ANALYSTS: MORE BANG IN BIG-BRAND ADS
Byline: Thomas J. Ryan
NEW YORK — A barrage of advertising will substantially widen the gap between first- and second-tier apparel players in 1998, according to Wall Street analysts.
The limelight is expected to shine most brightly on Polo Ralph Lauren, Tommy Hilfiger Corp. and Nautica Enterprises — all benefiting from the exposure created by launches of new licenses, continued expansion at hot existing licenses, and internal expansion of in-store shops and stores.
Donna Karan International is also projected to get a huge marketing boost from a bevy of licenses signed over the last year, which should aid in the revitalization of its in-house business.
The largest players — Liz Claiborne, Jones Apparel Group, VF Corp., Warnaco Group, Levi Strauss and Fruit of the Loom — are initiating aggressive ad campaigns that should give each an even fatter share of the market.
All this spells trouble for second-tier brands that are struggling to hold on to real estate on the department store floor.
Lorraine Miller, at Robinson Humphrey Co., based in Atlanta, noted that many firms are channeling cost savings from moves such as using Mexican contractors directly into support for their brands.
“There’s definitely a trend in the industry where advertising is a necessary cost of doing business,” said Miller. “In some instances, there’s a part of it that’s defensive in nature, but those companies that can afford it are taking an offensive stance.”
She also said firms are seeing that the advertisement is clicking with today’s time-pressed consumer.
“Shopping is not the entertainment exercise that it used to be. Consumers are time-crunched and they’re sticking with brands that have been able to build a certain level of trust,” Miller said.
Alison Malkin, at SBC Warburg Dillon Read, concurred, and added marketing campaigns, such as Hilfiger’s yellow blimp, are likely to swing the consumers’ discretionary dollars even more to these brands.
“There are other areas consumers can spend their monies such as on the home or vacations, but as these ads become more noticeable, the consumer might think ‘Maybe I need more apparel’,” Malkin said.
“Advertising adds costs, but it has big benefits. The payback is higher revenues,” Malkin said.
As expected, the major players led the pack in the first quarter. Earnings for a group of 25 manufacturers rose 10.5 percent on a 6.5 percent sales gain. (See chart, facing page.)
Wall Street generally expects a good economic scenario — low interest rates, low unemployment and high consumer confidence — to provide a chance for decent gains for all apparel manufacturers. But the heftiest gains are projected for the bigger branded players.
The field, though, is still open for some smaller companies, noted Laurence Leeds Jr., at Buckingham Research.
He pointed, for example, to Bernard Chaus, which he said appears to be benefiting from efforts over the last several years to spruce up its core Chaus lines.
Leeds also said Quiksilver “is becoming a more dominant player” in the young men’s market as well as with juniors with its Roxy brand. Strength among teen chains has also bolstered Quiksilver, along with some newer branded resources, such as Fubu, Lucky Brand, Dollhouse and Enyce.
Many analysts expect Columbia Sportswear and The North Face to transform their dominant positions in the active outdoor market into rapid expansion into sportswear and footwear. Some see good progress for Tarrant Apparel Group, which has carved out a niche as a low-cost provider of such basics as private-label jeans and khakis to retailers.
However, Leeds said the major branded companies will continue to lead the pack.
“They have the financial resources, the designer-name franchise, the economies of scale, the management depth and the relationships with the retailer that gives them a unique position of strength,” observed Leeds. “And the last 40 years of Darwinian slugfest competition have reduced the number of significant players to a precious few.”
Most analysts continued to be enamored with Tommy Hilfiger (even though its stock had a rocky week last week), Polo Ralph Lauren and Nautica, noting the multitude of ways these designer firms can grow through wholesale, retail and licensing.
“Licensing is a bonanza for these designer companies, particularly if they’re at the top,” said Brenda Gall at Merrill Lynch.
She said having a powerful designer gains entry to premier licensing partners, such as Lauren and Ralph lines with Jones Apparel Group, Tommy fragrance with Estee lauder and DKNY jeans with Liz Claiborne.
For 1998, hot lines should lead to big gains for Jones, with the Lauren lines; Tommy Hilfiger, with Tommy Jeans and women’s apparel, and Warnaco, with Calvin Klein underwear and jeanswear and Chaps by Ralph Lauren. Consensus analysts’ estimates for earnings at Jones this year are at $2.83 a share against $2.26 in 1997; Warnaco Group, $2.30 against $1.87, and Hilfiger, $3.70 against $2.99.
Nautica Enterprises is expected to reach $1.62 a share, against $1.35; Polo, $1.40 against $1.20, and Karan, 30 cents a share against a loss of $3.78. Claiborne’s earnings should climb to $3 a share from $2.63, and VF’s, $3 from $2.70.
Focusing on the moderate and mass markets with a variety of brands, Kellwood Co. is also in favor, with estimates for the year ending April 30, 1999, at $2.90 a share, against $2.30.