WARNACO TO DISTRIBUTE CALVIN KLEIN INTIMATES TO J.C. PENNEY STORES

NEW YORK — J.C. Penney is about to score a major brand: Calvin Klein Underwear.
The move on the part of growth-minded Warnaco Group, which owns the Calvin Klein Underwear business, is expected to shake up the status quo of a number of megabrands currently populating the innerwear departments at major department stores.
Calvin Klein Underwear has perhaps the highest profile of any licensed designer product, and not only generates huge sales volume, but has a cachet that transcends baby boomers and Generation X.
The development comes at a time when department stores are slugging it out for the next big brand and the next key item that will keep them ahead of a pack of powerful competitors, including promotional department stores such as Kohl’s and Mervyn’s and discounters such as Wal-Mart and Kmart.
Penney officials could not be reached Wednesday.
But Linda J. Wachner, chair and chief executive officer of The Warnaco Group, the darling of Wall Street and the doyenne of the intimate apparel field, confirmed reports her premium innerwear brand would be distributed to Penney’s, saying, “Yes, we will be selling Calvin Klein Underwear to Penney’s…Anybody who sells our products in a positive way that has a department store ambience like Penney’s is fine for us. Warner’s and Olga and other brands are in Penney’s, which has done an exemplary job in intimate apparel. It won’t be in all their doors, only department store doors,” said Wachner, in a telephone interview.
She further noted that “They won’t discount, and they’ll adhere to normal sales periods.”
Wachner added that Calvin Klein jeans are not part of the Penney’s deal.
The news that Calvin Klein Underwear is being sold to Penney’s comes at a time when the Calvin Klein business is up for sale and is being scrutinized by a number of suitors. According to sources, the timetable to submit bids to investment firm Lazard Freres, which is exploring the sale of the company, closes within the next week. Reportedly, about half a dozen bids to buy the Calvin Klein business have already come in. All are said to be in the $1 billion range, since it is widely believed the company will be sold only for a premium. Klein’s asking price is reportedly significantly higher than that.
While it couldn’t be learned immediately which companies or groups have made bids, sources said Warnaco is among the more serious contenders.
Other potential candidates include cash-rich Europeans — LVMH, the Gucci/Pinault Printemps Redoute alliance and Prada — as well as Jones Apparel Group, Liz Claiborne, Texas Pacific Group and Dickson Poon, which recently set up Dickson Development NA to make strategic investments. Others have placed their bets on HdP, the Italian designer conglomerate with strong banking ties and numerous fashion licensees, Calvin Klein men’s wear among them.
Although LVMH and PPR are almost automatically implicated in most fashion deals theses days, sources here and in Europe downplayed their level of interest.
Texas Pacific’s desire may also have cooled. One source close to the private U.S. investment fund, which purchased Swiss footwear and fashion firm Bally and had made a bid for Fendi, said Texas Pacific is more interested in “brick and mortar” companies instead of licensing powerhouses like Calvin Klein.
Sources say that Klein himself would definitely want to stay on with the new owners or partners, and that he would only sell the company to someone with whom he was comfortable. Klein has made the point in the past that he won’t sell if the deal isn’t right.
As reported, Klein seeks to dramatically expand the business, which is well represented across a broad array of products ranging from women’s watches, sportswear and coats to home furnishings, men’s wear and handbags. He’s looking to team up with another company to help finance the growth. The company is looking to expand its wholesale business globally, open more freestanding stores around the world and expand the brand to new categories, including activewear, “gold range” sportswear and furniture.
Although the strong-willed Wachner may be in a position to outbid many of her competitors, that doesn’t mean Klein would necessarily agree to a deal with her.
Wachner currently pays a fortune in royalties to Calvin Klein for its jeans and underwear lines, and if Wachner bought the business, she wouldn’t have to pay those fees anymore.
Klein’s licensing income is estimated at more than $200 million, a significant portion of that generated by the jeans and underwear businesses. Losses in Klein’s wholesale and retail businesses offset some of those gains, however, and net profits are estimated at between $75 million and $100 million.
Wachner said that sales of Calvin Klein products for Warnaco in 1999 will easily exceed $1 billion for this year. Last year, Calvin Klein sales for Warnaco reached about $900 million, the bulk of it consisting of $309 million from Calvin Klein Underwear and $457 million from CK Jeans. Sales also include kids, accessories and CK outlet store sales.
Meanwhile, industry observers note that Penney’s has a reputation for surprises.
In 1990, it initiated a major change of policy by selling three national foundations’ brands at its doors for the first time — Warner’s, Maidenform and Jockey underwear for women. The three brands joined Vanity Fair, which broke the intimate apparel ice at Penney’s in 1986. Ironically, Vanity Fair went off on a similar gambit in 1998, when its owner, VF Corp., announced that the department store brand would be sold at Sears, Roebuck. The move rattled a number of department store executives.
Penney’s does a huge underwear business, but more in basic lower brands such as Hanes and Hanes Her Way, as well as private label merchandise under the Delicates name. The chain has been struggling in its women’s departments for several seasons, but the cachet of carrying a Calvin Klein product would most definately be a shot in the arm, and a catalyst for bringing in more upscale brands to the store — and not just in underwear.
In the Eighties, Penney’s developed deals with Halston and Mary McFadden for moderate-priced collections bearing the designer’s label, but the lines were eventually discontinued.
Currently, the chain sells just a few brands, including Dockers, Adidas, Crazy Horse, Joneswear and Evan Picone, but wants to sell more to strengthen its struggling apparel business.
The Calvin Klein name is regarded as the leading designer name in intimates by a number of innerwear manufacturers and retailers, and was the first to initiate the trend of in-store shops for underwear in the 1995, when Warnaco acquired the Calvin Klein brand for women’s innerwear in January 1995. Warnaco bought the Calvin Klein men’s underwear and accessories businesses in late 1994.
According to analysts, the specific product mix that Calvin Klein provides to Penney’s could determine how other retailers react to the deal. Said Alan Mak, an equity analyst at Argus Research, “A backlash could definitely happen. The fear is dilution of the brand by selling to Penney’s. The traditional Penney’s shopper is not the traditional Calvin Klein shopper. So it really depends on Calvin Klein’s part and if the company is able to sell both Penney’s and higher-end stores without alienating their existing customer base. It might be wise to do exclusive items for Penney’s.”
Richard Murray, president of Wacoal America, which produces the licensed Donna Karan Intimates and DKNY Intimates, observed, “Calvin Klein really dominates the designer underwear category at department stores, especially the men’s business.
“I don’t think you’ll see [department store] people saying ‘we’re getting the hell out of the Calvin Klein Underwear business. But a lot of them are probably going to swallow their pride and continue with the [Calvin Klein underwear] line.”

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