Last fall, undergraduate enrollment across the nation increased for the first time since the pandemic, according to the National Student Clearinghouse. While many colleges across the nation are seeing their student bodies grow, the Fashion Institute of Design & Merchandising is not one of them.

The downtown-based school recently laid off 95 employees due to declining enrollment, on top of a further 322 employees that were let go in the fall. FIDM had also been pursuing an acquisition of its business operations by the Skema Business School, an educational institution based in France. Last month, one day before the deal was set to close, Skema quietly terminated the impending deal after deciding that requirements from the U.S. Department of Education were “untenable.”

FIDM is a specialized private college founded in 1969. While the school previously offered an array of fashion and design programs, it is transitioning to a focus on the business management and marketing side of the creative industries.  FIDM’s main campus is in downtown, and the school previously had additional campuses in San Francisco, Orange County and San Diego.

The school reported that it had 1,381 full-time students enrolled in the fall of 2022. This is down 58% from its enrollment of 3,288 full-time students in fall 2012, according to the National Center for Education Statistics. As part of an ongoing effort to cut its operating budget, FIDM closed its three satellite campuses between 2020 and 2021, which the accrediting agency said contributed to the institution’s enrollment declines. 

According to a notice filed with the state’s Employment Development Division, FIDM’s recent layoffs include 44 instructors, five department chairs and three vice presidents. Kim Wetzel, executive director of human resources at FIDM, said to the EDD that the layoffs are expected to occur on June 17 and attributed them to “business conditions.”

Those business conditions, according to FIDM advisory board member Angela Hawekotte, are based on the school’s decline in student enrollment, which was “exacerbated” by the pandemic.

“Obviously, a decline in enrollment dictates the need for fewer staff and faculty to service the students,” Hawekotte said.

Cancelled purchase agreement

In September, Skema Business School announced it had entered exclusive negotiations to purchase FIDM in its entirety in a deal that was expected to close in “early 2024.” As part of the acquisition, Skema students would have been able to “enjoy new academic and immersive experiences in Los Angeles,” while FIDM students in select programs would have had access to disciplines taught at Skema. Additionally, FIDM would have been renamed as the “Skema Business School L.A.” 

In a statement at the time, FIDM vice president of education Barbara Bundy said the school was “very excited” by Skema’s interest.

“We are convinced that the mutual quest for excellence of our two institutions could give FIDM students new aspirations and avenues of employability in a rapidly expanding global industry,” Bundy said. 

However, Skema recently announced that it had decided to stop pursuing the transaction. FIDM has made no apparent public announcement on the deal’s cancellation. Hawekotte said that the school was informed the day before the deal’s anticipated March 1 closure date that Skema was backing out. Skema stated that the decision was based on its findings during the legal period of analysis of the information provided by FIDM that “several material conditions” had not been met. However, Hawekotte said FIDM had fulfilled its end of the deal. 

“While FIDM had performed all it was required to do under the proposed transaction, apparently the Department of Education’s requirements of Skema to operate an educational institution in the United States were untenable to Skema,” Hawekotte said. 

She added that, in order for Skema to have federal student loans made available to its students after the acquisition, it was required by the Department of Education to provide a collateralized letter of credit, to produce its French entity’s financial statements and to have those statements prepared and audited according to U.S. accounting standards. 

Skema did not respond to a request for comment.

When FIDM laid off 322 employees in the fall, it told the EDD that it anticipated a “substantial percentage” of those individuals would be offered new employment at Skema following the change in control. That wave of layoffs affected 225 faculty members, seven department chairs and five counselors, among others. The EDD was told that although those employees would “most likely will retain their jobs under new ownership,” that decision would be made by Skema.

“The October (report) was in contemplation of the Skema transaction, and obviously, as part of that transaction, it assumed termination and possible rehiring,” Hawekotte said. “(FIDM will) do what is necessary in order to meet its obligations to teach its students.”

FIDM did not clarify whether its steps to meet those obligations will entail rehiring any staff, or if the school expects further layoffs following the deal’s cancellation. 

Accreditation battles

As a provider of bachelors-level programs, FIDM’s accreditation is overseen by a non-governmental regional agency called the WASC Senior College and University Commission. In 2013, the commission granted FIDM initial accreditation as a baccalaureate institution – the school was previously accredited as an offeror of associate degrees and two-year programs in 1978 and as an arts program provider in 2003. 

The commission commended FIDM at the time for assets such as its support for student learning, leadership and linkage to industry, but it also voiced a few areas of concern. A 2018 accreditation review flagged FIDM’s long-term financial viability as a significant issue and, in 2021, the university commission stated that FIDM’s institutional leadership had moved slowly to take the necessary steps to cut costs and to find new ways to increase enrollment and revenue. FIDM’s gross revenue was $44.2 million in fiscal-year 2022, down 35% from two years prior.

FIDM was placed on accreditation probation in July 2021 after continuing to not meet the commission’s standards. Students who attend unaccredited schools do not have access to federal financial aid, and some graduate schools and employers may not acknowledge degrees from unaccredited programs. 

“The financial sustainability of FIDM was noted as a major concern by the commission after the 2018 accreditation review, particularly related to persistent declines in enrollment that have resulted in reductions in revenue and net income,” the commission said in its 2021 report. “Unfortunately, this downward trend has continued, despite significant cuts to the operational budget and the sale of a significant asset.”

The probationary period gave FIDM two years to address its decade-long drop in enrollment and its budgetary deficits. The commission said that, although the Covid-19 pandemic fed into those issues, its problems had preceded the pandemic by some time. FIDM predicted in 2021 that its financial deficits would continue for “at least three more years,” despite cutting its operating budget by about $10 million.

 “It is imperative that FIDM create and implement a concrete resource and development plan that includes realistic budgeting, enrollment management and diversification of revenue sources,” the organization wrote in 2021.

In March of last year, the commission said that FIDM had improved in several areas but still had not provided “evidence of long-term financial viability.” If the issue was not remedied prior to the probation period’s expiration in July, the organization said it would take the “adverse action” of withdrawing FIDM’s accreditation. 

ASU financial agreement

In April of last year, about a month after receiving that warning, FIDM announced a financial agreement with Arizona State University. An ASU spokesperson said that this agreement involves ASU purchasing FIDM’s downtown location at 919 S. Grand Ave. and the rights to the adjacent Grand Hope Park. ASU is also buying the “intrinsic rights” to FIDM’s intellectual property, such as its brand, trademarks, copyrights, website domains and social media accounts.

FIDM design students will now be offered transfer options to ASU, and ASU’s fashion education programs will be renamed ASU FIDM. According to reporting from the Los Angeles Times, an undisclosed number of FIDM fashion programs may be discontinued as a result, and the surprising nature of the announcement left many students “in the lurch.” FIDM will continue to operate as a separate education institution from ASU, and the college itself is still owned by FIDM founder and president Tonian Hohberg.

Upon the plan’s expected completion at the end of June, FIDM will no longer “be responsible” for its fashion and design students and will instead focus on the “business-oriented” side of the creative industries. This will include degrees in product development, business management, digital marketing and international manufacturing.

Previous FIDM degree programs, such as fashion design, apparel design, graphic design and creative industry studies, will be offered through the ASU Herberger Institute for Design and the Arts. FIDM did not respond to request for comment on whether it will continue to have any connection with students who were previously enrolled in its fashion and design programs. 

While the agreement with ASU has caused stress for some students, it was a profitable solution for FIDM’s continuing financial stresses. The WSCUC reported that the sale relieved FIDM of the operating costs of the building and is anticipated to result in “significant cost savings” for the school. Following the ASU agreement, the WSCUC removed FIDM from probation and commended the school for its strong brand and reputation, its “diligent” work on the ASU agreement and its improved transparency and communication.

The ending of its probation had a few provisions, including the need for FIDM to prove that the elimination of its long-term debt through escrow has been achieved. The commission previously stated in 2021 that FIDM’s long-term debt of $28 million was scheduled to mature this year.

Next steps for the school

Prior to its cancelled acquisition by Skema, FIDM’s next review by the WSCUC was set to be held this fall. Now, that timing is up in the air as the accreditation institution evaluates the situation. 

“WSCUC is revising FIDM’s institutional assessment schedule and evaluating next steps in light of the changed circumstances,” WSCUC president Jamie Studley told the Business Journal. “WSCUC will evaluate FIDM’s accreditation status at that time and the institution’s structural-change proposal, which included a change of ownership.”

As for FIDM’s plans, Hawekotte said the university will do what is necessary to teach its students, and emphasized that its accreditation is independent of Skema. 

FIDM did not respond to request for comment on whether the school is looking for a new third-party buyer, or any forecasts for fall enrollment this year.

“We continue to work with (WSCUC) as we navigate our future without the Skema transaction,” Hawekotte said.