As the fashion industry digested the news Wednesday of the bitter legal battle between Polo Ralph Lauren and the Jones Apparel Group, questions abounded about the future strategies of both companies and their retail partners. What is going to happen to all that Lauren by Ralph Lauren real estate in department stores? Can Polo Ralph Lauren quickly ramp up to produce a major better-price sportswear collection to introduce to stores in September, or will Jones try to move into that valuable space with its newly announced Jones New York lifestyle brand?
Meanwhile, Wall Street investors voted with their shares — and gave the edge, for now, to Ralph Lauren. Jones’ stock price fell 64 cents to close Wednesday at $29.61 in trading on the New York Stock Exchange, on a volume of nearly 2.8 million shares. The typical average daily volume is 1.1 million. Polo’s shares, which also trade on the Big Board, rose 83 cents to close at $26.83 on volume of nearly 1.6 million. Its daily volume average is just 372,454.
The credit ratings firm Standard & Poor’s, meanwhile, took a downbeat outlook on both companies in updating the debt ratings of both Jones and Polo.
Jones was put on CreditWatch with negative implications. The firm had about $1 billion in debt outstanding as of April 5. Affected were the “BBB” long-term corporate credit and senior unsecured debt ratings of Jones.
As for Polo, S&P affirmed its “BBB” long-term corporate credit and senior unsecured debt ratings. The outlook was revised to negative. Polo had $340 million in debt outstanding as of Dec. 31, 2002.
Susan Ding, analyst at S&P, wrote Wednesday that the outlook revision on Polo reflected concern that Polo will be “challenged in its ability to execute a spring line in the relatively brief time period. Furthermore, the Lauren line is a different business from Polo’s traditional women’s lines, and the company will require incremental infrastructure investments as well as additional expenses to create a comprehensive new product line.”
A key question facing both companies — and the retailers they deal with — is who is going to get all that valuable square footage in department stores taken up now by the Lauren line. According to an industry source, under the licensing contract, Polo owns the Lauren by Ralph Lauren samples, sketches and patterns, which Jones will need to transfer to the Polo organization. Jones said Tuesday it will develop a Jones New York lifestyle line for the better area that will be priced less than Lauren’s collection, but sources believe it is unlikely that stores would be willing to give up the valuable Lauren by Ralph Lauren collection and its real estate so fast.