FOOTWEAR FIRMS RETHINK DENIM
Byline: Melanie Kletter
NEW YORK — A few footwear companies made a big entrance into the denim arena last year, lured by the prospect of extending their brand name and gaining additional sales through a new category.
How things can change in a year.
Two junior-oriented footwear firms — Candie’s Inc. and Steve Madden Ltd. — have both backed out of the wholesale denim category. Madden has completely exited denim and terminated its licensing arrangement with Jordache Enterprises Ltd., and Candie’s announced last week that it will stop distributing its Candie’s denim line in order to pursue an exclusive deal for apparel and jeanswear with teen retailer Gadzooks.
Neither would specifically state that denim was a weak category. However, Candie’s executives said the firm wants to zero in on its core business, which is footwear, and Madden executives said the company’s partnership with Jordache Enterprises was the wrong fit and that the style direction wasn’t right.
“We wanted to focus our energies on shoes,” said Neil Cole, Candie’s chairman and chief executive officer. “The partnership allows us to begin implementing a successful apparel strategy for the Candie’s brand without the additional resources required to operate Candie’s jeanswear through our apparel joint venture.”
Interestingly, both Steve Madden and Candie’s, both publicly held companies, have also faced significant financial and legal troubles in the last year, which has hurt their stock and their reputation in the industry and may have contributed to their decision to bow out of denim distribution.
Company founder and chief designer Steve Madden, as reported, was arrested in June on securities fraud and indicted in two separate criminal cases. Madden stepped down as chairman, but remains ceo of the firm. Attorneys are now preparing for trial on the federal criminal cases. The SEC matter is on hold until after the criminal cases are completed.
Meanwhile, Candie’s stock was suspended from the Nasdaq in May 1999 because the company failed to provide required financial information. The suspension came shortly after Candie’s first disclosed that some documents given to accounting firm Ernst & Young may not have been genuine. That situation prompted several shareholder lawsuits that were later consolidated and settled.
The firm has been seeing dismal financial results in the last year due to declines in revenue and has faced other financial problems due its promotional pricing to clear excess inventory, however, Candie’s recently reported that it turned a profit. In the first quarter ended April 30, sales gained 15 percent and profits were $465,000, compared to a loss of $1.2 million last year.
The news from Candie’s may come as somewhat of a surprise since the trendy, junior firm has been working steadily to build its denim business. The company acquired Bongo Jeans in 1998, and used Bongo’s market position to launch its own denim line last fall, which was produced in partnership with Azteca Production, a Los Angeles-based firm that has production facilities in Mexico.
The line had been distributed in about 400 doors, including department store chains such as Federated and May Co. as well as smaller specialty chains, and wholesale volume for the year was about $6 million, according to Cole. He noted that Candie’s will still wholesale the Bongo jeans line, also produced by Azteca, which has “had great retail success” and has so far seen its sales rise about 60 percent over last year.
Under the terms of the new partnership, Dallas-based Gadzooks will work with Candie’s to develop, design and facilitate production of Candie’s apparel, and will be the only retailer to sell Candie’s apparel and denim, in addition to Candie’s own chain of eight stores.
In a phone interview, Cole said the deal is only for a year, and is somewhat of a transitional relationship.
“We will see how it goes,” he said. “This gives us a chance to eventually find the right partners while we work with someone who understands the brand.”
The new product will carry price points of between $36 and $48, and will be “very junior oriented, with sexy looks,” according to Margaret Barr, vice president of brand management at Candie’s. The line include a much wider assortment of product, including T-shirts as well as bathing suits, although initial offerings will focus on denim, knit tops and sweaters.
The product will be available in Gadzooks starting in mid-October. Gadzooks, which operates about 330 stores, has focused on building up its branded business in recent years, and will still sell other teen brands such as DKNY Jeans and Guess as well as denim brands including Paris Blues and Mudd, according to Paula Masters, senior vice president of merchandising at Gadzooks.
“We continue to refine our national and teen brand name product assortments, and Candie’s will compliment and strengthen our junior apparel offerings,” she said.
Masters said the Candie’s brand won’t receive special attention and will be housed in the stores alongside its other teen brands.
Although Candie’s is getting exclusive with its denim and apparel line, the firm is still wholesaling other categories such as fragrance, sunglasses and handbags, all of which are produced under license.
Steve Madden, which had initially rolled out its denim line to about 750 doors, only shipped its denim line last fall and holiday.
Corrine Moroney, director of licensing at Madden, said the company’s denim problems stemmed from both a problem with the styling and having the wrong partner. Its denim line retailed for about $40 to $50 and was sold primarily in department stores as well as in some specialty stores.
According to Ralph Nakash, executive vice president at Jordache Ltd., the Madden line was very demanding and required a significant amount of attention. Jordache, which also produces denim lines for Fubu, Gasoline and others, “couldn’t handle the collection,” Nakash said.
Moroney said the firm stills sees a lot of interest in a Madden denim line, and is interested in re-entering the category with new offerings.
“We are evaluating a number of different partnerships right now,” Moroney said. “We are very cautious in picking out the right partner.”
She declined to give a target start date for the line, saying only that “we will move forward with it when the partnership is right and the product is right.”
Although denim has not been a key classification, Madden has moved more aggressively into apparel lately, including the introduction of leather sportswear and outerwear produced under license by Soho Fashion. Madden has a number of other licensed categories, including eyewear, hosiery, jewelry and handbags, and also operates retail units.