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Kellwood Plays Catch-up With Destination Brands

Kellwood Co.'s DNA is in private label, which is why it's ironic that the surge of retailers' own brands has given the St. Louis firm such a hard time.

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Robert C. Skinner Jr.

Photo By WWD Staff

A Sag Harbor fall ad.

Photo By WWD Staff

Kellwood Co.'s DNA is in private label, which is why it's ironic that the surge of retailers' own brands has given the St. Louis firm such a hard time.

In 1961, 15 suppliers to Sears, Roebuck & Co. merged to form what is today a $2 billion manufacturer. In the early Eighties, Kellwood started making acquisitions, buying Smart Shirts Ltd., which for most of the last two decades has produced competitively priced private label tops, and then buying moderate brand after moderate brand, including Sag Harbor. In the process, Kellwood established the strategy it uses to this day — manufacturing other company's lines via licensing arrangements.

But as the retail climate changed, analysts argue, Kellwood did not, although some observers are seeing hopeful signs under new ceo Robert C. Skinner Jr. As department stores consolidated, Kellwood played its cards poorly, losing key accounts for Sag Harbor. As stores built private label, Kellwood lost its competitive advantage to firms like Asian sourcing giant Li & Fung. And as department stores dropped moderate brands and midtier chains developed exclusives, low-profile moderate brands continued to dominate Kellwood's portfolio.

"In essence, I think the company is having problems transitioning from a ‘moderate' enterprise to a culture that understands how to cultivate more value-added ‘branded' suppliers," said Todd Slater, managing director and senior retail analyst at Lazard Capital Markets LLC. "If it focuses more keenly on product, hires talented designers and gives them the freedom to create, they can produce more compelling product and become better brand managers and the future could be bright….Their issues are largely self-inflicted."

It's been a rough few years for Kellwood. Although sales increased in 2004, earnings dipped slightly. In 2005, sales fell more than 6 percent, mostly due to a 10 percent revenue erosion in women's sportswear, and the company endured a net loss of $38.4 million. Kellwood swung into profitability in the second quarter of this year, and for the first half of 2006 earnings increased to $16.4 million, or 63 cents a share, from a loss of $67.1 million, or $2.40, in the year-ago period.

The company's core brand, Sag Harbor, epitomizes many of Kellwood's problems, say analysts. Today, Sag Harbor makes up about 12 percent of the group's sales, and it is getting a makeover — trying for a younger and more aspirational image — with Christie Brinkley as its new face.

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