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Kellwood Company

Kellwood Company


600 Kellwood Parkway
Chesterfield, Missouri 63017
U.S.A.
Telephone: (314) 576-3100
Fax: (314) 576-3180
Web site: http://www.kellwood.com

Public Company
Incorporated: 1961 as Kellwood Company
Employees: 30,000
Sales: $2.1 billion (2005)
Stock Exchanges: New York
Ticker Symbol: KWD
NAIC: 315211 Apparel, Men's and Boys' Cut and Sew Apparel Contractors; 315212 Apparel, Women's, Girls', and Infants' Cut and Sew Apparel Contractors

Kellwood Company is a leading international private and brand label manufacturer, marketer, and merchandiser of apparel and recreational products. Kellwood's apparel products, featuring such licensed brands as Liz Claiborne, Phat Farm, Calvin Klein, Sag Harbor, Oscar de la Renta, Izod, Nautica, and Sag Harbor, are the core of its business and sold through distribution channels from mail order to department stores. The company operates more than 50 manufacturing plants in the United States, Dominican Republic, and Honduras, and continually diversifies its men's, women's, and children's clothing lines as well as its less known camping and recreational equipment.

IN THE BEGINNING: 196169

Kellwood Company was formed in 1961 through the merger of 15 independent suppliers of soft goods to Sears, Roebuck, & Company. The name was derived from the surnames of Sears executives Charles H. Kellstadt and Robert E. Wood. The merger brought together disparate managements and a diverse line of products, as well as 7,000 employees, 22 plants, and combined sales of more than $86 million. This made the newly formed company the third largest apparel manufacturer in the United States. The union was sought in order to centralize and streamline the management of the individual companies. With 90 percent of its products sold to Sears, and with Sears holding a 22 percent interest in the company, the consolidated management of Kellwood provided financial, engineering, and design services for the original companies that had operated as autonomous divisions. From these separate divisions, the company's leadership was drawn, with Maurice Perlstein, president of McComb Manufacturing Company, elected as Kellwood's president. In its first year, the Chicago-headquartered Kellwood offered a variety of apparel, bedspreads, tents, sleeping bags, and tarpaulins.

Two years later, the company had surpassed sales objectives set out in its five-year plan. Still almost entirely dependent on Sears for its sales, Kellwood added all-weather coats and other outerwear, plus children's shirts, shorts, and pants to its sales lines. Sales grew to $100 million and 29 locations in 11 states. Kellwood also expanded beyond U.S. borders for the first time, establishing a plant in Kingston, Jamaica. This initial foray into production outside the United States marked the beginning of Kellwood's international involvement that, years later, would define the company's success.

In 1964 Fred W. Wenzel, the former president of Hawthorn Company (one of the original 15 companies), was elected chief executive officer and chairman of the board, holding the latter position for 27 years. Also in 1964 Kellwood's corporate logo, a stylized "K" representing a thread through the eye of a needle, was created. By Kellwood's fifth anniversary, sales had increased 75 percent since its formation. The company invested its initial success toward expansion and also began enlarging the breadth of its concerns.

By 1966 Kellwood had 36 plants in 13 states and a workforce topping 11,000. This same year the company moved its headquarters from Chicago to St. Louis and its first data processing center, located in Tennessee, was completed and gave Kellwood the ability to effectively track inventory and lower administrative costs. In addition, Kellwood also displayed its future penchant for assimilating apparel companies by acquiring the Stahl-Urban Company, a manufacturer of men's and boys' outerwear and pants, as a subsidiary.

KELLWOOD MATURING: 197077

After ten years of business, Kellwood still outpaced the goals established by the company's original founders and had become the largest supplier of soft goods to Sears. Sales objectives for its ten-year plan had been surpassed in 1968, three years ahead of schedule, as each year of operation engendered record sales figures. Expansion during the decade caused earnings to fluctuate, but by 1971 the company stood on solid ground. As the company focused on acquiring companies that complemented its line of products, the organization of the manufacturing facilities was realigned to create a more homogenous structure than the original configuration. Instead of each division operating more or less independently, the manufacturing facilities were organized into eight consumer-oriented groups.

Kellwood's outlet stores, which sold irregular and surplus merchandise, had begun growing at a rapid pace. Although some had been opened soon after the company's formation, by 1965 there were three, by 1968 there were 17, and by 1973, there were 29 factory outlets. A new operating group, Ashley's Outlet Stores, was formed in 1973 to begin marketing the outlets as genuine retailers than simply surplus stores.

As 1974 drew to a close, Kellwood had experienced 14 years of robust growth in both plant expansion and diversification of its product lines. The number of employees had grown to 18,000 and 62 plants operated in 17 states. Having posted record sales each year since its formation and increased its earning to $8.5 million from less than $2 million in its first year, the company thrived under the beneficent marketing umbrella of Sears. By supplying apparel and other soft goods to market and sell according to Sears' own specifications (i.e., private labeling), Kellwood enjoyed the security and tremendous volume base the retail and mailorder catalog giant provided. Sears accounted for 80 percent of Kellwood's sales, so the success of Sears largely translated into success for Kellwood, a relationship mutually beneficial during Kellwood's nascent years. By cornering the market as Sears' largest apparel supplier, Kellwood had ascended into the upper echelon of the apparel industry at an enviable pace.

Kellwood's success ceased, however, in 1975. A decline in sales at Sears, coupled with a recessive economy, caused earnings to plunge to just over $400,000 from the previous year's $8.5 million. This disappointing year quickly demonstrated the inherent dangers of bonding a company's future so closely with another's. Although drastic changes were not made overnight, the failure of 1975 convinced Kellwood's management to reconsider its relationship with Sears and reexamine the company's future direction.

COMPANY PERSPECTIVES


Kellwood Company, headquartered in St. Louis, Missouri, is a leading marketer of apparel and consumer soft goods. Our brands are designed to meet and exceed our consumer's needs and expectations. Specializing in branded products, the Company markets to all channels of distribution with product and brands tailored to the specific channel. Our mission: to build on our cornerstones of diversification, fashion and value to enhance our position as a premier marketer of branded soft goods that appeal to a broad spectrum of consumers.

By the following year, Kellwood rebounded and earnings jumped back up to more than $7 million. The Stahl-Urban subsidiary expanded its profitable product lines of apparel and outerwear under a licensing agreement with the National Football League. Kellwood also tapped into the accelerating demand for Western style clothing by manufacturing Tough-Skin jeans and corduroys for Sears.

Not forgetting the lesson of 1975, Kellwood made its first move toward developing a company more reliant on brand labels than private label business with its acquisition of the U.S. rights to the Van Raalte brand of women's hosiery and bodywear in 1977. As the popularity of disco dancing and physical fitness swept the country, the demand for the tight, lightweight dance tops boomed, and Kellwood hoped to gain a foothold in the market share under the Van Raalte label. With Danskin possessing an almost unassailable advantage in the bodywear market, Kellwood aimed for usurping the number two bodywear manufacturer, Sears. This objective, however, did not indicate an assault on Sears by Kellwood. Sears still purchased 80 percent of Kellwood's volume and owned a 22 percent stake in the firm.

MOVING AWAY FROM SEARS: 197885

Kellwood continued to enlarge its brand label business in 1978, a year in which sales exceeded $500 million and earnings reached nearly $13.5 million, by purchasing the rights to the Fruit of the Loom name for hosiery. With this move, Kellwood hoped to garner a portion of the $1.39 billion sheer hosiery market from its two largest manufacturers, Hanes Corporation and Kayser-Roth, producers of the L'eggs and No-Nonsense lines. Kellwood had experience in this area; the company had manufactured hosiery for Sears since 1965 under the Cling-Alon label.

In 1980 Kellwood significantly increased its offshore involvement by acquiring nearly a half interest in Smart Shirts Ltd. of Hong Kong. A producer of high quality shirts and blouses under labels such as Gant, Arrow, and Eagle, Smart Shirts held the largest import quotas for shirts entering the United States, with sales of $86 million and earnings of more than $9 million. With a laudable client list including Macy's of New York, Federated Department Stores, The May Company, and J.C. Penney, the acquisition of Smart Shirts would eventually enable Kellwood to lessen its dependence on Sears.

By the following year, 1981, Kellwood had completely redefined its corporate strategy. The small steps taken since 1975's downturn toward more parity between private and brand label business and less dependence upon Sears had not been enough to satisfy Kellwood's management. Although Sears would continue as a significant customer for Kellwood's products, more balance was desired. Chairman Wenzel commented in Barron's, "Our philosophy is not to do less business with Sears, but to reduce that percentage by selling more to other customers."

To accomplish this task, Kellwood's management decided to significantly increase its involvement in offshore manufacturing and sourcing, the practice of shipping U.S.-cut fabric overseas to be sewn and then returning the finished product back to the United States, at a more favorable tariff rate than a pure import as allowed by the 807 Tariff regulations. The company concentrated its focus on Central America, the Caribbean, and the Far East. Kellwood also reexamined the diverse businesses and products with which it was involved. Kellwood's marketing and production efforts under the Van Raalte and Fruit of the Loom labels were discontinued because of inconsistent profits.

KEY DATES


1961:
Charles H. Kellstadt, Robert E. Wood, and others form Kellwood Company.
1964:
Kellwood's first corporate logo is created.
1966:
Company headquarters is moved from Chicago to St. Louis, Missouri.
1973:
Kellwood begins trading on the New York Stock Exchange.
1977:
Kellwood segues into women's hosiery and dancewear.
1980:
Kellwood buys a stake in Hong Kong's Smart Shirts Ltd.
1983:
Kellwood buys the remaining stake in Smart Shirts Ltd.
1984:
Sears sells its stake in the company back to Kellwood.
1989:
American Recreation Products, Inc., is bought by the company.
1993:
Sales top the billion dollar mark for the first time.
2001:
Kellwood rolls out a new logo to commemorate its 40th anniversary.
2004:
Phat Fashions LLC is acquired by the company.
2005:
Kellwood's "Performance 2010" corporate initiative is launched.

As a result of its sharpened focus, Kellwood entered its third decade of business as a company still largely involved in private label business, seeking to diminish its reliance on Sears by developing a broader customer base. By 1982 earnings had rebounded from a disappointing $216,000 two years earlier to over $8 million. The decisions made a year earlier began to take shape with the introduction of a new line of women's apparel manufactured under the private labels of 14 large department stores. The shift away from Sears, albeit a modest one at this point, affected Kellwood's sales volume, but earnings had climbed due to sharp reductions in inventory and by cutbacks in some of its product lines and manufacturing facilities. A move toward securing a greater international presence was also made in 1982 when Kellwood increased its holdings of Smart Shirts to 82 percent, then to full ownership the following year. In 1984 Kellwood Asia Ltd. was formed to monitor its holdings and seek compatible acquisitions in the Far East.

The final step in Kellwood's transformation came in July 1984, when the company purchased the remainder of its shares held by Sears, thereby ending the investment relationship between the two companies. By the following year, Kellwood's sales to Sears were equal to the amount of sales made to its other customers. This significant drop in sales to Sears once again affected Kellwood's sales volume, but the 1985 acquisition of Cape Cod-Cricket Lane, Inc., a maker of women's coordinated sportswear, helped lift its sales figures and enlarged its domestic operations.

A NEW ERA: 198699

In the latter half of the 1980s, Kellwood augmented its acquisitions of both domestic and offshore apparel companies by purchasing companies featuring fashionoriented, branded merchandise. As opposed to the lower-priced products it had supplied to Sears in the previous two decades, the higher-priced products required less inventory and typically offered greater profit potential. In 1986 Parsons Place Apparel Company became the second domestic marketingoriented company to be purchased after Cape Cod-Cricket Lane. This increase in Kellwood's domestic branded segment was followed by the purchase of E Z Sportswear and its subsidiary, En Chanté, Inc., as well as Robert Scott Ltd., David Brooks Ltd., and Andrew Harvey Ltd. in 1987, and Crowntuft Manufacturing Corp. in 1989. These acquisitions helped counterbalance the continued drop in sales to Sears. By the end of the decade, Kellwood's sales to Sears had fallen to roughly one-quarter.

Part of the company's transformation also affected some of its longstanding subsidiaries, including the recreation division and Ashley's Outlet Stores, both of which were sold near the end of the decade. The sale of the former, however, did not signal the end of Kellwood's involvement with recreational goods; in 1989 the company purchased American Recreation Products, Inc.

Kellwood's Far East operations also grew with the acquisition of Saipan Manufacturers, Inc., in 1989, located in the Northern Mariana Islands. A manufacturer of men's shirts and sport shirts for export into the United States, the company fell under Smart Shirts management. By the end of the decade, Smart Shirts accounted for more than 40 percent of Kellwood's operating profits and provided another economic boost to supplant the losses from Sears.

As Kellwood entered the 1990s, its growth over the previous 30 years positioned it as one of the leading apparel manufacturers in the United States. With over 250 major retail accounts that involved approximately 25,000 individual stores, the company's customer base had evolved from almost complete dependence on Sears to a large and diverse clientele. The addition of California Ivy Inc. in 1992 and A. J. Brandon in 1993 increased the number of divisions and subsidiaries to 14. Sales for fiscal 1992 (ending April 30) reached $915 million and topped the billion-dollar mark with $1.07 billion in fiscal 1993.

By 1995 Kellwood continued to grow in leaps and bounds, adding Halmode Apparel, Inc., and David Dart, Inc., to its clothing empire and selling its Home Fashions unit to concentrate more fully on apparel. Smart Shirts Ltd., its Hong Kong subsidiary, had become increasingly profitable, selling branded shirts to many of the United States' most popular department stores. Kathie Lee Gifford, of Regis & Kathie Lee fame, had also signed with the firm, designing low-cost women's wear.

Another major development was the appointment of a new chief executive in 1995. Hal J. Upbin, who had joined Kellwood with the acquisition of American Recreation Products, Inc., six years earlier, was promoted to lead the company. By the following year Upbin had unveiled a comprehensive business plan called "Vision 2000" to take Kellwood into the 21st century.

By the end of the decade Kellwood continued its acquisition spree, including Fritzi California, Inc., and Koret, Inc.; launched a children's knitwear line called Les Jeunes; added new lines to its best-selling brands such as Sag Harbor and Kathie Lee; and entered a new licensing partnership to sell a contemporary shirts and sweaters line from Slates, a well-known trouser manufacturer. Sales for fiscal 1999 reached $2.15 billion and the company appeared in excellent shape for the new millennium.

UPS AND DOWNS IN THE NEW CENTURY

In early 2000 Kellwood's acquisitions had added considerably to its bottom line. J.C. Penney had become its top customer after the Koret and Fritzi California buys, since the retailer stocked the brands at its stores throughout North America. Kellwood's second largest customer was Wal-Mart, which sold the popular Kathie Lee Collection, yet the label had run afoul of human rights groups for "sweatshop" conditions and union activists after workers were allegedly fired for trying to unionize in the Caribbean. Kellwood stood behind Gifford, who ironically was a member of the Fair Labor Association and supported both living wages and limited work weeks. Although the brouhaha eventually blew over, sales of Kathie Lee branded apparel dipped during the year.

Kellwood's acquisitions spree continued throughout 2000 with Biflex International, Inc., Romance du Jour, Dorby Frocks Ltd., and Group B Clothing Company. The company also initiated a licensing deal with plussize model Emme to create her own line of clothing. Although several of Kellwood's licensed brands already carried plus-sized clothing, the new Emme line would expand offerings to include higher-end styles as well as intimate apparel. Kellwood also bought two camping outfitters for its recreation division.

By 2001 Kellwood had acquired 25 companies in just over 15 years. Some analysts believed the firm had become bloated, with sales artificially inflated through its many purchases. While it was true some of Kellwood's units were underperforming, overall sales remained strong. The company did, however, lose money when Montgomery Ward closed its doors. Ward's had carried several of its brands, and Kellwood not only had to write off delivered inventories but the loss of future sales. As the retail industry weakened, Kellwood sharpened its focus by consolidating some of its lines and launching new styles of its core brands. Kellwood commemorated its 40th anniversary during 2001 with the introduction of a new corporate logo. Hal J. Upbin, Kellwood's chairman, chief executive, and president told WWD (December 26, 2001) it was the "right time to visibly put a fresh face on the new Kellwood." Sales for fiscal 2001 (year ending in January 2002) reached $1.8 billion.

The retail industry remained soft in 2002, especially in Kellwood's largest segment, women's wear. The company adjusted its projected sales for the year and cut such underperforming lines as Emme's True Beauty plus-sized apparel. In June, Kellwood bought Gerber Childrenswear for around $135 million to broaden its children's offerings. Next came Briggs New York Corporation in early 2003, as Kellwood prepared to launch a new Izod collection for women and announced a licensing agreement with Oscar de la Renta. Both the Izod and Oscar de la Renta brands carried considerable clout in better women's stores, as did Calvin Klein and Liz Claiborne, which also came on board as Kellwood licensees.

Kellwood made a major move into urban clothing with the 2004 purchase of Phat Fashions LLC and Phat Licensing LLC, founded by hip-hop mogul Russell Simmons. Phat's popular lines, Baby Phat for kids and Phat Farm for men and women, were expected to generate millions for Kellwood's bottom line, which had risen to $2.2 billion in net sales for fiscal 2004. The following year, 2005, ushered in a changing of the guard as Upbin retired and Robert C. Skinner, Jr., who had been appointed chief operating officer and president in 2003, became chief executive and chairman of Kellwood. The company then launched a new corporate initiative called "Performance 2010," and began restructuring its operations. Two manufacturing facilities were shuttered and three apparel units (David Brooks, Dotti, and Biflex International) were sold as Kellwood concentrated on its better-selling clothing lines. Though net sales for fiscal 2005 had fallen slightly from the previous year to $2.1 billion, Kellwood was on solid ground for the foreseeable future.

Jeffrey L. Covell

Updated, Nelson Rhodes

PRINCIPAL SUBSIDIARIES

Kellwood Trading Ltd.; Smart Shirts Ltd. (Hong Kong); American Recreation Products, Inc.; California Ivy Inc.

PRINCIPAL COMPETITORS

Jones Apparel Group, Inc.; Liz Claiborne, Inc.; Phillips-Van Heusen Corporation; Polo Ralph Lauren Corporation; Tommy Hilfiger Corporation; VF Corporation.

FURTHER READING

Bailey, Lee, "Kellwood Buys the Farm," Daily News Record, January 12, 2004, p. 6.

Byrne, Harlan S., "Ailing Market Fails to Faze Apparel Producer," Barron's, January 8, 1990, pp. 4243.

Cochran, Thomas N., "A Product of Logical Growth," Barron's, September 12, 1988, p. 47.

Derks, Sarah A., "Kellwood Investors Likely to Get Rosy Picture," St. Louis Business Journal, August 2, 1993, p. 6.

D'Innocenzio, Anne, "Kellwood's Plus-Size Plan," WWD, March 1, 2000, p. 16.

Feitelberg, Rosemary, and Alison Maxwell, "NLC's Kernaghan and Kellwood Duke It Out," WWD, September 22, 1999, p. 13.

Greenberg, Julee, "Upbin Leaves a Transformed Kellwood," WWD, October 5, 2005, p. 14.

Karimzadeh, Marc, "Kellwood to Exit Three Divisions," WWD, July 28, 2005, p. 1.

Kellwood: A History, St. Louis, Mo.: Kellwood Company, 1982.

"Kellwood Back to Profitability," WWD, March 7, 2003, p. 19.

"Kellwood Unit Opening Kids' Line," WWD, January 6, 1999, p. 4.

Larson, Kristin, "Kellwood Fetes 40th with New Logo," WWD, December 26, 2001, p. 8.

Lockwood, Lisa, "Mega Merger-Mania: The New Blueprints of Five Ravenous Firms," WWD, August 19, 2003, p. 1.

Maturi, Richard J., "On Its Own and Thriving," Barron's, March 10, 1986, p. 57.

Millman, Nancy F., "High-Stepping Bodywear Market Meets New Rival," Advertising Age, August 28, 1978, p. 236.

, "Kellwood Firming Plans to Snag Hosiery Share," Advertising Age, October 23, 1978, pp. 2, 112.

"Seventeen Suppliers of Sears to Be Merged into Single Operation," Wall Street Journal, September 12, 1961, p.10.

Socha, Miles, "Kellwood to Relaunch Perry Ellis Women's Line," WWD, August 18, 1999, p. 7.

"Soft-Goods Profits," Barron's, February 14, 1983, pp. 4850.

Tucci, Linda, "Kellwood Dresses Up Nautica Shirt Line," St. Louis Business Journal, January 15, 1996, p. 3A.

"World Enough?" Forbes, April 1, 1972, p. 49.

Young, Vicki M., "Acquisitions Lift Kellwood Sales but Bottom Line Falls in Quarter," WWD, March 12, 2001, p. 32.

, "Kellwood Looking to 2003," WWD, May 31, 2002, p. 12.

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Kellwood Company

Kellwood Company

600 Kellwood Pkwy.
Chesterfield, Missouri 63017
U.S.A.
(314) 576-3100
Fax: (314) 576-3180

Public Company
Incorporated: 1961 as Kellwood Company
Employees: 14,000
Sales: $914 million
Stock Exchanges: Boston Chicago New York
SICs: 2311 Mens & Boys Shirts, Coats & Overcoats; 2321 Mens & Boys Shirts, Except Work Shirts; 2325 Mens & Boys Separate Trousers & Slacks; 2331 Womens, Misses & Juniors Blouses & Shirts; 2335 Womens, Misses & Juniors Dresses; 2337 Womens, Misses & Juniors Suits, Skirts & Coats

Kellwood Company is a leading international private label and brand label manufacturer, marketer, and merchandiser of apparel, home furnishings, and recreational products. Sold through distribution channels from mail order to department stores, Kellwoods apparel products are the core of its business. The companys line of womens apparel accounts for 73 percent of its apparel sales, followed by mens and childrens apparel, representing 24 percent and 3 percent, respectively. With 34 plants in Canada, the United States, the Caribbean Basin, and the Far East, Kellwood has experienced substantial periods of growth through prudent international and domestic acquisitions that have given the company a diverse line of soft goods.

In 1961, 15 independent suppliers of soft goods to Sears, Roebuck & Co. merged to form Kellwood. The name was derived from the surnames of Sears executives Charles H. Kellstadt and Robert E. Wood. The merger brought together disparate managements and a diverse line of products, as well as 7,000 employees, 22 plants, and combined sales of more than $86 million. This made the newly formed company the third largest apparel manufacturer in the United States. The union was sought in order to centralize and streamline the management of the individual companies. With 90 percent of its products sold to Sears and with Sears holding a 22 percent interest in the company, the consolidated management of Kellwood provided financial, engineering, and design services for the plants of the original companies that, initially, operated as 15 autonomous divisions. From these separate divisions, the companys leadership was drawn, with Maurice Perlstein, president of McComb Manufacturing Co., elected as Kellwoods first president. In its first year, the Chicago headquartered Kellwood offered a variety of apparel, bedspreads, tents, sleeping bags, and tarpaulins.

Two years later, the company had surpassed sales objectives set out in its five-year plan adopted the year before. Still almost entirely dependent on Sears for its sales, Kellwood added all-weather coats and other outerwear, plus childrens shirts, shorts, and pants, to its product lines. Sales grew to $100 million, and the company expanded to 29 locations in 11 states. Kellwood also expanded beyond the United States borders for the first time, establishing a plant in Kingston, Jamaica. This initial foray into production outside the United States marked the beginning of Kellwoods international involvement that, years later, would define the companys success.

In 1964 Fred W. Wenzel, the former president of Hawthorn Company (one of the original 15 companies), was elected chief executive officer and chairman of the board, holding the latter position for 27 years. Also in 1964 Kellwoods corporate logo, a stylized K representing a thread through the eye of a needle, was created. By Kellwoods fifth anniversary, sales had increased 75 percent since its formation. The company invested its initial success toward expansion and also began enlarging the breadth of its concerns. By 1966 it possessed 36 plants in 13 states and employed over 11,000 people. Also in 1966, the companys headquarters were moved from Chicago to St. Louis. The previous year construction had been completed on its first data processing center, located in Tennessee, giving Kellwood the capability to effectively track inventory and lower administrative costs. In this signal year, Kellwood also displayed its future penchant for assimilating apparel companies by acquiring the Stahl-Urban Company, a manufacturer of mens and boys outerwear and pants, as a subsidiary.

After ten years of business, Kellwood still outpaced the goals established by the companys original founders and had become the largest supplier of soft goods to Sears. Sales objectives for its ten-year plan had been surpassed in 1968, three years ahead of schedule, as each year of operation engendered record sales figures. Expansion during the decade caused earnings to fluctuate, but by 1971 the company stood on solid ground. As the company focused on acquiring companies that complemented its line of products, the organization of the manufacturing facilities was realigned to create a more homogenous structure than the original configuration. Instead of each division operating more or less independently, the manufacturing facilities were organized into eight consumer oriented groups.

Soon after the 1961 merger, Kellwood began opening factory outlet stores within its manufacturing facilities. Created to sell the companys irregular and surplus merchandise, these outlet stores had proliferated through Kellwoods brief history. Starting with three in 1965 and increasing to 17 five years later, the number of outlet stores had grown to 29 by 1973. In that year, a new operating group, Ashleys Outlet Stores, was formed to effect a shift in the marketing focus of the factory outlets from surplus stores toward genuine retailing concerns.

As 1974 drew to a close, Kellwood had experienced 14 years of robust growth in both plant expansion and diversification of its product lines. The number of employees had grown to 18,000 and 62 plants operated in 17 states. Having posted record sales each year since its formation and having increased its earnings to $8.5 million from less than $2 million in its first year, the company thrived under the beneficent marketing umbrella of Sears. By supplying Sears with apparel and other soft goods to market and sell according to specifications made by Sears (a segment of the apparel industry called private label business), Kellwood enjoyed the security and tremendous volume base the retail and mail-order catalog giant provided. Sears accounted for 80 percent of Kellwoods sales, so the success of Sears largely translated into success for Kellwooda relationship mutually beneficial during Kellwoods nascent years. By cornering the market as Searss largest supplier of apparel, Kellwood had ascended into the upper echelon of the apparel industry at an enviable pace.

Kellwoods success ceased, however, in 1975. A decline in sales by Sears, coupled with a recessive economy, caused earnings to plunge to just over $400,000 from the previous years $8.5 million. This disappointing year quickly demonstrated the inherent dangers of bonding one companys future too closely with anothers. Although drastic changes were not made overnight, the failure of 1975 convinced Kellwoods management to reconsider its relationship with Sears and re-examine the companys future direction.

By the following year, Kellwood rebounded and earnings jumped back up to more than $7 million. The Stahl-Urban subsidiary expanded its profitable product lines of apparel and outerwear under a licensing agreement with the National Football League that had been initiated in 1971. Kellwood also tapped into the accelerating demand for Western style clothing by manufacturing Tough-Skin jeans and corduroys for Sears.

Not forgetting the lesson of 1975, Kellwood made its first move toward developing a company more reliant on brand label business than private label business with its acquisition of the U.S. rights to the Van Raalte brand of womens hosiery and bodywear in 1977. As the popularity of disco dancing and physical fitness swept the country, the demand for the tight, lightweight dance tops, originated by Danskin, boomed, and Kellwood hoped to gain a foothold in the market share under the Van Raalte label. With Danskin possessing an almost unassailable advantage in the bodywear market, Kellwood aimed for usurping the number two bodywear manufacturerSears. This objective, however, did not indicate an assault on Sears by Kellwood. Sears still purchased 80 percent of Kellwoods volume and owned 22 percent of its soft goods supplier.

Indeed, most of Kellwoods production energies were spent fulfilling Searss soft goods orders. The American consumers desire for denim products continued to rise, and by 1977 the sales of jeans and pants to Sears exceeded all of Kellwoods other product lines. Mens casual slacks, sport coats, and warm-up suits were added to its list of apparel products, as were down coats and vests. As consumers headed outdoors more frequently in the late 1970s for exercise and recreation, Kellwood added backpackssold under the Hillary label after famed mountain climber Sir Edmund Hillaryto its existing line of tents and sleeping bags.

Kellwood continued to enlarge its brand label business in 1978, a year in which sales exceeded $500 million and earnings reached nearly $13.5 million, by purchasing the rights to the Fruit of the Loom name for hosiery. With this move, Kellwood hoped to garner a portion of the $1.39 billion sheer hosiery market from its two largest manufacturers, Hanes Corp. and Kayser-Roth, producers of the Leggs and No-Nonsense lines. Kellwood had experience in this area; the company had manufactured hosiery for Sears since 1965 under Searss Cling-Alon label.

In 1980 Kellwood significantly increased its offshore involvement by acquiring nearly a half interest in Smart Shirts Ltd. of Hong Kong. In 1972 Kellwood formed a subsidiary named Kellwood International Ltd. in Hong Kong to facilitate its import and export activities. A producer of high quality shirts and blouses under labels such as Gant, Arrow, and Eagle, Smart Shirts held the largest import quotas for shirts entering the United States, with sales of $86 million and earnings of more than $9 million. With a laudable clientele list that included Macys of New York, Inc., Federated Department Stores, The May Company, and J.C. Penney Company, Inc., the acquisition of Smart Shirts would eventually enable Kellwood to lessen its dependence on Sears.

By the following year, Kellwood had completely redefined its corporate strategy. The small steps taken since 1975s downturn toward more parity between private and brand label business and less dependence upon Sears had not been enough to satisfy Kellwoods management. Although Sears would continue as a significant customer for Kellwoods products, more balance was desired. Chairman Wenzel commented in Barrens, Our philosophy is not to do less business with Sears, but to reduce that percentage by selling more to other customers.

To accomplish this task, Kellwoods management decided to significantly increase its involvement in offshore manufacturing and sourcing, the practice of shipping U.S.-cut fabric overseas to be sewn and then returning the finished product back to the United Statesat a more favorable tariff rate than a pure import as allowed by the 807 Tariff regulations. (To remain competitive, U.S. apparel companies needed to source because of the high cost of domestic production.) The company concentrated its focus on Central America, the Caribbean, and the Far East. Kellwood also re-examined the diverse businesses and products with which it was involved. Kellwoods marketing and production efforts under the Van Raalte and Fruit of the Loom labels were discontinued because of inconsistent profits.

As a result of its sharpened focus, Kellwood entered its third decade of business as a company still largely involved in private label business, seeking to diminish its reliance on Sears by developing a broader customer base. By 1982 earnings had rebounded from a disappointing $216,000 two years earlier to over $8 million. The decisions made a year earlier began to take shape with the introduction of a new line of womens apparel manufactured under the private label of 14 large department stores. The shift away from Searsalbeit a modest one at this pointaffected Kellwoods sales volume, but earnings had climbed due to sharp reductions in inventory and by cutbacks in some of its product lines and manufacturing facilities. A move toward securing a greater international presence was also made in 1982 when Kellwood increased its holdings of Smart Shirts to 82 percent. With two large manufacturing facilities in Taiwan and Hong Kong, Kellwood increased its profits by manufacturing certain products in the more cost-efficient Far East.

In July of 1984, Kellwood purchased the remaining shares of its stock held by Sears, thereby ending the investment relationship between the two companies that had spanned nearly a quarter of a century. By the following year, Kellwoods sales to Sears were equal to the amount of sales made to its other customers. This significant drop in sales to Sears once again affected Kellwoods sales volume, but the 1985 acquisition of Cape Cod-Cricket Lane, Inc., a maker of womens coordinated sportswear, helped lift its sales figures and enlarged its domestic operations. Kellwoods presence in the Far East was fortified in 1983 by purchasing the remaining percentage of Smart Shirts and by the acquisition of a company slated to operate under Smart Shirts management in the free-trade area of Sri Lanka. Created in 1984 to aid Kellwoods search for and acquisition of companies in the Far East, Kellwood Asia Ltd. enabled the company to expand its international operations. Kellwood worked with local manufacturers in the Caribbean and Central America on a contract basis to source its products under 807 regulations.

In the latter half of the 1980s, Kellwood augmented its acquisitions of both domestic and offshore apparel companies by purchasing companies featuring fashion-oriented, branded merchandise. As opposed to the lower-priced products it had supplied to Sears in the previous two decades, the higher-priced products required less inventory and typically offered greater profit potential. In 1986 Parsons Place Apparel Company became the second domestic marketing oriented company to be purchased after Cape Cod-Cricket Lane. This increase in Kellwoods domestic, branded segment was followed by the purchase of E Z Sportswear and its subsidiary, En Chanté, Inc., as well as Robert Scott Ltd, Inc., David Brooks Ltd, Inc, and Andrew Harvey Ltd. in 1987, and Crowntuft Manufacturing Corp. in 1989. These acquisitions helped to counterbalance the continued drop in sales to Sears. By the end of the decade, Searss portion of Kellwoods sales had fallen to roughly one quarter.

Kellwoods decision in 1981 to discontinue products and close facilities it deemed unprofitable or inconsistent with its new corporate thrust affected two long-standing entities of the company. In 1985 the recreation division was sold and, a year later, Ashleys Outlet Stores, which operated approximately 100 stores at the time, was also sold. The sale of the recreation division, however, did not signal the end of Kellwoods involvement with recreational goods. In 1989 Kellwood purchased American Recreation Products, Inc. as a subsidiary.

Kellwoods Far East operations also grew with the 1989 acquisition of Saipan Manufacturers, Inc. located in the Northern Mariana Islands. A manufacturer of mens shirts and sport shirts for export into the United States, the company fell under Smart Shirts management. By the end of the decade, Smart Shirts accounted for more than 40 percent of Kellwoods operating profits and provided another economic boost to supplant the losses from Sears.

As Kellwood entered the 1990s, its growth over the previous 30 years positioned it as one of the leading apparel manufacturers in the United States. With over 250 major retail accounts that involved approximately 25,000 individual stores, the companys customer base had evolved from almost complete dependence on Sears to a large and diverse clientele. The addition of California Ivy Inc. in 1992 and A. J. Brandon in 1993 increased the number of divisions and subsidiaries to 14. It remains to be seen if the Kellwoods aggressive pursuit of domestic and foreign companies continues to fuel its success in the 1990s and beyond. However, with its broad line of both brand and private label apparel and its line of recreation and home furnishing products, Kellwoods products will most likely be staples in American homes.

Principal Subsidiaries

Smart Shirts Limited (Hong Kong); A.J. Brandon Inc.; American Recreation Products, Inc.; California Ivy Inc.

Further Reading

Byrne, Harlan S., Ailing Market Fails to Faze Apparel Producer, Barrens, January 8, 1990, pp. 4243.

Cochran, Thomas N., A Product of Logical Growth, Barrens, September 12, 1988, p. 47.

Kellwood: A History, St. Louis, Missouri, Kellwood Company, 1982.

Kellwood Company Annual Reports, St. Louis: Kellwood Company, 19831992.

Maturi, Richard J., On Its Own and Thriving, Barrens, March 10, 1986, p. 57.

Millman, Nancy F., High-Stepping Bodywear Market Meets New Rival, Advertising Age, August 28, 1978, p. 236.

Millman, Nancy F., Kellwood Firming Plans to Snag Hosiery Share, Advertising Age, October 23, 1978, pp. 2, 112.

Seventeen Suppliers of Sears to be Merged into Single Operation, Wall Street Journal, September 12, 1961, p. 10.

Soft-Goods Profits, Barrens, February 14, 1983, pp. 4850.

World Enough? Forbes, April 1, 1972, p. 49.

Jeffrey L. Covell

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