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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A recent Prudential report questioned whether those efforts would be successful. "The company has been promising a fall turn for Sag Harbor for over a year, and now the pace of decline in the business is accelerating," the report said. "We think the brand is losing relevance and will continue to lose space as retailers focus on updated brands and private label."

Brad Stephens, an analyst with Morgan Keegan & Co., noted, "National brands in the moderate segment are over. One of the last ones is Sag Harbor, which is why I am not sold on the fact that it will be viable in the long run."

But times may be changing at Kellwood. In 2005, when Skinner took over, management reviewed the portfolio and began a $225 million restructuring to streamline its moderate business and increase the percentage of higher-end destination brands in its portfolio.

A lot has happened since. Last year, Kellwood sold its moderate areas, including David Brooks, Dotti and Biflex Intimates Group, and last week Kellwood and Philips-Van Heusen mutually agreed that Kellwood would return to PVH the women's sportswear license for Izod, a moderate brand.

"I think Bob Skinner is taking the right approach by trying to divest themselves of the weaker brands," said Elizabeth Montgomery, analyst for Cowen & Co. "Bob Skinner came from Oxford, which was for a long time doing licensing for Tommy Hilfiger and Ralph Lauren, and then lost key licenses and used that experience to learn they needed to buy things like Tommy Bahama. I think Bob Skinner will take that experience and will do the same thing here."

While Kellwood tries to temper its moderate presence, it is building higher-profile lines through acquisitions and licensing deals. In 2004, it bought Phat Farm for $140 million, and while that label has struggled in the last two years, the women's brand, Baby Phat, has thrived. Last month, Kellwood bought fast-growing contemporary line Vince. On the licensing front, it relaunched the Calvin Klein better women's sportswear line for fall, is relaunching O Oscar as a better line for spring in an exclusive deal with Macy's and just won the license for the ck Calvin Klein bridge sportswear line, which it will redesign for spring 2008.

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