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TheStreet Open House

Sozzi: What L'Wren Scott's Death Could Mean for RL and KORS

Stocks in this article: RLKORS

NEW YORK (TheStreet) -- The tragic and untimely death of globally renowned clothing designer L'Wren Scott shook the fashion world. Scott, a long-time partner of The Rolling Stones' Mick Jagger, was known for her high quality standards and elegant designs, and designed wares that were worn by First Lady Michelle Obama and countless Hollywood stars.

Clearly, Scott was the face of her company, a talented artist that saw the world in a different light, and brought that differentiation to life in her jaw-dropping designs. However, Scott's passing does bring up one very important thing pertaining to any globally renowned fashion house: succession. Who takes over the reins from the creative visionary and founder that is helping to drive the financial statements?

I found two examples where this question is most pressing:

At age 74, Ralph Lauren is the chairman, CEO and director of the company he founded in 1967 and took public in 1997. Lauren is actively designing and appearing on runaways. But, there has been no outward guidance to investors on a successor at Ralph Lauren (RL). To get a feel for what the loss of Mr. Lauren would mean, look no further than the annual report - the top risk presented to investors is the loss of Mr. Lauren's services.

In fact, here is the section from the annual report of most interest:

"Mr. Ralph Lauren's leadership in the design, marketing, and operational areas of our business has been a critical element of our success since the inception of our Company. Mr. Lauren is instrumental to, and closely identified with, our brand that bears his name. Our ability to maintain our brand image and leverage the goodwill associated with Mr. Lauren's name may be damaged if we were to lose his services.

We depend on the service and management experience of Mr. Lauren and other key executive officers, who have substantial experience and expertise in our industry and our business. The death or disability of Mr. Lauren or other extended or permanent loss of his services, or any negative market or industry perception with respect to him or arising from his loss, could have a material adverse effect on our business, financial condition, and results of operations. Our other executive officers and other members of senior management have substantial experience and expertise in our business and have made significant contributions to our growth and success.

The loss of the services of our President and Chief Operating Officer, or one or more of our other key personnel, or the concurrent loss of several of these individuals, could also have a material adverse effect on our business, financial condition, and results of operations. We are not protected by a material amount of key-man or similar life insurance covering Mr. Lauren, our other executive officers, and certain other members of senior management. We have entered into employment agreements with Mr. Lauren and other executive officers, but competition for experienced executives in our industry is intense and the non-compete period with respect to Mr. Lauren and certain other executive officers could, in some circumstances in the event of their termination of employment with our Company, end prior to the employment term set forth in their employment agreements."

Michael Kors is the honorary chairman and chief creative officer of Michael Kors (KORS), the company he first led down a runway show in 1984. Although having a CEO in John Idol that has basically lived in the fashion community for years, Michael Kors continues to personally lead the design team, and there has been no clear signal of a successor.

Being the face of a company is tough.

-- By Brian Sozzi CEO of Belus Capital Advisors, analyst to TheStreet

At the time of publication, Sozzi held no position in the stocks mentioned.

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