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NEW YORK — Forget about those ads with Jenny McCarthy on her throne: Candie’s is toning down and going mainstream through an exclusive distribution arrangement with Kohl’s Corp.
The brand also is expanding with the introduction of junior sportswear and girls’ in all of Kohl’s stores next fall. Details of the agreement, first reported in WWD Tuesday, were laid out by Candie’s and Kohl’s executives Wednesday.
For Kohl’s, the move is in keeping with its recent push to offer its customers exclusive national brands, such as apt. 9, a private label that launched in women’s and men’s this fall; the more contemporary Daisy Fuentes collection, and cosmetics by Estée Lauder Cos.
“It’s a major initiative for us,” said Kohl’s president Kevin Mansell, who declined to offer revenue projections for the Candie’s collections and said many of the details of how the brand will be positioned are still being worked out.
“It’s an enormous opportunity and it goes well beyond apparel,” he said, pointing to home goods as a future possibility. “We clearly expect to grow the brand.”
Mansell said no brands would be eliminated to make way for Candie’s, but that some of the retailer’s junior offerings will be cut back to make room for the brand.
“I think it will be positioned to clearly be our premier brand statement in juniors’,” he said. “We see [Candie’s] as a way to reach new customers.”
The brand also offers Kohl’s yet another point of differentiation. “It’s a reason for customers to choose Kohl’s over someone else,” said Mansell of product that’s exclusive to the retailer.
Candie’s products will be carried by a number of specialty and department stores through the end of 2006; afterward the brand will be distributed exclusively through Kohl’s, which currently has 637 doors.
Under the terms of the license, which expires in January 2011 and gives Kohl’s the option to renew for up to three additional five-year terms, the retailer will pay Candie’s minimum average royalties of $8 million to $9 million annually.
Kohl’s also will pay Candie’s an unspecified advertising royalty each year, which the firm must spend on national advertising supporting the brand.
Shares of Candie’s shot up 7.9 percent, or 41 cents, to $5.59 in Nasdaq trading Tuesday, while Kohl’s stock slumped 0.1 percent, or 4 cents, to $47.50 on the New York Stock Exchange.
Neil Cole, chief executive officer of Candie’s, said the brand, which has had annual sales of about $100 million, appeals not only to the young “iPod generation,” but also resonates with twenty- and thirtysomething consumers who were introduced to the brand when they were younger. Cole is brother to shoe magnate Kenneth.
“It’s very important to keep the Candie’s image, that’s one of the reasons Kohl’s was attracted to us,” said Cole.
But Cole admitted the brand might have to tone down its advertising some. Candie’s ads, which currently feature Ashlee Simpson, have in the past gone as far as to have Jenny McCarthy sitting on a toilet with her panties pulled down around her ankles, or a naked Destiny’s Child with the Candie’s brand projected onto their bodies.
“We’re now working with a ‘family retailer,’” said Cole. “We want to keep our edge; however, we don’t want to offend the Kohl’s shopper. We’re going to keep the consumer in mind. As a marketer, it’s challenging.”
Even with a broader distribution and perhaps tamer image, Cole said the brand will keep its “coolness factor.”
Edward Weller, analyst at Thinkequity Partners, said, “Kohl’s wants to sell whatever its customers want to buy. They’ve been doing well in the junior business. This deal will probably help them do better.”
Despite the move by Kohl’s to more exclusive, branded merchandise, Weller said the retailer was not taking a page out of Target’s playbook, which already includes deals for the Mossimo brand and with designers such as Liz Lange and Isaac Mizrahi.
“Customers want well-designed merchandise and if they can get it at good prices at Kohl’s, why not?” he said. “The results in the junior department suggest they could do more with brands.”
Steven Madden Ltd. and Candie’s amended their licensing agreement for the right to design, manufacture and distribute Candie’s branded footwear to reflect the brand’s arrangement with Kohl’s.
The deal comes fast behind Candie’s October acquisition of Badgley Mischka, known for its high-end designer evening gowns.
Over the last couple of years, Candie’s has shifted away from manufacturing, in favor of a business that leans on its strengths of advertising, promotion and brand managing.
The business model is fairly novel in the apparel world. Cherokee Inc., which manages the Mossimo brand, is one of the few examples of a similar business model. Cole prefers a grander comparison, though, and points to software giant Microsoft Corp. Managing intellectual property in that way does have its advantages over the standard fashion model.
“We don’t own any inventory, we don’t have to worry about any chargebacks,” said Cole. “It’s new to Seventh Avenue, but Wall Street does understand it.”
Cole has a full plate, with managing Candie’s, Badgley Mischka and its other brand, Bongo, but said he is considering using the company as a platform for further such expansion.
Executive vice president David Conn added, “There are also opportunities for these three brands internationally.”
A deal to produce Badgley Mischka is forthcoming. It’s possible the designer brand could strike an exclusive agreement with a retailer similar to the Candie’s-Kohl’s arrangement, said Cole.
“We’ve spoken to a couple of stores that would like us to [give them Badgley Mischka exclusively],” he said.