
My father had a shoe factory in a depressed and rough area of New York City called Williamsburg. I was just out of college and working with him, on my way to law school, but I kept putting that off. So we started a shoe business together called Candie's, which became very successful. Shortly after that, I decided to venture off to do something very personal, knowing that waiting would only make that harder to do as my life got more complicated. I figured if I didn't do it then, I might never do it.
It started with women's shoes. I knew women's shoes. I named the company Kenneth Cole because I didn't have a lot of time to make up a name. We didn't have Google then. We didn't have the ability to trademark search as efficiently as we do today. I couldn't take the chance of making up a name.
I remember waking up one morning in 1994 after I'd been in business for 10 years. I saw in the newspaper that there was a tender offer by Federated Department Stores to buy Macy's. Both were already totally leveraged; they were going to have to be a lot more efficient. They couldn't sell cheaper; they were going to have to buy better, which meant removing the middleman. I said to myself, "I'm the middleman!"--selling a commodity. It was a moment of fear. I went to bed on Friday night. By Sunday afternoon, I realized, "I don't have to be the middleman. I can build a brand." If my brand becomes the destination, then I have a reason to exist.
That energized me to open more stores quickly, so I decided to go public. I had to have access to more resources than I had individually. When you go public, the value equation of your company changes immediately. It is valued on anticipated earnings. If you're growing at a fast pace, then the rate of value is even higher and the multiple is greater. We started with women's shoes, and then added men's wear around the time we went public, and women's wear several years after that.
The plan was to run the business as we had when we were a private company. That was the message I communicated. But I came to realize that just wasn't possible. The Street is ruthless and unrelenting. Very often it distorts the process of why you do what you do. It demands a very short and immediate focus on quarterly results. There's no real relationship to sustainable, long-term objectives and goals. We found ourselves so focused on messaging that we lost track of how to elevate what we were doing. Rather than make the numbers better, we would talk about how to talk about them. There were all these various stakeholders, and their interests were not always aligned, so we would often have to figure out how to create a certain perception for the audience we were speaking to, rather than focus on how to be a better company.
About four years ago, I decided I needed to make the brand more relevant again. I was busy doing a lot of other things. I am chairman of amfAR [the Foundation for AIDS Research], and I'm on the board of the Sundance Institute. That was consuming a lot of my energy. I realized I needed somehow to get reinvolved short term and revitalize and reenergize the company. Business wasn't great. We weren't making our numbers. The brand was becoming less and less relevant. So I began speaking to some very smart friends, getting their thoughts on what it would take to refocus the business: Martin Franklin, founder and CEO of Jarden, one of the larger consumer-goods companies in the country; Noam Gottesman, co-founder of the hedge fund GLG Partners; Andrew Rosen, co-founder and CEO of Theory; John Howard, managing partner of Irving Place Capital; and Michael Rubin, founder and CEO of Kynetic. The question became: "Why are you public?" I hadn't thought about that. I knew why I went public, but at no point had I asked myself, "Why am I remaining public?" The benefits no longer existed.
Why was I public so long? I didn't question it because I didn't think I should. But as a public company, you become obsessed with comp-store sales and revenue. In a private company, you realize neither of these things really matters. What does matter is net results, and whether they are in line with your ultimate objectives. As a public company, inventory is a liability. In a private company, if it's the right inventory, it's your greatest asset. When you're a public company, advertising is an expense. When you're private, it's an investment.
The transitioning process was very painful. It was costly. It was inefficient. There were lawsuits coming from what I call extortionists, which the system encourages. Law firms filed class-action suits, initially without a class. They looked for disgruntled investors.
More law firms are hired, banks are hired--by myself, by them. It was almost counterintuitive: I went private so I could avoid these distractions. Short-term, I incurred even more. I didn't expect it would be this bad; I had 90 percent of the voting shares and 45 percent of the stock. But ultimately, we prevailed--though, now, I think there is another appeal, because law firms have nothing else to do.
The day we finally went private, I was ecstatic. Did we all go out and get drunk? I don't think so, because it wasn't "OK, it's done." You never feel totally liberated, because there was that pending litigation. And throughout the process, you can't make plans for a new company because technically the shareholders are entitled to any value that comes from what you created as a public company. So you're working on the back of a napkin. When you finally do become private, then you can make a real plan.
I'd given up the CEO title before we went private. I decided I was taking it back. It wasn't that I was keeping it--I knew I was transitioning, but I didn't know what I'd be transitioning to. Now I have a new CEO, Marc Schneider, a former group president at PVH. I freed myself up to be creative, which is what I love. I know that the best thing for the business is to get people who know how to run a business.
It's been exhilarating. We really got to sit back and look at the allocation of resources: creative resources, financial, and human. We were able to think more broadly of goals and objectives, and did not allow short-term bumps along the way to distract us. I set out to ultimately become more lean, efficient, and productive. I took a step back to take two forward. I closed my nonproductive retail stores and opened a new retail model to focus more on digital and less on the physical. What is that optimal new consumer experience? What could it look like? What should it? We started thinking more strategically. Before, we had multiple brands. Today, it's a single brand with new packaging, a new marketing campaign, a new website, and a new retail concept. The goal is to leverage our legacy of the brand, continuing to speak to people not just about what they stand in but what they stand for, not just what they look like on the outside, but who they are on the inside. That's more sustainable than heel height or hem length or trend.
The world is changing so fast. Five years ago, who knew what tweeting and posting and pinning were? Now they're part of the way we message and transact every day. Can we be responsive as the world continues to change at this unfathomable speed? Maybe that's my greatest fear.
I've come to realize nobody needs what we sell. There's hardly a woman who needs another pair of black shoes. Consumers have more choices than they can digest. I believe, after 30 years, I've earned the right to be considered, but every day we have to earn the right to be chosen.
Kenneth Cole's Journey
- Open for Business: Kenneth Cole Productions launches on December 2, 1982. Its first production run of women's shoes--40,000 pairs--sells out in three days.
- Ring the Bell: Cole takes his company public on the NYSE in 1994, raising $19.6 million to fuel expansion.
- Hit the Heights: The public company's annual revenue in 2006 hits a high of $536 million.
- Go Private: In 2011, revenue is just $479 million. In September 2012, Cole takes the company private for $15.25 a share, which values it at $280 million.
- Rebrand: Cole relaunches his brand in 2015 with just 100 stores, about half as many as it had at the company's peak.