Stepping Into the Future
First came the shoes, then the belts and bags. Now Kenneth Cole wants to dress his youthful, street-smart customers in styles he hopes will cast him as the next Calvin Klein.
A footwear and accessories designer known for his witty ads, Cole will launch his first men’s sportswear line next month, adding to the men’s tailored clothing collection he introduced last fall.
If the men’s lines succeed, Cole plans to expand into women’s and children’s clothing as early as next year. Eventually the 43-year-old designer hopes to join the ranks of Ralph Lauren, Tommy Hilfiger and Calvin Klein, who have built global fashion empires.
“Our research tells us that the market is ready for us,” Cole said during an interview at his Manhattan office above Carnegie Hall. “It’s a bit of a gamble. But we’ve traditionally done better in difficult times when people are looking for creative alternatives.”
Indeed, with lackluster clothing sales over the holidays and a crowded market, the outlook for an apparel newcomer hardly seems auspicious. But analysts and fashion insiders believe Cole could fare well if he leverages the brand identity he’s already established with his core customers.
“The key is to establish Kenneth Cole as a credible designer, not just in footwear,” said Elena Hart, fashion marketing director at the Fashion Assn. in New York. “To do this, he needs an all-out marketing push. He needs to market himself, get his clothes on celebrities and sports stars and just be everywhere.”
Cole plans to spend more money on advertising and marketing, but his foray into apparel also involves a greater retail push. Adding to his 47 existing retail and outlet stores, Cole plans to open flagship stores in Manhattan and San Francisco, which will carry the full apparel lines. Cole clothing also will be sold at department and specialty stores and through the company’s catalog.
Cole defines his niche as urban, fashion-conscious consumers who want designer styles but don’t want to bust their wallets outfitting themselves. The new suits are priced from $395 to $595, and a knit top is $45 to $65--slightly less expensive than Calvin Klein, but a little costlier than Liz Claiborne, Tommy Hilfiger or Nautica.
“Consumers are exercising far more discretion on nonessential purchases,” Cole said. “So my concept is versatility, function and value. These are clothes that will allow guys to reflect individual styles, but will look good next season.”
Except for a second-quarter blip last year, the publicly traded Kenneth Cole Productions has grown steadily over its 15-year history, generating $200 million in sales last year.
*
The company has minimized risk by establishing licensing arrangements for its new ventures rather than trying to manufacture everything itself. For instance, Cole paired up with Hartmarx Corp. for the men’s tailored clothes line and Paul Davril Inc. for sportswear. Last year, Cole generated about $100 million in licensing income from some 30 agreements.
“I figured we would be better off having partners who are experts in sourcing and distribution,” Cole said, adding that everything but shoes and handbags is licensed.
Cole selected apparel as his next target because--aside from a men’s golf shoe and children’s shoes, which will be launched this year--he saw few opportunities to expand with footwear. Last year, footwear made up about half the company’s business. By 2000, Cole expects that fraction to shrink to a third.
“I felt the need to grow the business, which I could do by selling shoes to more people,” he said, “but then I would have to compromise who I was because I would have to sell cheaper shoes.”
Cole’s timing could be better. Overall, the market for men’s casual clothes is growing, but not as fast as in previous years. During the first nine months of 1997, sales increased 4% from the previous year. But sales rose 12% over the same period from 1995 to 1996, said Allison C. Malkin, an analyst with SBC Warburg Dillon Read.
Economic troubles in Asia also could hinder Cole’s expansion. Under a licensing deal with Hong Kong’s Dickson Poon, Cole plans to open a total of 19 stores in Singapore, Taiwan and Hong Kong by the end of the year. Five stores already have opened.
But Cole isn’t worried about his timing; he thinks the fiscal chaos could help boost sales.
“We actually do better in difficult markets because customers still want Western goods, but they might trade down to our products from products with higher price points,” he said.
The challenge will be to convince investors, who lately have shown a distaste for apparel stocks and may have gotten burned by Cole’s stock-market swings last year.
The company’s shares plunged 18% after its second-quarter net income fell to $794,000, compared with $2.7 million for the same period in 1996. The company attributed its poor performance to too many markdowns of women’s sandals.
*
Although Cole rebounded in the third quarter with earnings close to $4.9 million, Wall Street remains unconvinced. The stock still trades well below its high of $22.75. It closed Wednesday at $16.44, up 50 cents in trading on the New York Stock Exchange.
For the most part, however, Wall Street analysts like Cole’s prospects. Sales at stores open at least a year rose 14% last month over sales for December 1996.
Said Lee Backus, an analyst with Buckingham Research Group: “The Kenneth Cole name is becoming more and more well known. I think he can be a long-term winner because he understands how to build a brand.”
That has been the key for such fashion icons as Lauren, Hilfiger and Klein, who catapulted into fashion fame by heavily marketing their brands.
Cole entered the shoe business in 1976, when he abandoned his plans to enter law school to help run his father’s Brooklyn shoe factory, which made the popular Candie’s shoes.
After six years learning about the footwear market, Cole started his own company in 1982, building his brand with savvy print advertising that made witty remarks about current events or people in the news.
One of Cole’s most memorable ads poked fun at former Vice President Dan Quayle for misspelling “potato.” The ad included a photo of a smiling Quayle and said, “Don’t forget to vot.--Kenneth Cole.”
A recent ad played off the widely publicized story about a bride who was jilted at the altar but refused to cancel her reception. Cole’s catch phrase for that ad: “We’ve been standing up brides for years.”
Cole’s ads, most of which he has written himself, will continue with the same tongue-in-cheek tone. But because of his apparel debut, Cole has begun introducing models into his advertising, instead of just relying on photographs of his products.
Fashion Assn.’s Hart thinks Cole’s easygoing, socially conscious attitude--he is active in AIDS research and homelessness causes--could help him win customers.
“Kenneth Cole has been identified as a hip brand because of his ads and because he’s been able to tap into the mood of the times,” Hart said. “But we need a clearer identity. We need to know why we should buy Kenneth Cole when we can buy Ralph Lauren or Tommy Hilfiger.”
Diane Seo is a frequent contributor to The Times.
