KELLWOOD OUTLINES TURNAROUND PLAN
Byline: Kristi Ellis
LOS ANGELES — Feeling the squeeze on margins, Kellwood Co., St. Louis, has begun to reengineer its business, implementing strategies to shorten its production pipeline in the ongoing effort to battle retail consolidation.
“We are looking at the whole supply chain from design to replenishment at retail, and we hope to reduce the time in the supply chain,” said Hal J. Upbin, president and chief operating officer, as he outlined his plans to turn around company earnings that have been sliding for two years.
As part of its strategy, Upbin said that Kellwood, which makes primarily moderate-to-better price sportswear, plans to shorten the supply chain by pooling its divisions in terms of production and operating on economies of scale. The company has also invested in the use of outside resources such as Electronic Data Systems, Upbin said.
It’s a strategy that marks a departure for Kellwood, which had focused on aggressively acquiring well-financed, niche-oriented firms, then folding them into its corporate umbrella. The company has acquired 15 firms since 1985 but has slowed down the pace to one large acquisition a year. Kellwood now has 16 major divisions and 40 to 50 subdivisions. Some of the more recognizable names are David Dart, the contemporary resource, and moderate-price resources Sag Harbor, Melrose and Cape Cod/Cricket Lane.
About 80 percent of Kellwood’s divisions manufacture women’s apparel and 20 percent make men’s. The top 10 accounts represent 45 percent of Kellwood’s business.
Company officials blamed its recent losses on a “disappointing late fall and Christmas selling season” and a weak retail environment.
For the third quarter ended Jan. 31, Kellwood posted a 1 percent decrease in sales from $291.4 million a year ago to $288.4 million. The net loss for the quarter was $2.04 million compared with a loss of $2.01 million a year ago.
For the nine months, sales grew 9 percent to $1.05 billion from $968.4 million. Net earnings were down 11.1 percent to $17.6 million from $19.8 million.
For fiscal 1995, Kellwood earnings plunged 68.8 percent to $11.1 million, or 53 cents a share, from $35.6 million, or $1.71.
Sales for the year were up 13.4 percent to $1.4 billion from $1.2 billion.
To improve the bottom line and build brand awareness, Kellwood has now stepped into licensing. It signed a licensing agreement last December with Auspin Bristol to produce handbags under the David Dart label and is looking to license the contemporary sportswear name in other categories like eyewear and watches. Kellwood is also in licensing negotiations with several parties for eyewear, watches and handbags for Sag Harbor, En Chante and Northern Isles. To turn profits around, Kellwood’s goals over the next few years include:
* Increasing overseas sourcing to 60 percent of its total merchandise mix from its current 40 percent.
* Stepping up its branded label mix to 75 percent of sales from the current 73 percent within two years, with the remainder in private label programs.
* Increasing its discount store sales to 20 percent from the current 10 percent.
“We have changed in the past two years on several fronts, including harnessing the efficiency of the back part of the business and marketing the divisions to retailers as a group, mostly for private label,” said Upbin.
John R. Henderson, vice president of merchandising, explained that Kellwood is “trying a cross-pollination, meaning four divisions will work together on one private label program.”
Kellwood will acquire one class of business such as jeans and add wovens, knitwear and dresses to the same program, Henderson said.
As for its acquisition strategy, Kellwood is still buying companies, generally basing its criteria on management and a minimum volume of $100 million. Upbin described the areas of interest as activewear, outerwear and children’s wear.
In addition, Kellwood is interested in making smaller acquisitions to fold into its existing divisions, companies in the $10 million to $20 million range, for example.
But Henderson emphasized that Kellwood plans to remain decentralized. “We are so decentralized and we don’t want to upset the balance,” he said. “The most important thing for Kellwood is to take the horsepower of the 16 divisions and develop additional divisions, such as David Dart’s new dress division and En Chante’s new children’s division,” Upbin said.
“We will survive by giving additional value,” he continued. “We have to provide fashion at a quality level, on time and at a valuable price. If we do these four things, we will be successful.”