By  on November 19, 2007

Rafaella Apparel Group Inc. is rebranding itself for fall 2008, two years after being bought by Cerberus Capital Management.

With new management and design leadership, a marketing plan from Graj + Gustavsen, segmented product and Cerberus' deep pockets, the better-priced sportswear line is poised for change.

"It's like we are building a home, with the pants as the foundation that the former owner built," said Rafaella chief executive officer Christa J. Michalaros. "We've been in full force evolving the product, and we've made significant progress in the last year and a half."

For the first time, Rafaella is segmenting the brand into four businesses: Rafaella for career, WKND for casual, R2 as a performance activewear-sportswear hybrid and Ella Jeans for sophisticated denim. Ella and R2 are new launches for fall 2008, while career and casual both stem from the existing line.

The firm also has developed a good-better-best strategy, where it plans to grow the better category while adding a best level. "Today better is the bulk and there is a good base," Michalaros said. "But this initiative gives us a platform to add the best."

The "good" assortment, at wholesale, ranges from $19 for a knit to $45 for a jacket, "better" starts at $22 and goes up to $79 and "best" starts at $34 and passes $89 for special jackets.

The better-priced women's sportswear firm has been in business more than 25 years. Cerberus bought it by issuing $172 million in public debt, and the company now has about $138.5 million in outstanding debt, according to Rafaella. Cerberus said it planned to double the firm's sales to at least $500 million within a few years.

But for the quarter ended Sept. 30, earnings fell 57 percent to $2.4 million from $5.6 million, hurt by increased markdown money, a higher percentage of business coming from private label relative to branded product, lower margins in off-price business and flat sales, general and administrative expenses spending on sales that slumped 17 percent to $47.4 million from $56.8 million.

For the fiscal year leading up to the most recently reported quarter, Rafaella's earnings halved to $6.3 million from $12.6 million, and sales declined 14 percent to $191.3 million from $222.2 million. A spokesman attributed the drop to the former Federated Department Stores Inc.'s acquisition of May Department Stores Co. because the brand was focused in May doors, not Federated, and was dropped from many units in the consolidation. About 300 of the renamed Macy's Inc. doors now carry Rafaella. By next fall, the company said comps from Macy's should no longer trend negatively.The company's plan is to target its top 100 doors with a new point-of-purchase branding presentation, emphasizing "Form + Function" as its mantra.

Simon Graj, of Graj + Gustavsen, declined to comment on the price of the new presentation, but said it was inexpensive because the installations are portable and flexible, using tables, poles, clip-on images and sometimes televisions. Active mannequins that are posed in running stances model suits. An ad shows a woman in a track starting position on one side wearing traditional activewear and on the other, in work clothes in that same active position.

"We've never done any branding," said president Rosemary Mancino. "Because of that, we have very minimal brand recognition, but we also have an open slate. Now we can elevate it."

Executives declined to quantify Cerberus' "substantial" spending on advertising, public relations, potential celebrity endorsements and partnerships with other brands and retailers. They hope to gain new channels of distribution, such as exclusive lines with retailers.

In the last year, Cerberus has recruited an executive team for Rafaella that is brimming with better and bridge experience. Michalaros and Mancino spent about five years at Tommy Hilfiger and 18 years at Liz Claiborne before joining Rafaella after Cerberus acquired the company. Michalaros was president of women's at Hilfiger, where Mancino had been vice president of sales and planning for women's. At Claiborne, Mancino was vice president and general merchandise manager of the May Co. accounts, and Michalaros was president of Liz Claiborne casual.

Jason Epstein, chief information officer and vice president of strategic planning, was chief technology officer and vice president of supply chain management at Elie Tahari from 2003 to 2007.

To boost the style quotient, Richard Metzger has been hired as vice president of design from his eponymous label — with a history of working on better- and bridge-priced brands — to redesign the fall 2008 collection. Ginny Hilfiger, whose privately owned Ginny H line is increasing at stores such as Bergdorf Goodman, is freelancing as the Ella Jeans designer, after working with Michalaros at Tommy Hilfiger.

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