In the fall, Kellwood Co. proved it could initiate change. This spring, the $1.9 billion manufacturer will show whether it can deliver on it.
Since Robert C. Skinner Jr., Kellwood’s chairman, president and chief executive officer, took over last year, the St. Louis firm has been undergoing a $225 million restructuring to streamline its moderate business and increase the percentage of higher-end destination brands in its portfolio. That plan made the transition from rhetoric to action over the last few months, and analysts hope the next few months will bring improved earnings.
On Tuesday, the company revealed it was acquiring upscale footwear and apparel brand Hollywould, which follows a move in September to purchase high-end contemporary label Vince.
These niche buys add to an eventful fall on Kellwood’s licensing front. Calvin Klein’s better women’s sportswear was relaunched in the fall to positive reviews. Kellwood effectively upgraded its relationship with Phillips-Van Heusen Corp. in October, trading the moderate Izod for the ck Calvin Klein women’s bridge sportswear in a revised licensing agreement. In September, Kellwood said it would relaunch O Oscar for spring as a better brand in an exclusive agreement with Federated Department Stores.
And last month it launched better-priced dress resource Democracy to capitalize on the dress cycle.
All these moves reflect Skinner’s four-pronged goals: revitalize Kellwood’s core moderate brands, increase the percentage of sales coming from brands in the better and above markets, directly connect to consumers through proprietary retail, e-commerce and marketing, and use the company’s infrastructure to more efficiently fund growth.
“Their goals sound really strategic and long-term,” said Elizabeth Montgomery, analyst for Cowen & Co., “but not necessarily easy to achieve.”
Analysts attribute the positive changes to Skinner, saying they want to see continued progress for the next six months.
“I think Bob Skinner has done a very, very admirable job,” said Brad A. Stephens, an analyst at Morgan Keegan & Co. Inc. “But they are still only 20 percent better-plus. They need to up that quotient. To do that, they need to do acquisitions.”
In September, Kellwood made its first acquisition since it bought Phat Farm in 2004, purchasing CRL Group LLC, which owned Vince, for an undisclosed sum. Analysts liked that the contemporary label was both higher-end and owned — not licensed — by Kellwood, but they differ on how much, and how quickly, the $45 million label can grow.
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“If they can make Vince a decently sized brand of $200 million or $300 million, it could be enough to move a needle,” Montgomery said. “Most people think of it as a tops brand, and, certainly, expanding the bottoms is an opportunity to grow the business. The smaller, independent specialty stores that sell it don’t have a huge selection, and I think they will go after getting more product into specialty stores before they expand in department store distribution. I wouldn’t want to see it in Macy’s right away.” The line is now sold in Bloomingdale’s, Nordstrom and Saks Fifth Avenue.
Marketing, rather than distribution expansion, should be Kellwood’s focus, according to Andrew Jassin, managing director of the Jassin O’Rourke Group, a consulting firm in New York. “I don’t see Vince as a brand they can do anything with other than keep it at the same level,” Jassin said, “so they have to enhance it at the level that it is by keeping the cool factor with very smart promotional and advertising campaigns that connect entertainment media and the brand together.”
There is “no downside” to either the Hollywould or Vince acquisition, but they are too small to change the portfolio in the short run, said Stephens, who added that the correct strategy is slow and steady for these niche brands. “Given the difficulty that Kellwood has had with some of its labels, it might want to grow it too fast — it’s like a new toy for them,” he said. “But when you have these boutiquey-type brands, you need to control the distribution.”
On the licensing front, the consensus is that Calvin Klein looks better, and that spring’s O Oscar relaunch is a high-stakes opportunity for Kellwood to prove itself as a licensee.
“Last time they positioned [O Oscar] wrong; the moderate consumer didn’t want to spend the money, and the better customer doesn’t shop the moderate floor. It comes down to the product, then, this time,” Stephens said. “If they can do O Oscar successfully, people will see them as a viable licensee partner going forward.”