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Michael Kramer isn’t shy about confessing that he reads People magazine cover to cover and sometimes watches MTV’s Jersey Shore.
This story first appeared in the September 26, 2011 issue of WWD. Subscribe Today.
“I may be the only ceo to admit that,” says Kramer, president and chief executive officer of Kellwood Co., the St. Louis-based parent of brands like Scotch & Soda, Vince, Adam and Baby Phat. But while he may actually enjoy those extracurricular activities, there’s also a business angle to keeping up with the Kardashians, J.Lo’s divorce and The Situation’s pearls of wisdom. “It’s about getting immersed in today’s culture,” explains Kramer, who since taking the top job at Kellwood in August 2008, has been on a mission to transform the company once known for its prosaic moderate labels into an agile marketer of contemporary brands that appeal to trendy, youthful consumers. He’s completed a string of acquisitions, including three in the first seven months of this year: the women’s brand Rebecca Taylor; Amsterdam- based Scotch & Soda, which is primarily men’s, and Zobha, which sells both men’s and women’s yogawear.
The company is also set to launch a new retail concept at the end of this year targeted at teens and twentysomethings called Lamb & Flag, which will be a cross between Hollister, All Saints and Urban Outfitters.
“With contemporary price points, you can have high margins and you can afford to do your own retail stores,” says Kramer, 46, who before joining Kellwood was chief financial officer of the youth- obsessed retailer Abercrombie & Fitch Co. “I’d rather bank on a large margin than a large volume—and it’s cool product and it’s more fun.”
On the acquisition trail, Kellwood has focused its efforts on brands with volume in the $100 million–to– $300 million range.
“We want to foster new talent. We’re looking at brands that are on an upward trajectory of their growth cycle, rather than already up there and big,” Kramer explains. “That’s our skill set. We’ve built a cadre of young talent to help these embryonic brands. There really aren’t other conglomerates out there doing that. We’re an incubator, and we want to take brands that don’t have the necessary capital or resources to the next level.”
Private equity firm Sun Capital Partners acquired then-publicly-traded Kellwood in February 2008 for $762 million, taking it private following a five-month-long hostile-takeover bid. Kellwood’s subsequent acquisition spree has been financed by the resources of Sun Capital, but Kellwood is responsible for the deals and the pay-down of debt.
Men’s is currently a small slice of the Kellwood business, representing 10 to 15 percent of annual sales—not including the Scotch & Soda acquisition, which closed in August—giving it lots of potential to grow. “Men’s is a huge strategic target of ours,” says Kramer.
The new Lamb & Flag concept is projected to be close to 50 percent men’s, with prices in line with American Eagle and Hollister. The chain will showcase the Lamb & Flag collections, but about 40 percent of sales are expected to come from third-party vendors that complement the house label. About 15 to 20 outside brands are planned for the first season, including Nudie, RVCA, Cheap Monday, A.P.C. and Insight, with the vendor matrix and assortments changing each season to reflect hot trends. “We saw that multibrand stores really weathered the tough economic times better than monobrand stores. I think providing customers with different brands is really how people like to shop now,” reasons Kramer.
The first few Lamb & Flag stores will open in California malls, before spreading to other regions of the country. In Kramer’s optimistic view, the chain has the potential to grow to 800 doors.
Lamb & Flag’s point of differentiation will be its rock ’n’ roll vibe, an edgy alternative to the more conventional, collegiate viewpoints that inform A&F, Hollister and American Eagle. “When you walk through the malls, you have Gap and American Eagle, which are very core American, and then you have Hollister and Abercrombie & Fitch, which are preppy with a twist. You don’t have what I call hard-core American rock ’n’ roll,” says Kramer. “Lamb & Flag is edgier and sexier. We’re calling it irreverent beauty. It’s like an all-American cheerleader, but she has a butterfly tattoo on her stomach. There’s some rebellion going on.”
The name Lamb & Flag comes from a well-known pub in Oxford, England,and the tavern theme carries over to the interior design of the stores. A menu behind glass will greet shoppers as they walk in—but with the store’s changing brand roster on display rather than pints and shepherd’s pie. Black and dark green are central to the color scheme, with gold lettering also recalling an English pub.
Kramer originally wanted to launch a rock ’n’ roll retail concept using the denim brand Rock & Republic as the foundation. Kellwood bid on the bankrupt Rock & Republic last year but lost out to VF Corp., which decided to take the brand down market in an exclusive deal with Kohl’s that begins next spring.
“I think there’s huge brand fatigue, and I’ve been looking for the next big thing that will pull at the heart and purse strings of America’s twentysomething consumers,” says Kramer of the upcoming Lamb & Flag launch.
Also central to Kellwood’s growing men’s business is the Scotch & Soda purchase. Men’s accounts for 70 percent of sales at the Dutch brand, which does about $400 million annually. The brand is now sold in 30 company-owned and franchised stores—mostly in Europe— and in more than 7,000 wholesale points of sale globally. Its sole U.S. store for the moment is located at 273 Lafayette Street in SoHo in New York. Saks Fifth Avenue is the biggest U.S. wholesale account. A Toronto store opened last month, which is the fourth unit in Canada.
“Scotch & Soda has a unique way of putting a twist on everyday wear that really sets it apart,” says Kramer, who first became familiar with the brand when he visited the New York store. “We want to make it the next iconic brand in America.”
Despite Kramer’s enthusiasm for the product, the brand has not taken off in the U.S. since it launched here a few years ago. Kramer hopes that will change as more consumers become aware of the label and Kellwood opens more stores here. The company is planning a Los Angeles store for the first quarter of 2012. Kramer sees the potential to open up to 300 stores in the U.S. and 300 overseas, if all goes according to plan. “Great real estate will dictate how many stores we open and when,” he notes.
E-commerce will also be a focus for Scotch & Soda. The current site carries only a small percentage of the available collection, and there can be long delays in fulfilling orders. Kellwood plans to bring its logistics and e-commerce abilities to improve the site and deliveries.
Within Kellwood, core functions —including sourcing, distribution, marketing and e-commerce—are centralized, while each brand retains independent and separate creative teams. Back-office functions—like IT, finance, human resources and legal— are also leveraged across the company, which allows each brand to focus on the design, creative and branding aspects of their individual businesses.
At Vince, men’s accounts for 30 percent of sales, which will total just under $200 million this year. “Men’s has been phenomenal, and we have doubled the size of our men’s business each year for the past three years,” says Kramer.
Vince, which was known as a knitwear brand, launched denim last year, and it’s become a key category for the business, doing almost $20 million in sales the first year. The brand operates 18 stores, with two more opening this year, including a Madison Avenue flagship before the holidays and an outlet in Cabazon, Calif. Owned retail accounts for about 20 percent of Vince’s sales, and wholesale is 80 percent. Key retail partners include Nordstrom, Neiman Marcus, Saks Fifth Avenue and Barneys New York.
Vince has built its business solely on apparel and is set to launch licensed women’s shoes in the spring and handbags, which are being done in-house, next summer or fall. Men’s shoes and leather goods are slated to launch next fall as well. Kramer is looking into the possibility of opening men’s-only stores for Vince next year, likely in the Meatpacking District or SoHo in New York.
BLK DNM, which is designed by industry veteran J. Lindeberg, was launched in February 2011 as an e-commerce business, with plans to make it a 50 percent men’s business. It opened a temporary shop at 237 Lafayette Street this summer and a store in Stockholm this month.
At the Adam brand, the company is eliminating the men’s sportswear component in order to concentrate on the men’s underwear business. Men’s sportswear, which is only in the Adam store in New York for this fall before going on hiatus, will return once the company better develops the women’s sportswear business. “We are retrenching and decided to focus on the men’s underwear because it has quite a following and I think it’s the best out there,” explains Kramer. “We want to reignite that interest in the men’s basics business.”
Kellwood acquired Adam in August 2010 from the brand’s founder, Adam Lippes, and The Atelier Fund, which owned a 49 percent stake in the company. Lippes stayed on board to oversee the line.
Kramer’s strategy has been to keep each acquired company’s management and creative teams in place while leveraging Kellwood’s back-office infrastructure to improve performance in areas like supply chain, e-commerce and marketing. While his background is in finance, Kramer’s had the opportunity to work with some of the best marketers in the business world. Prior to his three years as executive vice-president and cfo at Abercrombie and Fitch, Kramer was cfo of the Apple Retail division of Apple Computer Inc. for four years. Earlier in his career he held finance positions at Gateway, the Lane Bryant division of Limited Brands Inc., Einstein Noah Bagel Corp. and the Pizza Hut division of PepsiCo.
Kramer was born in Hugoton, Kan., to a father who was a rancher and a mother who was a homemaker. He studied accounting at Kansas State University. “My family was well-to-do, but I always wanted more out of life. My high school graduating class had 62 people in it,” remembers Kramer, who credits his experience working at The Limited for his interest in the fashion world. “I fell in love with my work there. Sometimes I sit back with friends who are successful at an oil company and I think, How do you get excited talking about oil?”
Kramer is married with a 16-year- old son and a 12-year-old daughter. His family is based in St. Louis, where Kellwood is headquartered, but Kramer spends half of his time in New York or L.A., shuttling back and forth to St. Louis on American Airlines.
Some of that travel involves meeting with still more potential acquisitions in the contemporary, denim and accessories spaces. “We talk to brands all the time. We probably get through the dating phase with 10 percent of them, and then actually get married with 2 percent of them,” says Kramer.
Much-publicized talks earlier this year with Catherine Malandrino have ended, he notes, but Kellwood remains interested in the Gryphon brand. “We’re dating seriously,” says Kramer—who this year, at least, has been able to seal the deal regularly.