By  on March 7, 2005

NEW YORK — Sara Lee Corp.’s decision to split apart its $4.5 billion apparel business and operations in the Americas-Asia territories, and sell its $1.8 billion European apparel business, is viewed by the industry as a smart decision that will create value for shareholders and strengthen the company’s cadre of brands.

Executives generally agreed that the timing is right, as business conditions have improved and a growing number of investors are looking for opportunities, particularly in an existing company. The momentum is spurred by the mergers and acquisitions activity of retail giants, including the $11 billion proposed takeover of Sears, Roebuck & Co. by Kmart and Federated Department Stores’ $17 billion acquisition of May Department Stores.

Several industry executives speculated whether Sara Lee intends to sell any of its portfolio of brands, which includes Hanes, Playtex, Bali, Champion, Wonderbra, L’eggs, Barely There and Just My Size.

Lee Chaden, chief executive officer of Sara Lee Branded Apparel, said, “Our apparel brands are not for sale. The current portfolio is incredibly strong and on strategy. We have powerful brands that are category leaders and will form a strong basis for the new company’s future growth.”

Regarding Sara Lee’s strategy, Donald Franchescini, a former vice chairman of Sara Lee Corp., said, “I am very supportive of this move. It makes sense and it’s a positive for both businesses. It will give a sharper focus on the food business, and at the same, time find a home for intimate apparel.”

Sara Lee appears to be on a roll. The $19.6 billion conglomerate spun off Coach in 2000. Investors on board since the beginning tripled their money, the stock split 2-for-1 in July 2002 and Coach’s initial public offering was for 19.5 percent of the share. Sara Lee kept an 80.5 percent stake that it divested through a tender offer in April 2001. In the second quarter ended Jan. 25, Coach reported a 40.5 percent jump in earnings and authorized a 2-for-1 stock split. The stock has zoomed to more than $58 a share from about $5 in 2000.

“I think this is the best thing that could have happened to Sara Lee intimate apparel because I relate to it, ” said Bill Ghitis, president of Invista Inc., formerly the DuPont Textiles & Interiors unit of DuPont, which Koch Industries acquired last year. “When you’re not welcome in a company’s portfolio, you obviously don’t have a secure and focused direction.”While the plan to divest the Sara Lee apparel businesses is receiving praise, it also is raising questions about the viability of apparel brands, particularly established powerhouse names in a market that’s being squeezed by retail consolidation and proprietary retail brands.

Some industry executives believe Sara Lee may be ahead of the curve as a majority of apparel companies are forced to restructure manufacturing capabilities to handle potential fresh China quotas, and at the same time, bankroll new technology. Another variable is how fashion names and commodity-type labels will stack up against a growing assortment of exclusive store brands sold at lower prices.

“The cost today of coming up with new technology to create newness and innovation to keep the customer interested is prohibitive,’’ said Richard Leeds, chairman of Richard Leeds International, an independent sleepwear firm. “It requires a tremendous amount of money up front and that’s needed to get the margin to pay for it. If the branded apparel business is so terrific, why would Sara Lee be getting rid of it?”

Addressing brand integrity, Linda LoRe, president and ceo of Frederick’s of Hollywood, said, “We all have to continue to evolve and create loyalty with the consumer because they buy with emotion and they justify it any way they can. People are always looking for something new and the consumer is going to cast her vote regardless of the channel the brand is placed in. At the end of the day, it’s all about the brand and the experience of the customer.”

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