MCNAUGHTON: NEW DIRECTIONS
Byline: Anne D’Innocenzio
NEW YORK — Norton McNaughton Inc. is working on a cure for what its chairman and chief executive officer calls its “first major hiccup.”
After seeing its profit margins erode for two quarters — a shocking development for a company that had been on a virtually uninterrupted climb since its appearance in 1981 — the moderate sportswear powerhouse has been taking steps to once again get back on the path of solid growth.
The company, which is publicly owned, cut overhead by 10 percent in January and, as reported, plans to close its fledgling Kate McNaughton suit division by June. That line, company officials said, just couldn’t compete with the flood of private label merchandise in the market.
Norton McNaughton is also in the midst of restructuring its Danielle Paige casual division, which was launched for fall ’95, seeking to make it more fashion forward.
Having long appealed to the over-40 customer, the company is now reaching out for women in their early 30s. It is updating the fashions in the core Norton McNaughton sportswear line with such items as zip-front knit vests, animal print blouses and 21-inch skirts, scrapping the 23-inch hemline. In addition, the company has stepped up its career merchandise after getting burned last fall for offering too much casual wear.
The new merchandising strategy, which began with the current spring season, will be in full swing for fall. Although Norton McNaughton said it expected increased markdowns as well as lower earnings in the second quarter it feels that its new direction will produce stronger earnings in the second half of this year and gains for the second quarter of 1997.
Some Wall Street analysts and retail executives have been applauding the changes.
“I think the company has made significant progress, and I certainly feel the worst is behind them,” said Marie J. de Lucia, a senior director at Rodman & Renshaw. “The company has gotten more disciplined and cut back on overhead. The Norton Studio is a home run because of its universal appeal, and the prices are sharp.”
On Monday, as reported, Rodman & Renshaw raised Norton McNaughton from “neutral” to “buy.”
Kathy Bufano, general merchandise manager for sportswear and ready-to-wear at Macy’s East — one of the company’s biggest accounts — noted that she has seen signs of improvement so far for spring.
“I am positive about the company,” she said. “The line is doing much better for spring. Their fall and transitional period was very difficult. The company had split shipments and they overdid on the wool. It just kind of sat there.”
The knit line, she said, is another positive.
“Knits have been happening,” she said, “but it hasn’t been addressed in the moderate market.”
“Norton McNaughton got a little lazy on the product this past fall, and they were just kind of slogging along in the moderate zone,” said Tony Buccina, senior vice president and general merchandise manager of ready-to-wear at Carson Pirie Scott, a key account of Norton McNaughton’s. “But they took some bold steps to update and fine-tune their product, and they are doing well for spring,” he continued.
Buccina noted that for the fall season, the company should do even better. “They have some great wool fashions and some really good styling,” he said. “I believe they will be able to improve margins, turnover and volume compared to last fall.”
“The retail environment was very promotional, and we also just didn’t have exciting merchandise, but we are ready for a comeback,” said Norty Sperling, president, during an interview in the company showroom at 1407 Broadway. Dragged by heavy markdowns and lower margins, the company — which is traded on NASDAQ — lost $280,000 in the first quarter ended Feb. 3, as reported in these columns on Monday. The loss, which came in at three cents a share, was slightly worse than average Wall Street estimates of a two-cent loss.
Sales in the quarter climbed 22.7 percent to $42.4 million from $34.6 million. Gross margins sank to 23.1 percent of sales from 27.9 percent.
In last year’s fourth quarter, ended Nov. 4, profits were down 37.4 percent to $2.2 million, or 28 cents a share, from $3.6 million, or 45 cents, a year earlier. Sales, however, grew 46.8 percent to $82.5 million from $56.2 million. Gross margins as a percentage of sales shrank to 19.6 percent from 25.3 percent. For 1995, profits rose 5.2 percent to $9.7 million, or $1.20, from $9.2 million, or $1.28, before a special charge a year earlier.
Such a lackluster performance marks a departure for Norton McNaughton, which had encountered hardly any difficult times since it was founded.
“This has been our first major hiccup,” said Sanford Greenberg, chairman and chief executive officer.
While Greenberg put some of the blame for the company’s eroding profit margins on the sluggish moderate zone, he admitted that more of the company’s problems were internal.
For one, he pointed out that the sportswear firm has experienced some “growing pains,” having opened six divisions in 2 1/2 years. They are Pan-her, its private label line for May Department Stores; Lauren Alexandra, its private label line for Federated Department Stores; Modiano, which markets sportswear to such mass chains as Sears, Roebuck; Kate McNaughton; more recently Norton Studio, its knitwear line, and Danielle Paige.
But the biggest blunder, Greenberg noted, was the company’s failure to respond to the changing dynamics of the moderate sportswear zone. With the closing of competitor SK by Jennifer Tierney last fall and the upgrading of Chaus to the low-better area, Norton McNaughton was left alone in the mid-priced moderate zone.
It found itself having problems competing with traditional resources like Sag Harbor, which was serving up similar fashions at lower prices.
“School teachers and clerical people weren’t going to pay $85 for a jacket from Norton McNaughton when they saw plenty of $59 and $49 jackets from other resources,” said Greenberg. Greenberg also said shipments for fall and spring ’95 selling “were atrocious,” given that the company was in the midst of adopting such new technology as Electronic Data Interchange. That problem, he said, has been corrected, and stores are getting the goods three weeks earlier for the current spring season than they did a year ago.
Sperling said he is eager to capitalize on what he called a renewed excitement at department stores, spurred by new players in the better and low-bridge zones. Powerhouse men’s wear brands Tommy Hilfiger and Nautica are now entering the women’s sportswear scene, and Ralph Lauren is approaching the launch of a less-expensive, better-priced line called Lauren by Ralph Lauren. All three lines will hit stores for fall.
“All of that drove us to push to another level,” said Sperling. “With all this excitement in better and bridge, I felt that the consumer in moderate was going to demand better-looking fashion. I said to myself, ‘It is going that way. The direction is calling us.’ “
As part of its strategy to make over its core Norton McNaughton sportswear line, the company dumped such fabrics as polyester rayon gabardine and crinkled polyester rayon and instead opted for wool crepe and tricotine. It also spruced up its jackets, which had been limited to one-button designs, and is now offering four- or six-button boyfriend jackets, Sperling said.
Some of the merchandise for fall delivery includes wing collar piquA shirts; pinstriped jumpers with matching jackets; cardigans with fake fur trims; striped polo-style shirts; cotton acrylic red vests, and animal print rayon faille blouses.
Despite the fashion injection, Greenberg pointed out that Norton McNaughton was able to reduce its average wholesale price to $38 for spring selling from $48 from the year-ago period because of increased international sourcing. The company, which has stepped up its overseas sourcing to 30 percent from 10 percent, has expanded its production network to China, Hong Kong and Turkey.
Danielle Paige, is being reworked for fall, although its makeover won’t be completed until spring 1997. The line, which is expected to generate $10 million to $12 million in sales in its first year, was initially intended to market basic denim and twill fashions.
“As we were changing the core Norton McNaughton sportswear lines, we realized we had to update Danielle Paige, as well,” said Sperling. “The line was just too basic.”
For fall, it includes denim jackets, corduroy slim pants and zip-front denim dresses. It wholesales from $12.50 to $24.
Norton Studio, which was also launched for spring, has generated strong retail response, company officials said. The line is in about 400 doors and is expected to be in 700 by the end of the year, Sperling said.
For fall, the line includes navy striped cardigans, sweater dresses and pants. The wholesale price ranges from $15 to $20.