NEW YORK — Would the legal mess between Jones Apparel Group and Polo Ralph Lauren have happened if Sidney Kimmel were still ceo of Jones? In a word, yes.
Although Kimmel, currently chairman of Jones, has had a close business relationship with Ralph Lauren, Kimmel told WWD he fully supported his company’s move last week to file a $550 million breach of contract lawsuit against Polo and Jackwyn Nemerov, former president of Jones, over the Lauren by Ralph Lauren license.
In addition, Kimmel gave a vote of confidence to his handpicked successor, Peter Boneparth, chief executive officer of Jones, who replaced him in that role in May 2002.
Separately, sources said Jones has been having discussions with Michael Kors honchos Lawrence Stroll and Silas Chou about manufacturing and marketing a better-price women’s sportswear line for Kors. A spokeswoman for the brand said the company never comments on rumors. Anita Britt, executive vice president of finance at Jones, said Friday, “We, as a company, obviously have no comment on any pending deal discussions or acquisitions.”
While some industry observers questioned whether Jones and Polo would be suing each other if Kimmel were still ceo, Kimmel defended Jones’ move.
“The decision to file suit against Polo was made unanimously by the Jones Apparel Group board, and I supported that decision without reservation,” said Kimmel in an exclusive statement. “Moreover, I believe we have the ideal management team to lead the company in this next chapter of its history, as it maximizes the potential of the Jones New York name as a lifestyle brand.”
Kimmel added, “I have the highest level of confidence in Peter Boneparth, who I fully supported to be my successor as ceo of Jones Apparel Group. He has been instrumental in providing leadership to the 15,000 employees of the company and has provided a culture of unity and teamwork across the organization. He is very focused on maintaining a financially strong organization that will continue to evolve in terms of diversification in its portfolio of brands, product competencies and target customers. I am extremely confident that we will continue to build Jones Apparel Group into an even more dynamic powerhouse.”
Boneparth told shareholders at its annual meeting last month that no matter the outcome of the Lauren situation, the company was “always evaluating licensing opportunities.”
Polo officials declined to comment for this story.
Based on the long-standing relationship between Kimmel and Lauren, some observers believe that Polo would never have enforced the “cross-default agreement” on the Lauren license if Kimmel were still in charge. They believe Kimmel wouldn’t have let the relationship get to this point and would have paid more attention to the line before it started slipping and ironed out any differences with Lauren, without having to resort to litigation.
On the other hand, a few executives believe that Polo, in its single-minded quest to get the Lauren license back, made it impossible for Jones to hold onto it, wouldn’t agree to a higher royalty payment and strong-armed Jones into relinquishing it three years early.
Under the cross-default agreement, Polo contends it has the right to end the more lucrative Lauren license at the end of 2003, three years earlier than its official expiration, because of the failure to meet minimums in the Ralph agreement that expires Dec. 31, 2003. Jones had a different interpretation of the agreements and felt it has the right to keep the Lauren license through the end of 2006.
Jones, whose overall volume last year was $4.3 billion, generated $548 million in its Lauren by Ralph Lauren collection in 2002. Ralph by Ralph Lauren fell short of its goals and did $37 million in volume. Polo Jeans does around $400 million to $450 million in volume.
Last year, the $2.3 billion Polo collected $65 million in royalties from its Lauren, Ralph and Polo Jeans licenses with Jones.
In a business where relationships are key, one apparently never developed between Lauren and Boneparth. Sources said that Lauren was irked because Boneparth never called him for a meeting after becoming Jones ceo. When Lauren called to see if something was wrong, Boneparth said he’d been too busy, sources indicated. After that, things got steadily worse. Polo executives reportedly felt Boneparth and Wesley Card, chief operating and financial officer of Jones, were more focused on the financial and operating ends of the business, rather than merchandising the line. Furthermore, sources said, it bothered Lauren when Boneparth would tell Wall Street and the press that the Lauren line was a “mature” business when he thought there was still plenty of growth left. Boneparth said during conference calls this year that Jones doesn’t see Lauren as a “double-digit” growth driver going forward.
“Truly, Jackie [Nemerov] and Sidney [Kimmel] had a very good relationship with Ralph,” said one source close to the company. “They understood the schmooze factor. Peter’s smart as hell. He’s not a warm and engaging personality that will be accepted by the design community. He’s not into kowtowing to the designers. In this industry, that kind of stuff counts. Jackie and Sidney set a culture with a lot of respect and deference to Ralph. For whatever reason, Peter chose not to do that.”
R. Fulton McDonald, president of International Business Development Corp., a consulting firm here, said Jones wouldn’t have lost the license with Kimmel in charge. “He wouldn’t have let something like that slip.”
Todd Slater, an apparel and retail analyst with Lazard, disagrees.
“My impression is that this was a business decision made by the management of Ralph Lauren prior to negotiations,” said Slater.
“In my view, Lauren’s motive is to show growth in a non-growth company,” Slater added. “I would call it a form of financial engineering. On one hand, it will appear that the company is suddenly growing. On the other hand, this move will increase the company’s risk profile.”
“I think it would have happened anyway,” said Andrew Jassin, managing director of Jassin O’Rourke Group, a consulting firm here. “The dynamics of the Ralph relationship have changed so dramatically. From the sidelines, it’s apparent that Ralph is taking back a lot of his brand’s licensees. It puts the company in a completely different position of being a manufacturer again.
“There’s a dynamic going on that wasn’t caused by Peter,” added Jassin. “Peter is doing what seems to be the right thing for Jones. I can’t imagine Sidney’s not involved in all these decisions.”