There’s no question contemporary brands are hot commodities these days. Firms such as Kellwood Co., The Jones Group Inc., VF Corp. and Andrew Rosen of Theory have made several investments in the contemporary area, in an effort to help these brands expand their retail network and navigate international business, as well as assist them with sourcing and back-end operations.
This story first appeared in the July 6, 2011 issue of WWD. Subscribe Today.
Kellwood views the contemporary sector as a primary acquisition target, having purchased Vince, Rebecca Taylor and Adam in recent years, and is reportedly in talks with Catherine Malandrino about potentially adding the brand to its stable.
“We believe we can help these contemporary brands achieve their vision and in a more happier state,” said Michael Kramer, chief executive officer of Kellwood. “I talk to young designers all the time, [their companies are doing] anywhere from $400,000 in revenue to $200 million. Every one of them says to me, ‘I spend 60 percent of my time on administrative stuff: hiring people, making sure we got cash in the bank to make the payroll; I’m dealing with letters of credit and new manufacturing facilities; there was a tsunami in one country and I’ve got to redivert the manufacturing. These people understand there’s an aspect of that that’s sort of the role, but all of them are overwhelmed by the amount of administration it takes to run a business, and they didn’t sign up for that. They signed up for there to be a creative element,” he said.
Kramer believes it’s a skill to be able to work with creative people. “I don’t think every operator out there can do it. The one thing I learned from those icons was some of the key aspects of brand building, and brand protection, I can consolidate the back end of brands, in terms of sourcing, accounting, but don’t touch the creative element. I have no desire to have my brands in the same building; I love the fact that they talk to each other, but I don’t even encourage that. I want my brands to be separate and distinct, and I want the core DNA aspect of the brands that so attracted us to buy them and put them in my portfolio, I want them to stay,” said Kramer.
He doesn’t view the company as buying or acquiring brands, but rather acquiring the creative talent.
“I just won’t buy a brand for the founder to cash out and go do something else,” said Kramer. “We usually have an earn-out period where the proceeds of their business are paid over three years or five years. I want them long-term.”
Kramer said he’s offering companies the best of both worlds. “They can take some of their personal wealth off the table and still run the company as if it’s their own,” he said.
But what will happen when Kellwood’s parent, Sun Capital Partners Inc., decides it’s time to cash out? “The goal here is to do an IPO,” said Kramer.
Susan Kellogg, president of the Contemporary Brands Coalition at VF, said the group has a very clear matrix and M&A strategy. VF, she said, “really likes buying market leaders and buying the number-one brand in the category.” When VF asked, “Who wins in T-shirts, it was Splendid, and who wins in premium denim, it was Seven For All Mankind,” she said. Splendid and Ella Moss were acquired by VF in 2009. In 2008, both brands had a combined volume of $95 million. Kellogg said Ella Moss-Splendid founder Moise Emquies stayed on for one year, but left a year ago. The creative director has remained with the company. Splendid has four stores and plans to open 11 more by the end of the year. Ella Moss will open its first store in Newport Beach, Calif. this month. “It’s very typical for founders not to have the wherewithal, cash, expertise or infrastructure. While founders have the vision, they don’t have the people, time and resources to do it,” and that is when they typically sell the company, said Kellogg.
Wesley R. Card, ceo of Jones Group, said at a Barclay’s conference earlier this year that the company’s acquisition strategy “has been relatively consistent over the last few years. We’re looking for companies with great talent, great brands, good balance, distribution. We like international; that’s an area where we’re underpenetrated. We have been moving more toward contemporary product and more up into the upper end.” The company has a 50 percent stake in Rachel Roy’s business.
Richard Dickson, president and ceo of Jones’ branded businesses, said at the same conference that one of the company’s goals is to increase the visibility and importance of Rachel Roy herself as a fashion and lifestyle icon. “We have already accelerated the growth of both Rachel Roy the brand and the personality to the point where Rachel Rachel Roy is now a successful impulse brand at Macy’s with jewelry, footwear and handbags, in addition to sportswear. We expect the brand to do almost $40 million in retail at Macy’s this year,” said Dickson.