Managing Marc Jacobs

By Mark Borden, Fortune

"It's not that Marc Jacobs is more talented than the other two," Zauder says. "He just had a guy that knew how to commercialize his business better, and that guy is Robert Duffy."

It is in the retail stores that one can most tangibly see Duffy's talents at work. Ten years ago Marc Jacobs ran one boutique in a converted garage in Manhattan's SoHo and sold his clothing in department stores like Barneys and Saks Fifth Avenue. The company eked out yearly sales of $2.5 million.

Today it has estimated revenues (LVMH does not break them out) somewhere north of $350 million, and it has 14 locations in the U.S., with another 86 internationally, including Dubai and China. (The company continues to sell in department stores.)

Duffy has led the expansion with an aggressive combination of opening wholly owned stores and forging international distribution partnerships. By the end of this year Marc Jacobs will have nearly 150 standalone venues operating worldwide.

Unlike many high-fashion outfits, whose haughty clerks ooze contempt for their customers, Marc Jacobs is known for its friendly, approachable staff. Much of that is attributable to Duffy, who hires on instinct and is known for discovering even senior employees in unexpected places. He has groomed, for example, a former hotel bellman and an Ex-Adidas shoe salesman into positions heading, respectively, European sales and specialty sales for Marc Jacobs. "You have absolutely no qualifications for this job, and you're perfect," he told the ex-sneaker salesman, Reed Putlitz.

Most people would've seen only a trendy clerk. But in one quick conversation Duffy sensed Putlitz's ambition and his passion for fashion.

Duffy's involvement with the stores borders on obsession. "I go home nearly every day on Manhattan's Bleecker Street, and I always look in the window [of the Marc by Marc store]," says Vogue's editor-in-chief, Anna Wintour. "So many times I'll see Robert in there folding pants or stocking shelves."

For Duffy, the stores are what designing is to Jacobs: the heart of the process. "Retailing is about change and knowing your customer," Duffy says. "Unless you enjoy being in a store, you'll never know that." Seeing customers, say, feel the texture of a shirt or ignore a rack of dresses tells him more than a sales spreadsheet can.

In addition to shaping the company's retail strategy, Duffy has succeeded at one of a luxury business's necessary evils: selling relatively low-priced items without cannibalizing the high-end brand.

Part of the reason that is possible: Jacobs's designs lend themselves to being made in both expensive and moderate-priced materials. For example, Marc Jacobs produces a thermal sweater in cashmere that sells for $600; the same design in a less luxurious wool goes for $160 in its Marc by Marc store. "There is a huge difference in feel and quality, but there is a customer for both," says Duffy.

Walk along Bleecker Street on any given Saturday, and you can see Duffy's retail strategy at work. The Marc by Marc store is swarmed. But at its accessories store two blocks away, Duffy is cultivating the next generation of Marc Jacobs fans with a showcase for even lower-priced merchandise. Lines snake out to the sidewalk, and a doorman routinely has to push back the throngs. The 300-squarefoot space sells everything from $90 leather bags to cropped $20 T-shirts and kitsch-cool $5 necklaces with a heart pendant.

Marc Jacobs staffers like to call this the "junk store"; the results are anything but. The store generates sales of $25,000 per square foot, which far exceeds the $4,032 earned by the average Apple store, the highest in a recent study by Bernstein Research. The merchandise's low cost is a major part of the allure. But it's also a way of initiating younger consumers into the cult of the brand.

Says Zauder: "Marc Jacobs has achieved that rare feat of creating a secondary line that doesn't dilute the value of the high end - with a focus on tongue-in-cheek design that allows people to mix it up." There are thousands of mostly younger, less affluent customers who are thrilled to buy playful, more colorful versions of Jacobs designs at a comparatively affordable price.

In many ways Duffy, 52, and Jacobs, 44, make an odd pair. Duffy is the son of a steel executive from a small town in western Pennsylvania. He came to New York after high school, became the first man to work the sales floor at Bergdorf Goodman, and discovered he could sell anything.

Jacobs's parents, by contrast, were agents for William Morris, and Jacobs grew up fast and wild in New York City. His father died when Jacobs was 7, and his mother remarried three times. As a teenager, he would often go straight from all-nighters at Studio 54 to class at the High School of Art and Design.

The two connected after Duffy, then a 30-year-old sales manager for a fusty Seventh Avenue clothier, Reuben Thomas, saw Jacobs's graduating show at Manhattan's Parsons School of Design. They got funding from Reuben Thomas and embarked on a two-person journey through the fashion world - a bonding experience that would put each of them on a first-name basis with their strengths, weaknesses, and demons.

Duffy and Jacobs launched a Marc Jacobs label backed by a Japanese company, then in 1989 moved on to Perry Ellis, where Jacobs gained notoriety for his "grunge" collection, which got them fired. (Think $1,000 silk dresses patterned to look like flannel shirts.)

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.