HOLIDAY HOPE, BUT NO SPRING PICNIC
Byline: Karyn Monget
NEW YORK — The Warnaco factor hangs heavy over the innerwear sector heading into the new year.
Following the lingerie and foundations giant’s bankruptcy in June, the abrupt exit of its chief executive officer Linda Wachner last month and the pending breakup of at least six of its divisions, executives are pondering whether The Warnaco Group’s woes are insular or symbolic of what’s to come.
The issues to be resolved for Warnaco — will it be sold piecemeal or as an entire entity, who will end up buying the Calvin Klein Underwear and licensed Jeanswear businesses, along with the fate of its stable of foundations brands, including Olga, Warner’s, Lejaby and Bodyslimmers — will have a major impact on the segment as a whole.
As reported, the leading suitors include VF Corp., Phillips-Van Heusen Corp., and even Berkshire Hathaway ceo Warren Buffett, who made an $835 million play for bankrupt Fruit of the Loom last month.
Combine this uncertainty with the aftermath of Sept. 11, which resulted in sagging consumer confidence in a recessionary economy full of major layoffs nationwide, and most innerwear had little reason to rejoice. With anxiety high and the economy foundering, many foresee that smaller, independent operations or firms already feeling a financial squeeze may fall victim to more consolidations and bankruptcies early next year.
On a positive note, retail sales of intimate apparel, particularly “comfortwear” items such as sleepwear, robes, at-homewear and spa-inspired products could bear the brunt of a sluggish holiday selling season. The lure of sexy lingerie as gift-giving items, especially during a sour economy, also is expected to give business a lift.
Despite the gloomy outlook, executives are convinced there are a few highlights:
Open-to-buy dollars are still available for best-selling brands and key items and classifications.
Companies are implementing cost-cutting measures, but some are aggressively considering acquisitions.
Sourcing in the global community may be shaky, especially in the Mideast, but U.S. firms are not shy about expanding sourcing networks in established areas and pioneering new territories. Some are even eyeing domestic production again as an option.
Advertising and marketing are paramount for exposure of new products at a number of companies.
Whatever the case, innerwear — which rang up sales of $4.02 billion the first half of 2001 and more than $12 billion in 2000, according to The NPD Group — typically is considered to be a Teflon business during tough times. But it is expected to take a few dents from deflation within the category.
Charles C. Nesbit, chairman and ceo of Sara Lee Intimate Apparel, said: “The first quarter depends a lot on the holiday season. If consumer spending rebounds at Christmas, I anticipate the first half should show some growth. If not, the first quarter will be flat to down for the total intimates business.”
Nesbit said he was “optimistic about Sara Lee’s business, as we have some powerful introductions in the spring and some strong momentum behind most of our brands.
“In the second quarter, I expect to see some of the positive impacts of the interest rate cuts by the Fed to begin flowing through to higher consumer spending,” he said.
Regarding advertising and marketing, Nesbit said 2002, “is an investment year for Sara Lee Corp.”
“This translates to substantial increases in marketing and advertising for most business,” he said. “In the spring, we will continue to support our major brands with TV and print media. Strong marketing programs are lined up to support each of our major spring launches.”
“Intimates is viewed as a growth business for Sara Lee and our business plan for 2002 assumes we will continue to grow sales volume and market share. Investment in marketing and advertising, as well as new product technology, will drive this growth.”
Eric Wiseman, vice president of VF’s Global Intimate Apparel Coalition, said he anticipates “a slow first half and a continuation of that trend in the second half.”
“It is more difficult today to predict the next six months than any other time in my career,” Wiseman said. “There’s more economic slowdown with deflation increasing in our product category. What makes this recession difficult is the combination of deflation in apparel and really low interest rates. It makes us far more conscious of the situation when you combine this with all of the political uncertainty.”
Wiseman said his unit does have plans for consolidation, including combining supply chain, information and technology functions at its Bestform Co. and Vanity Fair Co. divisions.
“Vanity Fair is much more sophisticated and this will make Bestform a better company,” he explained. “By combining systems and processes, we’ll look at our products, and they will become one intimate apparel entity.”
Wiseman said the integration will take place early next year, noting: “It will not affect sales, marketing or product development at Bestform,” which is based in Manhattan. However, he said, “we also are working on how we can transfer the knowledge of Bestform people to Atlanta or transfer them physically. The question is, are people willing to relocate?”
The Vanity Fair Intimates Coalition is headquartered in Alpharetta, Ga.
Tom Ward, ceo of Maidenform Worldwide, said: “The first half will be planned very closely to the vest. Inventory at the manufacturing and retailing levels will be tightly monitored. Retail sales on common-base businesses will most likely be flat. As always, though, there will be open-to-buy for strong brands, great product designs and value-added products that meet consumer demand.”
Richard Murray, president of Wacoal America, the U.S. unit of apparel giant Wacoal Japan, said: “We are looking at a first half that will be flat to down. But we are still looking at a 5 to 6 percent growth increase for the year. Surprisingly, business for us was up 6 to 7 percent, despite the Sept. 11 issue.
“Next year, we will be focusing on advertising the quality, value and fit of Wacoal products, as well as fit seminars. Our ad budget in 2002 will be up 10 to 12 percent. Without advertising, we can’t fulfill all of these goals and accomplish market control.”
Retailers will increasingly feel the impact of major layoffs in the [apparel] industries during the third and fourth quarters of 2001, said Michael Fitzgerald, chairman and ceo of Delta Galil USA. He said: “Innerwear at retail will be lucky to be flat compared with last year, and I believe discounters will out-perform other channels.”
Assessing the global picture, Fitzgerald, whose parent company is Tel Aviv-based Delta Galil, said: “We will be consolidating our production and distribution facilities into fewer geographic sites, which will expand capacity without significant additional capital investment. We also will continue to increase our trend toward more sourcing, especially in Asia where we have an experienced infrastructure.”
Victor Lee, chief operating officer of NAP Inc., said: “Consumer confidence is definitely down, but I doubt whether sleepwear and at-homewear will suffer as much as other apparel industries, especially the luxury industry. NAP’s figures are up in the single digits this year and we remain cautiously optimistic for the first half.”
As for NAP’s sourcing base — the company manufactures in the Mideast, Asia and in the U.S. — Lee said: “We’ll be expanding, doing more production in Bulgaria and Jordan, and exploring more production possibilities in the U.S. We even continue to source in Pakistan.”
David Komar, senior vice president of marketing at Charles Komar & Sons, said: “We are continuing to expand in Europe with Liz Claiborne [sleepwear], private label sleepwear and our new babywear business. This will be facilitated by the advent of the euro and our strategic location in Eastern Europe. We can offer the benefits of proximity, price and design. Domestically, we are continuing to expand through servicing all levels of distribution, which provides greater stability.”
Norman Katz, an industry consultant and 40-year veteran of the innerwear industry, said: “Everybody has resigned themselves that this will not be a better Christmas than last year and that wasn’t great. The big question is how much lower will sales be? If people see there is progress in getting Osama Bin Laden and his terrorists, and the country as a whole realizes we are winning initial battles, it will be a very powerful impetus on the economy. But it’s going to be rough.”
Some executives, such as Kathy Nedorostek, president and chief operating officer of Natori Co., said that next year’s outlook at the Natori firm is stronger than expected.
“We are projecting a very good spring based on our current trend at retail with the stores and the healthy open-to-buy orders that have been placed for three brands: Natori, Josie and Cruz. We continue to be on target with trends that are generating strong sell-throughs at retail,” said Nedorostek. “With this momentum, I do not foresee a softening of any of our labels. But with all that’s been said, we are approaching 2002 inventory and expenses very conservatively.”