Liz Claiborne Inc. is not alone in reevaluating its portfolio.
In the face of changing market conditions — including retail consolidation, private brands and changing consumer shopping preferences — major apparel vendors such as Jones Apparel Group and Kellwood Co., are taking a tough look at moderate and other troubled brands in their lineups.
"What's amazing is how the tables have turned,'' said Allan Ellinger, senior managing director at Marketing Management Group. "The consolidators just a year or two ago, today are the ones shedding assets — they've done a complete 180. What you are going to see is a number of public companies shedding assets that they deem to be underproductive. You have companies that can't run away from their moderate businesses fast enough, but the question is: Who is going to buy them on the other side?"
Jones Apparel Group
Jones will make a hefty return on its Barneys New York investment — whoever buys the luxury retailer. Jones acquired Barneys three years ago for $397.5 million. Fast Retailing has bid $896 million for the business, a 9 percent premium over Dubai-based investment firm Istithmar's accepted $825 million bid. The company now must figure out life A.B. (After Barneys) — what it will do with the extra cash and with its remaining assets.
One possibility is that Jones could use the cash to acquire brands with higher margins than their existing portfolio, though chief executive officer Peter Boneparth has said the desirable contemporary labels tend to be too expensive for serious consideration.
Another possibility is Jones could invest in marketing its three "power brands," Nine West, Anne Klein and Jones New York. With heavier promotion, they could be more strongly positioned as destination brands, according to consultants and industry insiders.
Or those brands could be sold. As Boneparth has shown in trying to sell the company last year and in the current Barneys negotiations, he is open to selling off parts to enhance shareholder value.
Boneparth has been vocal about divesting parts of the moderate portfolio, which includes Norton McNaughton and Kasper, though he's declined to be specific about which brands might be vulnerable. And, as analysts are quick to point out, to sell a brand, there has to be a buyer.Kellwood Co.
While Claiborne and Jones focus on power brands and eliminating distractions, Kellwood is choosing an opposite course. In the last year, Kellwood has acquired four brands, each of which generate $100 million or less in annual sales. Kellwood started in September with CRL Group LLC, which owned high-end contemporary label Vince, a $45 million business that it bought for an undisclosed sum. It followed in December with the purchase of upscale footwear and apparel brand Hollywould, which is estimated to do just a few million dollars in annual sales. Last month it made two buys, acquiring the $100 million children's wear company Hanna Andersson Corp. for $175 million, and Royal Robbins Inc., a $30 million women's and men's active sportswear and travel apparel business, for about $40 million.
For its first quarter, which preceded the latter two purchases, Kellwood's better and above-price brands constituted 34 percent of net sales, up from 29 percent last year. Increasing such higher-end businesses is one of Kellwood's stated goals, and the $1.9 billion firm could make more such small strategic buys.
Analysts like the strategy of investing in higher-margin brands that Kellwood owns that diversify its largely moderate portfolio. Because the buys are relatively small, there is not a huge downside, and any of them could potentially blossom like Juicy Couture did for Claiborne. "They're almost a lottery ticket," said Brad Stephens, a retail analyst at Morgan Keegan & Co.
But some worry that so many brands are a distraction and divide marketing dollars — working in the opposite direction that Claiborne is moving toward now. "I don't think it's a sound strategy to buy small brands that divide funds that can't support advertising," said consultant Emanuel Weintraub. "I'll quote Peter Boneparth: 'Does it move the needle?'"
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