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Kellwood Co. is making its biggest restructuring move yet, with about 10 percent of the company’s nearly 2,000 jobs affected.
This story first appeared in the December 10, 2008 issue of WWD. Subscribe Today.
The St. Louis-based vendor is relocating the operations end of its moderate lifestyle division from New York to the company’s Los Angeles offices in mid-2009. Additionally, the company cut some corporate posts in New York and support function jobs in St. Louis, and is closing its customer service office in Rutherford, Tenn., during the second quarter of 2009.
In total, about 200 jobs are affected. Kellwood offered relocation packages to about half the lifestyle brand team members impacted, and the company anticipates that about half of those offered will accept and move to Los Angeles. For those losing their jobs, Kellwood offered its employees severance packages and a long transition time of continued employment, said Michael Kramer, who became chief executive officer of Kellwood in August, after Sun Capital Securities Group LLC acquired the firm for $762 million.
“The news is exciting and encouraging, but also bittersweet because it impacts people’s lives,” said Kramer, who informed employees of the changes Monday. “Our consolidation will save us a considerable amount of profit, but it’s not just head-count driven or about savings — savings were just a by-product. This is about strategically positioning the company for future growth.”
The company’s three moderate lifestyle brands — Sag Harbor, Briggs New York and Koret — together make up nearly $500 million in wholesale volume, or half the company’s total revenues. The brands’ sales, marketing and retail planning teams will stay in New York along with the showrooms, but the rest of the operations will relocate to Los Angeles. For Sag Harbor and Koret, the move will be completed by May 31, and for Briggs, Aug. 15.
The move to California frees up a lot of New York real estate, while moving the remaining part of the moderate brand teams to Los Angeles-based offices, where the junior brands XOXO, Jolt and My Michelle are based — and where Kellwood already controls the building’s additional space.
“Our California offices already has the culture we are trying to build,” Kramer said. “It’s important to create an operating machine in the City of Industry that is much more leveragable and profitable.”
The brand leaders at the relocated moderate brands will report to Arthur Gordon, ceo of Kellwood West. The operational members of the team will report to the Los Angeles-based leaders of their respective groups.
Kramer said the decision was not made because of the economy, but rather because of the strategic restructuring of the firm. Since the revamp began and before this round of cuts, dozens of back office and executive posts at Kellwood had been cut.
“We had too big of a corporate infrastructure for what we are supporting today,” said Kramer.
Kellwood now does less than half of the $2 billion in sales it did in 2006 since streamlining the company in the last year. The company sold its dress shirts manufacturing division, Smart Shirts Ltd., a year ago; broke off American Recreation Products Inc. and children’s wear brands Gerber Childrenswear LLC and Hanna Andersson into stand-alone divisions this summer; shuttered the Hong Kong-based sourcing operations; closed the moderate dress division; put Hollywould up for sale, and exited many of its licensing businesses, including Calvin Klein better and bridge lines, O Oscar, and Liz Claiborne brand suits and dresses.
Kramer said the move followed the $1 billion company’s four-pronged strategy: right-sizing the organization, establishing a cross-branded model, generating incremental top-line growth through expanding direct sales, and measuring and driving accountability and performance.
Kellwood’s brands are outperforming their competition, Kramer said, but added that profitability is being hurt. “Sales are happening, but at a much smaller margin,” he said. “Our brands are doing as good or better than our competitors. I think 2009 will be a make or break year for our competition and for retailers, with some companies forced to sell or close, but that allows for more market share to be captured for strong companies like Kellwood. It’s dire out there, but I’m confident with our strategy and our financial position with our partner Sun Capital.”
While Kellwood is downsizing in some areas, it is also actively pursuing acquisitions between $10 million and $90 million in wholesale volume, Kramer said. Kellwood has sent out a couple of letters of intent, at least one for a premium denim brand, the expertise of which Kellwood plans to leverage for brands in its portfolio such as Vince.