NEW YORK — So who’s fault is it?
That’s the story of any good feud — especially a fashion one. Remember Calvin Klein and Linda Wachner? Or Bernard Arnault and Domenico De Sole? So the battle between Polo Ralph Lauren and Jones Apparel Group is no different. While the initial thought is that the strains in the marriage of revenues and royalties was mainly about money or wanting the licenses back, industry sources say otherwise.
Instead, Polo’s ire has been raised over the last year by Jones’s continual refrain that the Lauren by Ralph Lauren line is a “mature business.” Polo, naturally, feels strongly otherwise and believes the line has plenty of room to grow.
Nor can it help the relationship that the Ralph line is far from hitting its hoped-for sales. The collection has sales of only $37 million a year when its target was $100 million.
When the contract was first signed, the executives on the Jones table were Sidney Kimmel, chairman and chief executive officer, and Jackwyn Nemerov, who was then president and chief operating officer. She was succeeded as president in March 2002 by Peter Boneparth, who succeeded Kimmel as ceo last May.
As reported, Jones is trying to keep the Ralph by Ralph Lauren license past Dec. 31, 2003, its current end date. However, Polo contends that it has the right to end the more lucrative Lauren by Ralph Lauren license held by Jones at the end of December 2003, three years earlier than its official expiration, because of the failure to meet minimums in the Ralph agreement. For 2002, the contracted minimum was $100 million, but Jones’ revenues from the Ralph license was just $37 million.
According to sources, Jones offered a licensing royalty for the two lines at between 10 and 12 percent, substantially higher than the typical apparel royalty rate of 5 to 6 percent. Sources also said Polo is seeking at least 3 to 4 more percentage points, something in the 15 percent range. Those sources also said the range sought by Polo is “nonnegotiable.” So, perhaps, there is an element of the battle that’s about “the money.”
Neither Boneparth, nor Roger Farah, president and chief operating officer of Polo, would elaborate further about the matter, except to state that the parties are in negotiations.
One apparel industry executive said that Polo’s game plan, while Nemerov was still at Jones, was never to take back the business. However, the Polo executives believe that there are greater opportunities for Lauren. With $548 million in sales last year, Jones believes Lauren is past its peak, while Polo begs to differ. Polo executives are ready to take over the production of Lauren if the “opportunity arose,” and a preliminary “what if” outline of a plan was circulated sometime in December, sources close to the company said. However, analysts question whether Polo has the infrastructure to deal with the manufacturing and distribution of such a collection.
As for the Ralph line sources noted that Polo’s ability as a vertical operator would give it better control over the destiny of the different Ralph Lauren labels. The younger and trendier missy consumer, the source said, could start with Ralph and then migrate to the more classic Lauren and then work her way up to Blue Label and ultimately the high-end collection and Black Label.
Indeed, the designer himself has kept mum about his view of the company’s future and what brands should be under the corporate umbrella. However, in Thursday’s earnings release, he issued a statement that hints at what may be Polo’s future: “The diversity of our Polo Ralph Lauren products enables us to reach all types of customers. By offering everything from Purple Label suits and the finest custom furniture to fragrances and the iconic Polo shirt, we reach all aspects of a complete lifestyle.”
Wall Street analysts worry about how Jones would make up the lost revenues — $585 million for the two licensed labels — during fiscal 2004 and beyond. Jones’ Polo Jeans business, not a part of the dispute, generates between $400 million and $450 million in revenues for Jones.
On the apparel front, manufacturers and their licensees are keeping tab to track whether a “take-back” by Polo, after the money put into building the Lauren line by Jones, could set a new precedent for licensing arrangements, and the impact of the long-term future of licensing.
Privately, industry observers note that Jones may feel like it has a bit of a chip on its shoulder. It reportedly lost out on the Izod women’s wear license, which Phillips-Van Heusen Corp. instead granted to Kellwood Co., at the last minute, and also didn’t land a license to do better jeans under the Calvin Klein New York label. Like their counterparts at Jones and Polo, officials at PVH and Calvin Klein declined comment.