Oscar de la Renta Leaves Big Hole in $300 Million Family Empire

The designer was an institution but it might be time for his heirs to make the hard choice about whether the family business can continue in its current form. An eleventh-hour succession plan may not be enough to perpetuate his legacy.

When legendary glamour merchant Oscar de la Renta vowed never to retire, it became inevitable that his death would create a lot of question marks around the house his personal charisma built.

It’s not that there isn’t plenty of talent left behind to fill his loafers. His son-in-law runs the business side and he hired an artistic heir apparent a few weeks ago.

But while the estate plan looks fairly tight when it comes to handing over the financial assets, the nature of the company makes it essential to pass on the intangibles – relationships, reputation, impeccable credibility – as well as the bank accounts.

Unfortunately, that’s where human mortality can make a mockery of dynastic ambitions for wealthy families and their advisors alike.

More awe than AUM

As an enterprise, Oscar de la Renta LLC ran mostly under the radar, leaving its founder and five-decade creative star to capture most of the attention.

The company’s retail network and product line have grown over the years but reliable information on actual revenue is surprisingly hard for outsiders to get.

According to some sources, sales were running at a rate of maybe $140 million a year when De la Renta died of long-term cancer complications a few weeks ago. Others put the real cash flow closer to $40 million.

For a family that wants privacy, the limited liability company structure can be close to ideal as a way to create a corporate veil between the individuals, their wealth and the business that generates it.

We know more or less what Ralph Lauren’s and Martha Stewart’s companies are worth, for example, because the balance sheets are a matter of public Wall Street record. Likewise, when the Gucci family sold out, it was obvious that their fashion empire was worth about $10 billion.

But because the value of Polo, Gucci and other luxury brands tends to run around double trailing revenue, we can still derive a rough estimate of $80 to $300 million for De la Renta, even though the actual numbers remain nebulous behind the LLC wall.

In any event, the company seems to be the core of the family fortune. Throw in the Connecticut retreat and the Park Avenue house, and you’re looking at a comfortable ultra-high-net-worth legacy but nothing like the billions that designers who cash out have to play with.

Compared to a gigantic competitor like LVMH or Kering, which rolled up labels like Gucci and Yves Saint Laurent, De la Renta remained a relatively small player, far deeper in prestige than cash flow.

And the primary engine of both the prestige and the cash flow remained Oscar himself.

That’s where the heirs might have a problem.

An institution but not institutional

Like a few of the investment franchises in the headlines lately, De la Renta was basically a one-man show that got big enough to find room for other people in support and strategic roles, but never quite found anyone who could fill the founder’ shoes.

From all accounts, Oscar was working until weeks or even days before he died. He always bragged that he would never retire, and for all practical purposes that’s what happened.

But now that he’s gone, who can navigate between the company’s Kennedy Era old money clientele, White House tradition and the modern fashion industry?

Sad to say, a creative heir apparent hired last year didn’t work out, squandering valuable months of what should have been high-intensity training and transmission of Oscar’s career insight.

By the time De la Renta picked another designer to shadow the master, the boss only had a few weeks left to live.

That’s not time to pass any kind of 50-year baton, much less make a lot of introductions.

Maybe Oscar left exquisitely detailed notes for his successor to follow, but otherwise the “institution” boils down to personalities that come and go.

And what separates an institution from personalities is of course procedure, a system of operation that exists outside any individual employee or boss. There has to be a manual, a database, some kind of repository of knowledge that lays out not just who Oscar knew but how he worked each relationship.

If that repository exists, Oscar’s talents can pass on to the next creative director and De la Renta achieves a level of continuity. It can outlive its stars.

Unfortunately, the best time to test a succession process is when the founder is still alive to weigh the results, correct the successor if needed and remain available for consultation.

Instead, Oscar joked around last year that he had no interest in training a replacement. Now his creative heir has maybe a week on the job between the hiring announcement and the master’s death.

He inherits a venerable brand, a blue-chip customer list and a quietly thriving retail and licensing channel for his designs. Beyond that, as far as the fashion industry goes, he’s on his own. While he doesn’t have to reinvent the wheel, he’ll still have to learn on the job.

That’s not the kind of situation any entrepreneur wants to inflict on the next generation. Your clients who own their own businesses can do better. As a professional advisor, you can do better yourself.

Remember, when you or the people you leave behind want to sell your business, it’s going to be worth a lot more if it can go on running without your active participation. A buyer really wants to pay a premium for your operations manual – the AUM is just a pile of numbers, a commodity.

No manual, no premium. Let’s hope De la Renta planned ahead.

What about the other heirs?

Oscar left a lot of talent behind, but it either wasn’t on the creative side or didn’t align well enough with his personal brand to let any of his family step into his shoes.

His son Moises dressed Michelle Obama years before she gave Oscar his due, but his fashion career now seems sidelined by flashy “high-end branding and media projects.”

In any event, he mostly did T shirts and accessories, not the ball gowns that made De la Renta a Park Avenue legend. It’s downtown stuff, not a good fit at all.

And while Oscar’s daughter and son-in-law remain extremely engaged on the business end, they’ve been hands off on the glamour. As far as they’re concerned, they run “a luxury goods company” and not a dream house of style.

Unless the creative successor brought in from outside can spin a few dreams, the business decision here might be to find a buyer and sell.

Right now, maybe they get double revenue for the company. They can cash out and put Oscar’s financial legacy to work.

That’s a hard call, of course. Family businesses are magnets for sentimentality. But if the estate plan relies even a little on sentiment and lucky hiring, it probably needs a little more than bequests that line up in a way that satisfies the IRS.

And if we truly will not see the likes of Oscar de la Renta again, not many companies can survive when something irreplaceable is gone.

 

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