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Apparel Industry Growth Strategies

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Sandra Keiser

on 23 February 2016

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Transcript of Apparel Industry Growth Strategies

The goal of most industries is to grow profits.

How do they go about doing that?
Growth industry or mature industry?
A bigger piece of the pie or . . .?
Three growth strategies
Vertical Integration
Horizontal Integration
New products
High in price (to pay for R and D)
Higher profit margins
Technology may be protected
Limited supply
Large portion of the population without
Market saturated
Competitive pricing
Ample or over-supply
More challenging to provide newness
Rely on differential advantage to maintain or increase market share
Lower price
Superior quality
Unique product features (function and/or aesthetics)
Speed to market
Superior service
New products

Market share
Profit margins
Level of capital investment
Capacity utilization
Inventory levels
Cash/debt levels
Vertical Integration-A company buys
a company that performs another function within the supply chain in order
to achieve improved efficiencies.

Full Package-A contractor that is able to provide design, textile sourcing, patternmaking, production, and product testing.
Horizontal Integration-A company buys another company in the same business in order to increase market share.
Talbots to buy J Jill for $517m (Feb. 2006)
Talbots agrees to sale of J Jill for $75m (June 2009)
"Jones Apparel Group Inc. is continuing to expand its portfolio in the contemporary category. After buying a 50% stake in Rachel Roy in 2008, the apparel conglomerate has acquired Moda Nicola International LLC, which owns the Robert Rodriguez Collection."
economy of scale
decrease competition
Supply chain efficiencies
Supply chain control
Eliminate profit centers
Diversification-A company buys another company that makes a different product category.
Facilitates brand extensions
Protects a company from ebb and flow of fashion and seasonal fluctuations
Ex. Jones Apparel Group owns numerous jewelry, accessory, and shoe companies
Nicole Miller Could
Consider IPO (2009)
Kellwood's Vince Files for IPO (2013)
Mergers and Acquisitions:
Why Brand Value Still Matters
"Tommy Hilfiger turned out to be a good long-term prospect. PVH posted a handsome growth in profits in its 3rd quarter spurred mainly by Tommy's international sales.
Phillips-Van Heusen Corp. (PVH) completes Hilfiger Acquisition from Apax Partners (May 7, 2010)
Kellwood acquired Vince, Adam (2010), and Rebecca Taylor between 2005 and 2011, all in the contemporary market
Hudson's Bay Co. acquires Saks Fifth Ave.
What can go wrong?

Lose direct control
Pressure to expand at a faster pace
Have to answer to new owners
No longer in charge of one's destiny
Could lose one's name and label
Deverticalization - Companies sell off business functions when conditions change and they can no longer do them competitively.

Divestment-Companies that focused on horizontal integration and diversification, change course and begin selling off brands that are no longer profitable or that aren't living up to growth expectations.
Liz Claiborne Brands 2001

Kate Spade & Company
Kate Spade
Why horizontal integration???
Why Vertical????
Almost Vertical

Angel Investor
Venture Capital Group
Mergers and Acquisitions
When growth doesn't work!
Narciso Rodriguez
Juicy Couture
What are Private Equity Investors Looking For?
Brand equity
Strong growth prospects
Sustainable Point of View
Sustainable gross margins/profits
Diversified Distribution
Strong customer relationships
Strong sourcing partnerships
Lean inventories
Desirability of product

What are merger and acquisition targets looking for?
Cash out of a family business
Additional capital to finance growth
A match that is committed to the mission and heritage of the brand
Management cash out

Risks of M&A
Insufficient turnaround time
Not committed to brand DNA
Lack of experience in category or price point
Unexpected disruptions in the business climate
Full transcript