By  on November 13, 2006

NEW YORK — Something was missing from New York Fashion Week last September. The Kenneth Cole New York show, which traditionally kicks off the week on Friday morning, was notably absent.

The move is all part of Cole's strategy to take his brands upmarket and get profits back on track.

"What you saw for spring was a good first step, but it's not there yet," said Cole, who instead of a show held a private presentation of the spring collection in his SoHo store in October. "We traditionally created clothes for the runway, but for this to really work, we need to create product for the customer."

The switch is the public symbol of even more significant internal changes at the $474 million company. With an almost entirely new management team — including brand presidents for the first time — the firm is elevating its Kenneth Cole New York brand from its former better status to what executives are calling "affordable luxury" — as in, contemporary — and at the same time positioning the Kenneth Cole Reaction label as a lifestyle brand that has taken over where the New York line left off.

"We made a big strategic decision about three years ago. We took a good hard look at not just the business, but also the brand and the customers," Cole said, "and we realized we can do this better. We made it our corporate purpose to create two individually viable brands that both serve a distinct customer."

Liz Dunn at Prudential Equity Group LLC labeled the strategy "lift and separate," and Allan Ellinger, senior managing director at Marketing Management Group, said Cole's strategy was dead-on.

"Historically, it has been harder to go up than down, but the redefining of the department store tier of distribution that just occurred will make it easier for some of the better brands to trade up. Brands, like Kenneth Cole, who trade at the higher end and have national recognition, will find it easier to trade up, and their success depends on how well it is presented and defined with clear demarcation between their best and better."

With a new management team and business plan, Kenneth Cole's brands may not be the only thing on the rise. As the product improves, Cole hopes its earnings will, as well. For the first nine months of this fiscal year, income dropped 27.9 percent, to $18.8 million, or 92 cents a diluted share, from $26.1 million, or $1.28, despite a 4.3 percent increase in revenues, to $401.5 million from $385 million. While wholesale contributes the most to the firm's top line, and licensing is highly profitable, retail — with 54 domestic stores — has been a drag on profitability for nine consecutive quarters of sales declines.

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