By Adrianne Pasquarelli
New Yorkers looking to pick something up at the Kenneth Cole shop in Rockefeller Center will now have to go elsewhere. The 17,000-square-foot flagship closed last week—part of an overhaul that includes shuttering roughly 15% of the Manhattan-based company's full-price stores.
Kenneth Cole Production Inc., a purveyor of contemporary apparel, footwear and accessories, has been struggling for years with fewer customers and too many locations. The recent moves are part of a long-term strategy to turn the company around.
Under the three-year tenure of Chief Executive Jill Granoff, the $410 million firm has been righting fashion missteps that alienated customers, mitigating hikes in production costs and slashing real estate expenses. Investors are still wary, however. Kenneth Cole's stock, currently trading near $12.65, has risen only 12% over the past 12 months. That's less than half of the increase in the Standard & Poor's retail index in the same period and a long way from the $45 a share seen in the company's heyday in 2000. The restructuring and low share price have made the company a takeover target, according to sources.
“[Kenneth Cole] is taking the right steps for a turnaround,” said Steven Marotta, a retail analyst at CL King. “But there are so many issues and so many moving parts that it's not something that can be done on a dime.”
Mr. Cole, who is married to Gov. Andrew Cuomo's sister Maria, founded the brand in 1982 and built it from humble beginnings—he initially sold shoes from the back of a truck—into a retail powerhouse. He remains executive chairman and chief creative officer.
Operational blunders over the past decade have led shoppers to turn away from the company, which includes the signature Kenneth Cole New York and mass-appeal Kenneth Cole Reaction lines. One mistake was removing the former from department stores to sell exclusively at its own shops, which the company continued to add.
The company confused consumers further by launching several other divisions, including accessories and Unlisted, a low-priced leather goods label.
“Their message got diluted, and the distinction between the different brands got blurred,” said Jeff Edelman, director of retail and consumer products advisory at RSM McGladrey.
Ms. Granoff, a Long Island native who had spent nearly two years overseeing Liz Claiborne Inc.'s Juicy Couture and Lucky brands, took on a hefty to-do list when she joined Kenneth Cole, but analysts say she has been taking appropriate action, including reducing corporate headcount by 20%. After spending two years in the red, Kenneth Cole has been profitable for the past five quarters. Most recently, it posted third-quarter earnings of $2 million, compared with $186,000 a year earlier, and revenues were up 15%, to $119 million.
“I'm really pleased with the progress we've made,” Ms. Granoff said in an interview last week. “We have a lot of potential ahead for our brands, and I'm excited about that.”
First on the CEO's plate was to shrink the swollen number of stores and the footprint of those remaining to about 3,500 square feet from an average of more than double that. Ms. Granoff had originally said she expected to close only five to 10 stores, but she's up to 17, including the Rockefeller Center and Columbus Avenue locations. Kenneth Cole now has about 95 full-price stores—four in Manhattan—and 75 discount outlets.
Changing focus
“Those stores were just losing money all over the place,” said Sam Poser, retail analyst at Sterne Agee & Leach. “That's going to free them up to focus on day-to-day.”
Ms. Granoff has also invested in upgrading the fashion offerings. Before terminating the licensing agreement with supplier Bernard Chaus Inc., she hired veteran Hugo Boss designer Ingo Wilts in 2009 to refurbish the lagging namesake line. She said that after a five-year absence, the collection may return to the runway at New York Fashion Week in September. The company also recently developed an exclusive collection of men's sportswear with Macy's that is expected to be rolled out in 550 of the chain's stores.
“They're more in favor with consumers today than a few quarters ago, but they're nowhere near where they can be,” said Jeff Van Sinderen, a retail analyst at B. Riley & Co.
Controlling costs
Like many of its competitors, Kenneth Cole is grappling with higher labor, materials and transportation costs.
To avoid passing along those hikes, Ms. Granoff hired a new supply chain officer and has moved production from China to less expensive countries, including Vietnam, Indonesia and Bangladesh.
Is the cleanup an effort to ready the company for a sale? Industry experts said Kenneth Cole is being eyed by such apparel companies as Perry Ellis and Li & Fong. Even Mr. Cole's younger brother Neil, who runs Iconix Brand Group Inc., is rumored to be considering it.
“There are any number of compelling, conglomerate-type businesses interested,” said Andy Jassin, managing director of retail advisory firm Jassin Consulting Group.