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NEW YORK — The Jones Group Inc. is streamlining operations to improve the company’s profitability.
Chief among them is the closing of about 170 underperforming stores, which will result in a reduction of the domestic retail staff by about 18 percent, or about 750 people. In addition, the company plans to trim several wholesale divisions and the supply chain, resulting in the elimination of about 2 percent of the workforce, or 100 people.
“Given the impact it will have on our associates, our decision to streamline operations was difficult. However, we believe these actions will position the company for maximum operating leverage and improved profitability as our businesses recover and grow,” said Wesley R. Card, chief executive officer of Jones. Card said termination notifications began this month and will continue through the first half of 2014.
As reported, activist investor Barington Capital Group has taken a little over 2 percent stake in Jones and has been pushing for it to sell off some smaller brands and tighten up operations. Card said Wednesday’s actions had nothing to do with Barington’s recommendations. “I’ve been working on this for months. I started on this in December and laid the groundwork for this. We confirmed we met with them and listened to them, as we do with all shareholders,” said Card.
Barington officials weren’t available for comment.
As Jones continues its turnaround efforts, both the domestic retail division and the wholesale sportswear division remain challenged. In 2012 domestic retail generated $585 million in revenues, down from $631 million a year ago. The domestic wholesale sportswear division accounted for $782 million, down from $892 million a year ago.
Card noted that the 170 store closings include the 50 that were revealed in the fourth quarter of 2012. He said that once the stores are shuttered by mid-2014, it will result in a smaller and more productive chain of domestic units, with outlet stores accounting for a substantially higher percentage of the overall retail portfolio.
After the closings, he said, Jones Group will end up with 425 stores, including 45 Stuart Weitzman, Brian Atwood and Kurt Geiger units. Of the 425 remaining, 330 will be outlets for such labels as Jones New York, Nine West and Easy Spirit.
“Outlets have been a good, solid part of the business, particularly when we get Jones New York product back on track. That will be a good contributor profit-wise,” said Card.
Last fall the company experimented with several new Nine West concepts, such as Nine West’s Vintage America Collection boutique, which opened in Manhattan’s SoHo area, and there were plans to roll out the concept worldwide. That concept isn’t going forward, although the Vintage America label will remain. The World According to Pumps store, which opened on Lexington Avenue, will keep its wall of pumps, but as a concept it’s not being rolled out.
“What we’ll end up with is a chain of Nine West stores that really showcase the brand and help overall with brand management. There will be more of the traditional Nine West stores. We experimented with some of those, but we believe if we have really polished, great Nine West stores in every major city, we can support the Nine West brand image better that way,” said Card.
Furthermore, Jones plans to streamline the wholesale operation, including consolidating certain production, design and selling divisions, as well as distribution and supply chain facilities. Card said Jones plans to consolidate the design functions so it becomes “more brand-centric and doesn’t include separate design teams for every component of the line.” Rather than operate in silos, which he said is not as efficient, they will try to work across the company to get more consistent color palettes and styling so the collections work better together on the selling floor. He called George Sharp, executive vice president of design at Jones, “an outstanding talent.”
Card said he seeks to reduce some of the overlap and redundancies that the previous structure created over the years. This streamlining will also filter into production and some of the other support groups that service the wholesale business.
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Looking toward the second half of the year, Card said, “In terms of sportswear, the business right now is not good overall, us included. We had some branding issues and product issues. We dialed up the fashion quotient on the Jones line too aggressively, but overall, the product is right back to the DNA of the brand, the pricing has been adjusted and the styling is great. There’s less fashion, more basics. We honed the fashion this spring.” He said the company feels confident that it will have an improved performance this fall. “We’re really right on track,” said Card.
According to Card, these cost-cutting moves are expected to generate some $40 million in annualized pretax savings and reduction of operating losses by mid-2014, with the benefit to fiscal 2013 expected to total about $11 million. Savings will be generated through the reduction of the workforce, as well as other selling, general and administrative expenses reflecting Jones’ smaller U.S. retail footprint and more streamlined operations. The company said it will incur costs of about $40 million to $60 million over the next 15 months to achieve the plan. Those costs include severance, store closures and noncash asset write-downs of about $6 million.
Janet J. Kloppenburg, an analyst with JJK Research, said about Wednesday’s actions, “I would characterize it as a first step. The Jones retail business has been underperforming and disappointing for quite some time. I think the business clearly needed to be restructured, and I think 170 stores is probably the beginning. After a review, there will be an additional loss of stores. They have to rethink the size of their stores. Their signature business continues to be very troubled. For the fall season, they lowered prices and they’ve returned to more traditional styling. It should be a positive for the Jones brand.”
As far as selling off any of the businesses, she said they may have to sell off a brand or two. “They have to look at the return of each of their business segments and try to build up the productivity and the profitability. It’s been a long time,” said Kloppenburg.
Joe Gromek, former president and ceo of Warnaco Group Inc., which Barington also had invested in, said, “I think that Jones and Wes Card are doing all the right things. Moving away from unprofitable stores makes sense. At Warnaco, we underwent a portfolio review of all the brands… and we sold or closed half a dozen different brands. When Barington came calling, we acted a little quicker. For us a big difference was a portfolio review. For us, it was focusing on Calvin Klein.” He said for Jones, they are becoming more of a footwear company and have some good brands such as Nine West, Stuart Weitzman and Kurt Geiger.
Jones plans to release first-quarter earnings on May 1. It expects to report 2013 first-quarter adjusted earnings per share of about 15 cents, below the 26 cents analysts estimated, compared with 2012 first-quarter adjusted EPS of 31 cents. Included in the results will be charges of about 5 cents a share related to changes in foreign currency exchange.
The company expects to report 2014 first-quarter adjusted and generally accepted accounting principle revenues of about $1 billion, versus 2012 first-quarter adjusted and GAAP revenues of $936 million.
“First-quarter revenues were in line with our expectations, with the exception of our sportswear business and retail channel, which remained challenged and highly promotional. This resulted in a higher than anticipated level of markdowns during the quarter for our wholesale customers and deeper promotions required in our own retail doors,” explained Card.
Asked if he’s considering selling some of the Jones divisions, Card said, “We’ve said many times that we consider divesting noncore brands or nonstrategic brands under the right circumstances. We don’t comment beyond that. We don’t comment on merger and acquisition activity. It’s too disruptive.
“Our shareholders are pleased that we’re taking more aggressive action on retail, and taking some costs out of wholesale, and it demonstrates we’re committed to improving profitability and enhancing cash flow,” he said.