California Apparel News

When St. Louis–based Kellwood Co. moves three of its moderate brands—Sag Harbor, Briggs N.Y. and Koret—to its West Coast facility in the City of Industry, Calif., later this year, the company is positioning itself for the future with a new West Coast strategy that could include retail and denim, as well as leveraging economies of scale for the entire company.

Since its $762 million acquisition by Sun Capital Securities in August, Kellwood has been in a period of reinvention. The latest and most dramatic shift at the vendor is the relocation of its moderate lifestyle division from New York to the Kellwood Western Region offices in City of Industry.

Expected to be complete by mid-2009, the relocation includes nearly all operations for Kellwood’s three moderate brands, including merchandising, design, distribution and logistics. The three brands account for nearly $500 million in wholesale volume, approximately half of the almost $1 billion company. “Only the showrooms and sales force will remain in New York,” said Michael Kramer, Kellwood’s chief executive officer. Also making the move west are the company’s customer service, import operations, logistics and purchase order– processing operations, which were originally headquartered out of Rutherford, Tenn. In all, approximately 200 jobs are affected by the relocation, with some employees opting to follow their posts to California and other positions being phased out. Kramer estimates 100 positions across all divisions, including executive-level positions, will need to be filled when the three brands land later this year on the left coast.Manifest destiny

The catalyst to the move west is the tight ship run by Kellwood West Chief Arthur Gordon. The company hopes to adopt some of the cost-cutting measures and infrastructure already in place at the Los Angeles outpost. “And, obviously, we knew Los Angeles offers a huge talent pool,” Kramer said. Adding to the allure of the West Coast office is its plentiful square footage and proximity to the ports—which could represent a big savings for Kellwood, which imports the vast majority of its product from Asia.

In contrast with its moderate brands, which have suffered in recent years with operational inefficiency and lost significant market share, Kellwood’s West Coast operations have remained strong. “It has been a very well-run operation for many years. From a control, branding and inventory perspective, there is a lot of opportunity to leverage [Kellwood West’s] functions,” Kramer said. Kellwood West is currently home to the apparel giant’s juniors apparel division, which includes XOXO, My Michelle and Jolt and accounts for approximately 25 percent of the company’s total business. Vince, Kellwood’s contemporary brand, operates out of separate offices in Los Angeles.

Kellwood West, which was established in 1998, occupies approximately 630,000 square feet, including distribution and warehouse space. Depending on the season, the distribution center employs up to 220 individuals, and 500 more work in the offices. That number will grow once Koret, Briggs N.Y. and Sag Harbor call Kellwood West home.

When the three moderate brands, dubbed the Lifestyle Alliance, complete their move later this year, Kellwood will have strategically consolidated some of its back-end operations. “Each brand will operate separately in terms of creative and design,” Kramer said, but will share distribution, financial and human-resources divisions, among others, to cut costs. “This is an opportunity to combine operations under one umbrella and increase our profitability and efficiency,” Kramer said.

Citing the real-life example of a retailer that produces five brands using consolidated back-end operations, Kramer illustrated the huge potential savings Kellwood’s move west could realize. “In the 2007 reporting year, [that retailer] generated something like $6 million more in profits on $6 billion less in sales” compared with a competing retailer that operates several brands independently, he said. “It is incredible, but [a retailer that consolidates back-end operations] can do that because it has less overhead and more-efficient operations.”

(For Koret, the move is a homecoming of sorts. Founded in Northern California in 1938, the brand was bought by Kellwood in 1999 and continued to run the business out of its Oakland, Calif., headquarters.)

When the economy rights itself, Kramer said, Kellwood’s Lifestyle Alliance will be poised to hit the ground running. Gordon agreed. “I see great benefit to the organizational and geographical realignment of the Lifestyle business with Modern. We know there is significant synergy that can be achieved by having shared resources in our back-office operations as well as some of the areas that more directly support product development and sales,” he said. “Having all this in one office will allow us to do more with less and to improve our processes at the same time. I am excited by the expectation of leveraging the expertise we have here at Modern as well as the opportunity to add the expertise that is unique to our Lifestyle businesses.”

Hope Brick, chief merchandising officer of Kellwood’s Lifestyle Alliance, has already moved to Los Angeles to build the West Coast team and ensure a smooth repositioning of the moderate brands. Her focus, Kramer said, would be two-fold. “The first key component is to give the product a more youthful feel,” he said. The second is to help women feel and look slimmer with Kellwood’s new Slimming Solution technology, a Spanx-like product that will be incorporated into select pant and knit pieces.

“Combined with the operational effectiveness gained by moving the brands to Los Angeles, [the revamped offerings] will put us in a position to be stronger when the economy gets moving again,” Kramer said.Scoping out the scene

Kramer hints that Los Angeles could loom larger in Kellwood’s future.

California-grown Vince, which operates two stores in Los Angeles, is set to open a third, in New York, on Feb. 4. There is also the potential for new retail projects from the moderate and juniors sector in 2009, though Kramer said a juniors-related store is more likely. “We will continue to invest in our bricks-and-mortar, Internet and wholesale businesses,” he said. “We can’t rely exclusively on wholesale.”

Premium denim, a mainstay of the Los Angeles fashion industry, is another key target for Kellwood, which is open to acquiring an established denim brand or hiring a team to launch one of its own. “Los Angeles is where it’s at,” Kramer said. “Most of the intelligence with regards to premium denim is based in Los Angeles.”