Gloves are off in fashion war

IN THE rarefied world of high fashion, the legal stoush between Myer and designer upstart Kym Ellery is being billed as Godzilla versus Bambi.

The 29-year-old Ellery is making Australian retail history after dumping an exclusive arrangement with Myer and moving across to rival David Jones 18 months before her contract was due to expire. Mediation has been set and if a settlement cannot be reached by February 20, the case will go to trial on April 15.

Rumours about the row include allegations that Myer boss Bernie Brookes sent Ellery a vicious email after the David Jones fashion show on February 7, which he denies, through to gossip that the fight between Myer and Ellery is really about Brookes and David Jones head Paul Zahra.

For Ellery, who opened her Ellery Land designer business in early 2010 with a $20,000 bank loan secured by a guarantee over her father's house, it is the most stressful fight of her short but turbulent fashion career. Her legal bills - which David Jones says she is paying - are mounting into the hundreds of thousands of dollars.

In the few short months since she decided to approach David Jones, she has had to grow up fast.

Myer, too, has a great deal riding on the case. It comes at a time when the Australian Competition and Consumer Commission is on high alert as it investigates accusations that the supermarket duopoly of Coles and Woolworths is using improper practices against their suppliers.

Ellery's business consultant Chris Buchanan alleges in an affidavit that the arrangement with Myer was "a restraint upon Ellery Land rather than an investment in the Ellery brand".

Ellery alleges that Myer was getting far more from the deal than she was and that "financially the arrangement was restrictive and hampered the growth of the business".

If these allegations gain traction, it could put the department stores in the sights of the ACCC. It could also encourage other designers to challenge what has been seen as ironclad exclusivity agreements. This could prove an even bigger problem for David Jones, as it has more designers signed up to exclusive agreements.

The rise of the internet amid declining profits has lifted the importance of exclusive designers to department stores seeking to distinguish themselves. Myer went as far as buying Sass and Bide for more than $50 million after its exclusivity contract with David Jones expired.

So while Ellery might appear to be a $187,000 pimple on the face of Myer's $3.1 billion sales revenue in 2012, the implications of her actions are profound, which explains why Myer has taken such a hard line. The message is clear: defection will not be tolerated.

Until February 7, David Jones opted to sit on the sidelines, steering people to the view that the fight was between Ellery and Myer. That changed when it opened its 2013 Autumn/Winter show with Miranda Kerr wearing an Ellery dress.

It was seen as a declaration of war; an act so provocative that it had to have been sanctioned at the highest levels of David Jones management, given the importance of the show and Myer's legal imbroglio with Ellery.

The dress spawned rumours that an enraged Myer boss Bernie Brookes emailed Ellery. Brookes vigorously denies contacting Ellery, and Ellery has been gagged from commenting on anything to do with the impending case.

For Ellery, the David Jones fashion show extravaganza was bitter-sweet. She was given front-row treatment, but taking on a Goliath like Myer can be hellishly expensive and stressful.

The enormous publicity has attracted peer jealousy and bitchiness. One industry insider said after the show the talk was that the dress didn't live up to the hype. He said one guest had commented that other designers should have taken precedence over the "greedy interloper".

Those who know Ellery say she is fiercely ambitious but naive. "She isn't greedy. She has had the wrong advice," one industry source said.

After finishing school in Perth, Ellery travelled before joining Russh, an independent fashion magazine where she worked for five years. At 27 she opened Ellery Land. Within weeks Myer agreed to stock Ellery garments and allowed Jennifer Hawkins to attend Fashion Week in an Ellery outfit. It was rapid success, but Ellery soon found that behind the glamour, making a dollar was tough. She said in an affidavit: "Our orders from Myer were never for large amounts and generally they always constituted less than a third of our total seasonal orders (on average)."

After signing a supply agreement and exclusivity agreement in August 2011, she hoped the business would start to make money. "I knew that the projections for minimum spend and sales to Myer that were outlined in the [Myer] business plan were not all that high, but unfortunately I was driven by the need to confirm some orders."

According to Ellery's affidavit, the Myer business plan forecast purchases of Ellery products at $295,000 in 2015, up from $187,000 in 2012. Ellery hired a retail management consultant, Chris Buchanan, to review her business as the sales to Myer were clearly not enough on their own.

His conclusion? "From my experience in the fashion industry, I regarded the exclusivity agreement coupled with the modest purchases contemplated by the business plan as demonstrating the imposition of a restraint upon Ellery Land rather than an investment in the Ellery brand," Buchanan says in an affidavit.

He also told Ellery the alarming news that her financial accounts had been grossly misstated. What she believed was a profit was actually a $71,000 loss that had ballooned to a loss of more than $400,000 in 2012. Unless she could boost revenue significantly, her business would be wound up in six months.

To the outside world, everything looked rosy. Publicly, Ellery was being duchessed around Australia, all expenses paid, rubbing shoulders with celebrities and powerful media executives at fashion shows; her clothes were worn by Jennifer Hawkins; and she was featured in Harper's Bazaar, Marie Claire, Grazia and Vogue.

But her business was drowning in red ink. The garments were popular at the shows but she wasn't selling enough to pay the bills. "Over the course of my relationship with Myer, Myer made increasing demands on my time including appearing at more and more events that it had organised, often at my cost," she said in court documents.

"I was often asked to make a dress for Jennifer Hawkins or another Myer-affiliated personality. Jennifer Hawkins herself often requested that I design a dress for her because she had a preference for my brand."

Former Myer group general manager merchandise Judy Coomber tells it differently. In court documents, Coomber argues that Myer spent far more in marketing, promoting and advertising the Ellery brand than the amount of gross profit it made from selling the clothing. "The purpose of having high-end Australian fashion designer brands in Myer is primarily to attract customers into its stores," she alleges.

Whatever the case, Ellery's relationship with Myer continued to go south along with her finances. Faced with financial oblivion and feeling Myer didn't understand or support her brand, she decided to create a new brand, L'America, and sign it over to David Jones. It was the beginning of the end for Ellery and Myer.

Coomber emailed Ellery to tell her she had breached her contract. In another email, Coomber informed Ellery that Myer would withdraw "all support with regards to the spring racing carnival and consider the further options available to us in accordance with the rights under the agreement, subject to your response to this letter".

Myer had previously arranged for her to judge the Fashions on the Field on Oaks Day and make two Ellery dresses, one for Rebecca Judd and one for Lara Bingle.

Relations were out of control, with conflicting versions of events, but the upshot was she got closer to David Jones and on November 9 signed her Ellery Land brand with them.

"This was an extremely difficult time for me as I had developed some good relationships with some of the team at Myer and did not want there to be any bad blood," Ellery said in an affidavit.

But Myer was determined not to lose her to David Jones. "Judy was tense and I found her tone intimidating. She said to me that I should at least have the decency to give her the opportunity to review a figure that might have me stay."

Ellery naively believed she could extricate herself from Myer amicably. She admits in court documents that she "nominated a minimum spend commitment that Myer could not agree to rather than flatly refuse to contemplate a return to Myer". That figure was $1.5 million of clothes a year, which is a far cry from the small amount they had spent in 2012.

Myer agreed to it, which sources say shocked and confused Ellery. Having already signed up with David Jones, she had no option but to reject the offer on the basis that it would prevent her from supplying L'America to David Jones.

In a desperate attempt to smooth over the situation, Ellery tried to reach out to Brookes. His response rocked her world as it started to dawn on her that she had upset one of the country's two department stores. On January 11, 2013, Brookes wrote: "I have no interest in meeting with you. I have many loyal suppliers and designers who I allocate my time to."

Ellery recalls feeling physically sick when she read his response. "That email made it crystal clear to me that Myer's relationship with Ellery Land was irreparable," she said in an affidavit.

The rest is history.

Myer has filed a writ seeking damages and the supply of products that it alleges were scheduled to be delivered into its shops.

In a statement on Friday, a Myer spokeswoman said: "We still want the Ellery brand and for our relationship to continue. We want Ellery to honour the contract we have in place."

In the meantime, Ellery is trying to focus on developing new lines of business. Her final words are fitting: "If Ellery Land is not permitted to supply to David Jones, Ellery Land will be without a department store to supply to at all. In the current circumstances, unless ordered by the court to do so, Ellery Land would not wish to supply products to Myer again at the present time."