Jones Apparel Has Its Eye On the Middle-Class Shopper

As upscale department stores have watched moderately priced and discount retail stores siphon sales from them over the past several years, Jones Apparel Group Inc. has been taking note of the trend. Historically, Jones Apparel had been known for its presence in upscale stores. But in April 2001, the company, hoping to expand into what it calls the “moderate zone,” acquired McNaughton Apparel Group Inc., a maker of moderately priced women’s apparel brands. With its recent acquisition of Gloria Vanderbilt Apparel Co. and the Vanderbilt brand name, Jones Apparel gains a very well-recognized brand and augments its product offerings for middle-class shoppers. Jones, based in Bristol, Pa., sells moderately and high-priced women’s apparel. Its brands include Jones New York, Evan-Picone, Rena Rowen, and several licensed by Polo Ralph Lauren. Its Nine West Group Inc. unit designs women’s footwear under the Nine West, Enzo Angiolini, Bandolino, and Easy Spirit brands, among others. Gloria Vanderbilt Apparel, an Edison, N.J.-based designer and distributor of women’s jeans, also licenses its brand name for women’s outerwear, swimwear, sleepwear, shoes, watches, and hair accessories. Although the Gloria Vanderbilt brand may be most readily associated with “status jeans,” a fashion phenomenon of the 1970s, the brand today is positioned as moderately priced, and is distributed in national chains such as Kohl’s, J.C. Penney, and Costco. “The moderate zone,’ which represents a large, potential customer base, is growing at a very robust pace, which is one thing that interested us about Gloria Vanderbilt,” says Thimio Sotos, a vice president and treasurer at Jones Apparel. He adds that his company does not intend to forsake department stores, saying, “We think that department stores still do have a loyal customer base, but while they are still a viable distribution channel, they will not be growing at the same rate as a Kohl’s, for example, which is adding several stores a year and is head and shoulders above everyone else. Plus, we don’t want to keep all of our eggs in one basket.” Anita Britt, senior vice president-finance and investor relations at Jones, notes that the company’s strategy over the last four or five years has been diversification, of both its product lines and distribution channels. She adds that the McNaughton acquisition last year gave Jones “an immediate $500 million presence” in moderately priced merchandise and key relationships with national moderately priced retail chains. “Gloria Vanderbilt is a nice lay-on that will fold right into the moderate segment of our business.” Jones’ acquisition of Nine West in 1999 opened up new distribution channels for both companies. By combining with Nine West, Jones demonstrated its aim to diversify beyond its core competency and target a different consumer group. And although the acquisition left analysts scratching their heads at the time, it turned out to be a winner, as Jones expanded the Nine West name by rolling out a clothing line. The company also brought into the fold Victoria & Co., a costume-jewelry company, in 2000 and clothing maker Sun Apparel Inc., which holds a license for Polo Jeans Co. clothing, in 1998. Future acquisitions, Britt says, will focus on well-known brand names. She says that her company is not interested in private-label merchandise. Jones Apparel has some “high thresholds” in terms of its acquisition criteria, Sotos adds. Given that the managements and cultures of the two companies fit closely, he says that Jones looks for companies that have at least a double-digit EBIT operating margin. The company also wants to achieve a mid- to high-teen return on investment for acquisitions, “which we would want to be accretive immediately.” In evaluating a potential target, Britt states, “we ask ourselves questions such as: What can the company do for us from a strategy perspective? Is there still growth in the business? Are there opportunities for taking our product competencies and applying them to the target’s brands, or vice versa? When we factor those elements in, we will not pay for synergies or additional selling opportunities. We just see those as additional plusses to the business.” p