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NEW YORK — Size does matter, and domestic apparel vendors have been in overdrive in the past 12 months as large multibranded firms have raced to snatch up brands as if there’s no tomorrow.
The industry’s acquisition activity hasn’t been this heated in years, resulting in a seismic shift as the big get bigger and the small- to medium-sized look for partners or other opportunities. Yet whenever an apparel firm is put up for sale these days, the same five companies are continually mentioned as possible acquirers: Jones Apparel Group, Kellwood Co., Phillips-Van Heusen Corp., VF Corp. and Liz Claiborne Inc.
The action has become so intense — from Ellen Tracy to Kasper, Nautica Enterprises to Calvin Klein Inc. — that it’s sometimes hard to keep track. So, here, WWD provides a scorecard on the new conglomerates — what they own, how much cash they have and their strengths and weaknesses as they all cope with managing multiple brands.
“Every company has its own strengths, and each one is culturally different. At the end of the day, it’s who will pay the best price,” said Allan Ellinger, senior managing director of Marketing Management Group.
Ellinger noted that most of the companies are buying firms to shore up their weaknesses. “All of these companies realize they have to change. In some cases, the companies they’re acquiring are entrepreneurships. To be successful, they have to meet the new culture midway.”
Paul Altman, vice president of the Sage Group, a Los Angeles-based investment banking firm, said there are a number of criteria that make a good acquisition partner, namely a company’s needs and its ability to support the brand. “The best mergers fulfill the needs of both parties,” he said.
Sage advised Juicy Couture on its sale to Liz Claiborne earlier this year. “Liz is a brand collector, but not in the business of developing brands of their own. They support the brand’s visionaries.” He said Claiborne trusted the vision of co-presidents Pamela Skaist-Levy and Gela Taylor at Juicy, and did the same at Lucky. “Very few people [consumers] know that Liz owns Juicy and Lucky,” he said.
“Merger integration is never easy, but if you have trust and chemistry, it goes a long way,” said Altman. He said Claiborne needed distribution strength in specialty stores and Juicy offered that.
As for Kellwood, which so far missed out on a major acquisition but remains on the hunt, Altman said the company is “very focused on their strategy.”
“They know what they want. They know they’re good in the moderate sector. Everyone finds their center and is opportunistic. M&A is still the way you need to grow if you’re a public company and need to answer to Wall Street. Wall Street is looking for high levels of growth and the industry on average grows 2 to 3 percent a year.”
VF, he said, has publicly stated it is interested in more designer labels. “Nautica helps them get there, but they may also be looking for more niche brands. They can get a niche brand with a brand visionary and support it with their sourcing which is second to none,” said Altman.
Here’s a look at the Big Five.
Headquarters: St. Louis
2002 Earnings: $42 million
2002 Revenues: $2.2 billion
Cash and cash equivalents on hand: $95.3 million
Strengths: Excellent production and sourcing capabilities and inventory management; its expertise has been honed in the moderate sector of the market and it likes to make value-oriented purchases in that category. Initially offered $164 million to acquire Kasper A.S.L. and later went as high as $203 million before being topped by Jones Apparel Group’s $216.6 million.
Kellwood recognized its inability to manage a higher-profile designer name, so it partnered with G.A.V. to win the license from Philips-Van Heusen for the CK Calvin Klein better women’s line as an insurance policy to better handle the brand. Strong in private label. It has bolstered its links to the youth market with deals with Russell Simmons for a license for Def Jam University in women’s and men’s wear.
Weaknesses: Lack of front-end marketing and sizzle; no women’s designer business.
Divisions: Sag Harbor, Liz Claiborne Dresses and Liz Claiborne Suits, Koret, Briggs, Jax Studio, True Beauty by Emme, David Brooks, Bill Burns Sportswear, David Dart, David Meister, Vintage Blue, Democracy, Dorby, Nautica men’s dress shirts, Izod Women’s Sportswear, Gerber Childrenswear, Plaza South, DLG, XOXO, Def Jam University and others.
Crown Jewel: Sag Harbor ($660 million, excluding licensing)
Most recent development: Won the license for the CK Calvin Klein women’s better line, and reportedly expects to do in excess of $50 million with Liz Claiborne Dresses and Liz Claiborne Suits.
Jones Apparel Group
Headquarters: Bristol, Pa.
2002 Earnings: $318.5 million
2002 Revenues: $4.34 billion
Cash and Cash Equivalents: $347.5 million
Strengths: Strong competitor in the moderate and better range; just scooped up Kasper A.S.L. to fill the hole left by the void of the Lauren by Ralph Lauren license. Has diversified its portfolio and channels of distribution. Proven brand builder and manager of its own and licensed brands.
Weaknesses: Not a strong player in women’s designer, children’s or men’s apparel categories. Little international business.
Divisions: Jones New York, Nine West, Evan Picone, Rena Rowan, Todd Oldham, McNaughton, Gloria Vanderbilt, L.E.I., Erika, Energie, Currants, Jamie Scott, Easy Spirit, Enzo Angiolini and Napier. Licensed brands also include Polo Jeans Co., which is licensed from Polo Ralph Lauren. Will soon have Kasper when the deal closes by yearend. Kasper makes women’s misses’ suits and owns the Anne Klein, Albert Nipon and Le Suit brands.
Crown Jewels: Nine West ($882.3 million in sales) and Jones New York ($750 million)
Most recent developments: Lost the lucrative Lauren by Ralph Lauren license, and filed a $550 million breach of contract suit against Polo Ralph Lauren Corp. and Jackwyn Nemerov, former president of Jones Apparel Group. Outbid Kellwood for Kasper A.S.L. on Aug. 7 and will pay a grand total of $216.6 million.
Phillips-Van Heusen Corp.
Headquarters: New York
2002 Earnings: $30.4 million
2002 Revenues: $1.4 billion
Cash and Cash Equivalents: $19.6 million
Strengths: Strong management team; smart executives who learn fast and who carefully did their due diligence when buying CKI. PVH has assured CKI it will remain hands-off when it comes to the Calvin Klein designer business and its advertising and marketing initiatives; large distribution network throughout the U.S.; well-developed brand management firm that has successfully overseen its own brands as well as licensed brands at multiple price points and channels of distribution; also large network of Van Heusen, Izod, Geoffrey Beene and Bass retail stores, primarily located in outlet malls throughout the U.S. Strong in private label.
Weaknesses: No women’s or high-end designer apparel experience; new to the women’s industry, fashion shows and cutting edge advertising. As a result of the Calvin Klein acquisition, it is more reliant on revenues from royalties and design fees.
Divisions: Calvin Klein Inc., G.H. Bass, Van Heusen and Izod (all owned by PVH) and, under license, Geoffrey Beene, Arrow, DKNY, Kenneth Cole New York and Reaction Kenneth Cole.
Crown Jewel: Calvin Klein Inc. (whose total product range generates $3 billion in sales at retail)
Most recent developments: With the help of Apax Partners, PVH purchased Calvin Klein Inc. last December in a cash-and stock deal for $430 million up front, with additional payouts of as much as $270 million in the coming years. It also is building its Izod brand, licensing women’s sportswear to Kellwood, with first-year wholesale volume reportedly expected to reach between $60 million and $70 million.
Liz Claiborne Inc.
Headquarters: New York
2002 Earnings: $231.2 million
2002 Revenues: $3.72 billion
Cash and Cash Equivalents: $110.2 million
Strengths: Has been an active buyer over the last few years. Claiborne is known to give companies a lot of latitude and creative freedom and lets them run their businesses fairly autonomously. Diversified portfolio and channels of distribution. Very strong presence in the better, moderate and bridge areas with Ellen Tracy and Dana Buchman. Has a lot of clout with department stores with lines such as Sigrid Olsen, Lucky Brand Dungarees, Laundry, Juicy Couture and Ellen Tracy. The number-one apparel resource at Bloomingdale’s even though it doesn’t sell them Liz Claiborne merchandise. (It sells them such lines as Ellen Tracy, Dana Buchman, DKNY Jeans and Active, Juicy Couture, Kenneth Cole women’s, Lucky Brand and Sigrid Olsen.)
Weaknesses: No designer business; has stumbled in the retailing business.
Divisions: Liz Claiborne, Dana Buchman, Ellen Tracy, Company Ellen Tracy, Lucky Brand, Laundry by Shelli Segal, Sigrid Olsen, Juicy Couture, Elisabeth, Mexx, Russ, Villager, Crazy Horse, Trifari, Monet, Monet 2, and under license, DKNY Jeans, DKNY Active, Kenneth Cole women’s sportswear, Reaction Kenneth Cole and Unlisted, and others.
Crown Jewel: Liz Claiborne Signature Collection ($1.6 billion in sales)
Most recent developments: Bought Juicy Couture for what Sage Group estimates was $100 million in upfront payment and earnout. It is bringing its Mexx retail chain from Europe to the U.S. with the opening of the first store on Fifth Avenue in September, taking over the former Liz Claiborne site.
Headquarters: Greensboro, N.C.
2002 Loss: ($154.5 million)
2002 Revenues: $5.08 billion
Cash and Cash Equivalents: $205 million
Strengths: Excellent inventory management and sourcing capabilities; back-end marketing, such as focus groups and market research; excellent penetration of mass channels.
Weaknesses: Lack of front-end marketing, p.r. sizzle and negligible designer experience. Hasn’t had much success with designer lines in department stores, i.e. Marithe & François Girbaud.
Divisions: Lee, Wrangler, HealthTex, Eastpak, Red Kap, Bestform, Jansport, Brittania, 20x, Chic, Lily of France, The North Face, Vanity Fair, Gitano, Lee Sport and Vassarette.
Crown Jewel: Wrangler ($1.5 billion in wholesale volume)
Most recent development: In July, it reached an agreement to purchase Nautica Enterprises, which has the Nautica, Nautica Jeans and Earl Jeans businesses, for $585.6 million in cash, marking VF’s breakthrough into the designer market.