By  on October 15, 2008

Michael Kramer is building the “New Kellwood.”

Since Sun Capital Partners Inc. acquired the St. Louis-based vendor in February and subsequently tapped Kramer as chief executive officer, Kellwood has slimmed down to just shy of $1 billion in wholesale volume, compared with the $1.6 billion in revenues prior to the takeover. And it’s not done slimming down yet: Kellwood has revealed plans to sell Hollywould, the small, high-end contemporary brand the group bought in 2006. Kellwood is in the early stages of examining strategic alternatives, and declined to disclose how much it is asking for the brand, which sources peg at less than $3 million in wholesale volume, but which Kellwood had said earlier this year could grow to $50 million.

The sale is just one of a string of changes both big and small being implemented by Kramer since he joined two months ago — from new management to the symbolic elimination of ties from the corporate dress code. “It’s important for you to live your brands — and we don’t sell ties,” said Kramer, 44. “Culturally, I think there is a huge change taking place as we embrace our brands.”

The result is a women’s wear-focused company that can be divided into juniors (Baby Phat, XOXO, My Michelle and Jolt), contemporary (Vince and David Meister) and lifestyle (Sag Harbor, Briggs New York and Koret).

Kramer predicts he can turn around the company in two to three years — although he declined to quantify what revenues or profits would define a successful turnaround. His to-do list includes streamlining Kellwood’s back office, growing direct retail, expanding the contemporary brands’ category offerings (like adding premium denim to Vince and accessories to David Meister), returning the core moderate brands to their former volume (it’s halved in the last three years), organically launching at least one brand (perhaps within the Phat Farm family, coming off the successful Fabulosity launch with J.C. Penney Co. Inc.) and acquiring others.

Sun Capital in July tapped Kramer, then chief financial officer and executive vice president of Abercrombie & Fitch Co., to take over as Kellwood’s president and ceo. Prior to A&F, the certified public accountant served as cfo for Apple Retail at Apple Inc., and held financial positions at The Limited, Pizza Hut and Einstein Noah Bagel Corp.

“One of the reasons Sun hired me is that I have a true understanding of brand management, not just buying brands and then watching them,” Kramer said. “I’ve been very fortunate working for Steve Jobs [founder, chairman and ceo of Apple Inc.] and Mike Jeffries [chairman and ceo of Abercrombie & Fitch Co.]. I’ve learned tremendously from them about protecting your brands and managing them. I hope some of their genius rubbed off.”

Kramer brings a financial eye to the long-suffering vendor, which has been attempting to stage a turnaround ever since his predecessor, Robert C. Skinner Jr., took over as ceo in 2004. Although Skinner tried to transform the company from a predominantly moderate vendor to a brand manager with higher-margin brands and direct retail, the numbers never improved. Last year, Sun Capital staged a hostile five-month takeover battle, finally acquiring Kellwood in February for $762 million.

Even before Kramer joined, Sun had begun making cost-cutting changes. Since February, Kellwood has:

• Broken off its profitable soft goods businesses, American Recreation Products Inc. and Gerber Childrenswear Inc., into stand-alone companies within Sun, but independent of Kellwood.

• Shuttered the Hong Kong-based sourcing operation, Kellwood Trading Ltd., and licensed parts of its sourcing to Li & Fung, among other suppliers.

• Closed the moderate dress division.

• Exited unsuccessful licensing deals, including O Oscar, Liz Claiborne suits and dresses, Calvin Klein white label and ck Calvin Klein bridge label. Calvin Klein’s parent company, Phillips-Van Heusen Corp., had been unhappy with the partnership, and gave the white label license to G-III Apparel Group Ltd., while the short-term future of the bridge line is still unclear.

• Cut executive posts and dozens of back-office jobs to eliminate overlap, including, most recently, one of Kellwood’s stars, Patrick Burns, group president of lifestyle brands, who joined Maidenform Brands Inc. as executive vice president of sales and marketing. A Kellwood spokeswoman said the firm is seeking a successor for Burns.

Kramer declined to enumerate the number of jobs cut, but defended the streamlining model as one that would finally make Kellwood strategically competitive.

“Financially, it makes sense, but strategically, it makes even more sense,” Kramer said. “We’re putting together a very efficient machine. Kellwood owes it to its brands to show there is a strategic advantage to being part of Kellwood. In recent years, there’s been a hunger for that. As a brand-management company, we should be able to provide services and back-office support so the only thing they have to focus on is the product and the brands. The new Kellwood will provide behind-the-scenes help to leverage off our structure.”

He compared the “cross-branded model” of his alma mater, Abercrombie & Fitch, with the “vertical model” of Limited Brands Inc., where he also worked.

“At Abercrombie, we had just one of everything for the brands to share, besides the merchandising, which was independent for each brand, while the Limited is a vertical structure with a back-office job for each brand,” Kramer said. “That’s why even though the Limited did $10 billion in sales and A&F only did $3.8 billion, Abercrombie did $10 million more in profit.”

Spending less on overhead frees up more money to allocate to brands and roll out to retail. Although Kellwood’s flagship brand, Sag Harbor, is ending its relationship with spokesmodel Christie Brinkley, Kellwood plans to increase the marketing spend overall, though Kramer said exact numbers have not been finalized.

With Sun’s private equity pockets behind it, Kellwood is scouting acquisitions, from $10 million to $90 million in wholesale volume. Kramer said the company is deep in talks with about three brands, although he added that he is being “patient” waiting for the right price in this buyer’s market. Of particular interest are companies with expertise in areas where Kellwood wants to expand its brands, such as premium denim for Vince.

“A lot of people are suffering out there, and there are a lot more brands willing to talk today than there were 12 months ago,” said Kramer. “One of the benefits of being part of Sun’s portfolio is having money to spend. Working with Sun is like having our own investment bank in-house.”

In addition to acquisitions, Kramer plans to organically create at least one brand, stemming from Kellwood’s current portfolio in 2009, potentially an offshoot of an existing brand, as Fabulosity was spun off from Baby Phat.

But Kramer is primarily excited about Kellwood’s existing offerings. He plans to grow the direct retail side of Kellwood’s business, and Vince is the group’s poster child for direct retail expansion.

“Kellwood has nailed wholesale, but not performed well with retail or the Internet,” Kramer said. “I believe all three channels are important.”

Kramer sees the contemporary brand, which the company bought in 2006, as “a huge growth vehicle for Kellwood, which is performing well even in this economy.” Kellwood launched last month, and has opened two stores in Los Angeles. The plan is to open about 10 more in 2009, including in New York in the spring.

Kramer also sees category growth potential for Vince, from premium denim to handbags and footwear for 2010 or 2011. He projects that Vince’s domestic sales can grow to four to five times the current wholesale volume, which industry sources peg at more than $50 million. Additionally, after success selling at Harvey Nichols in London, Vince is looking to European expansion “pretty quick,” said Kramer.

Also on the contemporary front, Kramer pointed to David Meister as “a great brand that has been waiting for help.” The dress brand recently added large sizes, and Kramer said accessories, jewelry and footwear are also on the table. Sportswear, which the brand exited last year, is a possibility, but less of a priority.

The Abercrombie alum gets most excited, though, talking about the Los Angeles-based junior brands.

“There’s so much momentum at XOXO, Jolt and even My Michelle,” Kramer said. “I couldn’t be more pleased with XOXO — we’re going up with spring orders, and the absence of down in this environment is excellent.”

With Baby Phat, Kramer plans to grow e-commerce (“we’ve been doing fine, but could do finer”) and start testing retail next year. The early success of the Fabulosity diffusion line exclusive to J.C. Penney also has encouraged Kramer to consider “rolling out other new brands from the House of Phat.”

He’s even positive about the core of Kellwood’s historically predominantly moderate base. Falling under the “lifestyle” division, moderate brands Sag Harbor, Briggs New York and Koret make up nearly half of Kellwood’s volume, or just shy of $500 million. That’s half the volume they collectively did three years ago, Kramer admitted — but he predicts they will return to their original volume within three years. As the moderate market has changed over the last few years, these brands had attempted unsuccessfully to reinvent themselves, and their sales had suffered as a result.

“One of the mistakes we made historically was aging with our customer,” Kramer said. “These brands were becoming too old.”

Last year, Kellwood hired Hope Brick, formerly a vice president of design at Wal-Mart Stores Inc., as chief merchandising officer of the vendor’s moderate or lifestyle brands, and Kramer raved about the difference the new design has made, despite the loss of Burns as president of the lifestyle group. The lifestyle brands also added “the slimming solution,” a functional slimming technology.

“It’s day and night in terms of the product, starting this fall,” Kramer said. “Hope has harnessed contemporary fashion and brought it to the right silhouettes for this customer.”

Kramer said the economy was not affecting the investment or turnaround plans for Kellwood — though it makes the fix-it job less stressful.

“Coming from the public sector, I’m loving being part of a private company,” he said. “When you are public, it forces you to have more of a short-term focus. This is a great time to be a private company, not having to watch your stock price.”

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