TIME: Stealth Style

TIME | MARION HUME

IT COULD BE A RECIPE for how to go broke in the fashion business: establish yourself somewhere far off the style map, target women over 35, ignore the current accessory-driven business trend, and insist on using luxurious fabrics so that your clothes become prohibitively expensive. And don't forget to make sure your heritage is as unhip as possible, something along the lines of your grandmother's founding the family company with an apron business.

Despite all these odds, Akris (an acronym from the name of the above-mentioned grandmother, Alice Kriemler-Schoch), based in the Swiss town of St. Gallen, has elegant women across North America praising its elusive balance of style, fit and quality. Women tend to discover Akris for themselves. Nicole Kidman spotted a coat in a store window on a Sunday evening and ordered it the following morning. Other fans include Susan Sarandon and Secretary of State Condoleezza Rice.

Not surprisingly this Swiss family company, now helmed by Alice's grandsons Albert and Peter Kriemler—the designer and the president, respectively—is lauded by retailers for its precise deliveries and perfect execution (at the factory, each garment is accompanied by a dossier explaining what needs to be done and what can go wrong) as well as for actually listening to what stores want. When Joseph Boitano, a senior vice president of Saks Fifth Avenue, explained the importance of offering a cruise collection (a concept less established in Europe), Albert headed to Florida, where he spent weeks studying what chic women want on vacation.

"Akris is in the top 15 brands in all areas of Saks," says Boitano, noting that Saks carries the main line in 20 stores and the bridge line, called Akris punto, in 47 stores across the U.S. "When you consider Akris does not have shoes, handbags, fragrance, and its sales are driven entirely by ready-to-wear, that is a major feat."

Robert Burke, who heads his own consulting business in New York City and was previously with Bergdorf Goodman, says a single salesperson there writes several million dollars' worth of orders for the label each season. Burke even mentions Albert Kriemler, whose name is still far from well known, within the designer superleague: "Albert is unwavering in who he is appealing to. You look at the great designers—Ralph Lauren, Chanel, Giorgio Armani—and what links them is they stick to their own aesthetic, they stick with their customer."

St. Gallen is not where you would expect to find the next Armani. Yet being based not only in Switzerland—which has one of the most expensive labor forces in the world—but in a little town bordering the Appenzell region is an advantage, insists Albert Kriemler. He is not what you would expect of a fashion designer, given that he is rather serious and erudite (his references can include modern art and Russian philosophy). Being isolated means that the tailors and technicians he collaborates with, all of them full time and many with the company for years, think Akris from morning to evening. "That's why I don't work with freelance people," he says. "It's not right for us that someone leaves and misses the evolution in our overall process."

Albert's vision is simple: to create clothes that enhance the personality, never hide it. "I think it is inappropriate if the first thing you notice is a woman's dress, when you should see the woman first," he says. "Also, we have other senses besides eyes. We feel clothes on our body, and this is as important as looking right. And I have the conviction women should have the same rights as a man: if she loves a jacket, a pant, she should continue to wear it next season."

David Asher, vice president and general merchandise manager of womenswear at Holt Renfrew, the Canadian department store, says the savviest of shoppers get Akris because these fashion purists "aren't motivated by splashy ad campaigns but by fresh femininity, superior construction and focus on each piece of clothing, rather than on an overextended megabrand with its name on every manner of product category."

Pretty views, an equable climate and the fact that because St. Gallen is not a fashion mecca, the designer is not distracted by what he sees around him mean higher productivity for Albert Kriemler, who works either in his attic studio atop the old school that houses the Akris ateliers or at his desk at home, looking out onto a meadow of wildflowers and an installation he commissioned from the artist Ian Hamilton Finlay.

In 1922, Alice Kriemler-Schoch could never have imagined that her grandson would one day show on the official Paris fashion-week schedule (the first Swiss designer invited to do so) or that in starting her little apron business for something to do while she raised two sons, she was founding a dynasty. After the death of her husband in 1944, the business passed to their eldest son Max Kriemler. In 1980, Max's eldest son Albert, then 20, was about to move to Paris when his father's right-hand man died suddenly, and Albert stepped in. Seven years later, after completing studies in law and business management, Peter joined the family firm. (Albert and Peter have a sister who is a doctor.)

"We always felt responsible for what we inherited from our parents and for the loyal people of this company," says Albert. When the brothers took over, their target was to dress the customer seven days a week from morning into evening. "I said to Peter, We must do what we feel, without listening to what others are doing," says Albert. The brothers still agree. "When you get along within the family, it is the most beautiful thing that can happen in your life," Albert says. "Two people mean two opinions, and when there is a disagreement, you must be able to talk this through."

Albert Kriemler may be more reserved than your typical designer, but he recognizes that part of the role of the designer is to be the front man, and he shields his businessman brother from media attention. The businessman gives the designer something rare in return: time. Albert can work at his own pace to ensure the perfection for which Akris is now celebrated.

The structure of this private company is also unique. "The moment you get into classical management structures where you do budgets for the next five years, it's so insecure. We do not do that," says Albert. "What we do is dependent on how each collection performs. We don't have accessories, we don't have licenses; we need to do fashion well."

A downside of any family firm is that it prompts the question about the next generation. Albert understands that interest, "for there was already a pressure in our case because our parents and our grandparents had run a successful business. My brother and my sister have children, but it's premature to discuss their futures."

What seems certain is that the two brothers will continue together in their quest to turn a company based in rural Switzerland into an international powerhouse. Albert recently refused an offer from a major design house because, he says, "you cannot have two souls." His is clearly in such a quiet place that when he strokes a fabric and falls into silent contemplation, you can hear the tinkle of cowbells from the nearby hills.

TIME: Art of the Deal: Green is the New Black

TIME | DEIRDRE VAN DYK

IN DECEMBER 2003, Robert Burke, then fashion director of Bergdorf Goodman, was in Paris giving a talk on the booming business of fur accessories when he looked around the ballroom at the Hotel George V and noticed that a quarter of the seats were filled with men in business suits. During dinner and coffee breaks at the two-day luxury conference, the suits from places like Bear, Stearns cornered Burke and bombarded him with questions about luxury businesses—which ones had potential to add secondary lines and which ones could expand with worldwide licensing.

For years the luxury sector, now a $140 billion business growing at approximately 7% a year, according to the Telsey Advisory Group (TAG), an independent research firm based in Manhattan, has been populated by a handful of familiar faces: Bernard Arnault of LVMH, François-Henri Pinault of PPR and the odd manager of Gucci or president of Chanel. But cash-rich private-equity firms have taken note of the impressive numbers those companies are posting. Gross profit margins for apparel are 50%, and for leather goods they can be as high as 77%, according to TAG. So it's not surprising that in the past two years dealmaking in this sector has shifted into overdrive. Since February alone, Jil Sander was snapped up by London-based Change Capital Partners, English luxury retailer Asprey was bought by New York City--based Sciens Capital Management and a U.S. hedge fund, and the Italian apparel brand Piazza Sempione was acquired by Paris- and Milan-based L Capital. More deals are rumored to be in the works.

"I get calls every day," says Robert Bensoussan, CEO of Jimmy Choo, who, with funding from private equity, took the brand from $20 million to $140 million in sales in five years. "Whether they are managers asking for advice on how to speak to private equity, family-owned companies asking what working with private equity is like or private-equity people saying, We're interested in your success story."

Bensoussan, who had orchestrated the sale of British apparel firm Joseph to a Belgian investment group and before that had been president of Christian Lacroix at LVMH, ultimately sold Jimmy Choo in 2004 to Lion Capital for five times what he and his partners at Phoenix Equity Partners originally paid in 2001. "It gave a lot of people a wake-up call," he says.

Most analysts say the attraction of luxury these days is the growth opportunity. TAG's Dana Telsey, who has tracked retail for 21 years, attributes the increased interest to "how profitable these businesses can be when run well." Companies like L Capital have earned five times their investment in firms like retail clothier Gant and three to four times their investment with Antichi Pellettieri SpA, an Italian apparel and accessories company—in just over three years.

Investors see the possibility of expanding the brands in China, India and Russia, adding secondary lines and product extensions. "All companies we get involved with have attractive growth characteristics," says John Megrue, a co- CEO of Apax Partners, which just bought Tommy Hilfiger. "Well-run consumer companies ought to grow way north of the GDP."

But not every deal hits the ball out of the park; fashion remains a risky go-with-your-gut business. Every six months the creative cycle has to rev up again, and God forbid the brand doesn't hit the right trend one season. The result can be costly, with stores filled with unsold merchandise. The potential for failure is great, "but the upside opportunity is also that great," says James Hurley, who follows the luxury market at TAG.

One of the reasons Change Capital viewed Jil Sander as an attractive investment was that it doesn't rely on up-to-the-minute trends to the degree that a brand like Dolce & Gabbana does. "You would not expect a collection to come out and lose 50% of your sales because you didn't hit the right button," says Stephan Lobmeyr, a managing director at Change Capital. "I'm not saying it's not innovative. You need innovation or you don't have a place in high fashion, but it's more stable."

Bensoussan helped limit his risk potential at Jimmy Choo by building a classic collection. "There were these fabulous styles that they used to throw away every season," he says. "Now 10% of our collection is made up of classic styles, and that group has become 25% of the business." Bensoussan made other changes too, streamlining production, opening more stores and adding handbags and eventually fragrances to the line. "We had a Ferrari, but we had to put a bigger engine in."

Good management like that, something relatively new to the fashion business, is what draws investors in. "That's probably the No. 1 criterion for any private-equity investment," says Philippe Franchet, a partner at L Capital, explaining why they invested in the low-profile Piazza Sempione brand. "The management team is brilliant." Translation: it has a manager with a good production record and a solid business plan. When Enrico Morra, managing director of Piazza Sempione, and the company's founders met with L Capital's partners, they outlined exactly what they wanted to do, including opening more stand-alone stores and expanding into categories like handbags and shoes. In short, they had an estimated $60 million business and wanted to take it global.

"Entrepreneurs can grow a business to about $50 million," says William Smith of Global Reach Capital, a new private-equity firm that specializes in consumer brands and just invested in Tory Burch, a New York City--based apparel and accessories brand. "That's where we come in. We can take it to $250 million." Says Burke, who now works as a consultant to private-equity firms, including Global Reach Capital: "There are a lot of great fashion brands that don't have the capital or the business acumen to grow." That's where a private-equity firm can provide them with the money and the right kind of management."

Private-equity cash allows a small company to expand worldwide quickly and strategically. "It's not just an injection of money," says Morra. "They're a sparring partner, someone to sit down to discuss, 'Do we have to open on Madison Avenue or in the meatpacking district?'" He partnered with L Capital because its advisers knew how to get handbag and shoe lines up and running, something that could help Piazza Sempione avoid missteps.

For family-owned companies like Piazza Sempione eager to maintain some sort of control, private equity is a plus. "Before, the only chance for a family company was to sell themselves to a big conglomerate or luxury group," says Bensoussan. "And then they would lose all their power." And it's good for managers; it gives them something they like. "Freedom!" says Bensoussan, laughing. "If you deliver what you promise, it's a dream world." Working for a conglomerate like Gucci or LVMH has its advantages—access to real estate, saving on advertising. But there are downsides. "Sometimes the smaller companies don't get all the money, all the care, all the love that is needed," he says.

But unlike Gucci Group or any other conglomerate, private-equity firms aren't in the investment for the long haul. Brands bought today will undoubtedly be on the market again in five or so years, sold to another private-equity firm or a luxury conglomerate—or they are taken public. "It's a different approach," says William Cody, a professor in retail and marketing at University of Pennsylvania's Wharton School. "Gucci is looking to build a brand to fold into its business. Private equity is looking to build a brand to sell. They always have an exit strategy." So if things aren't working out, the owners or managers may be moved aside. But, adds Cody, "private equity can give them the capital to move them from the runway to the street." Which is good not only for fashion but also for consumers. "We may get access to designers who may not be able to get into the stores on their own. It all adds up to more choice."

In the end there needs to be a balance between the showroom and the boardroom. Designers may know how to make a gorgeous frock, but "sometimes they do more for the image than the profitability of the company," says Lobmeyr. "If the two parties respect each other—when the financial people do not try to influence the creative process and the creative people understand there are basics that must be followed in order to run a company profitably—it's actually a winning formula."

But will that formula change the face of luxury? "If they change something in fashion, it will be in how they manage companies, but it will never be the product, the style, the design," says Bensoussan. "They don't know anything about it. After all, the next day they are looking into fruit smoothies."