Jones not alone. Branding, Delineation and Diversafication will be keys to success

-Jones Apparel Group, Inc. (JNY) trades within the $100 billion + domestic apparel retail sector. JNY’s focus is in the women’s apparel market, representing > 56% of this market. In this highly fragmented market, 30% of apparel sales are generated through multi-retail channels, as the other 70% is accounted for in the private label store brands. Because this market is mature, growth will mainly come through increased market share as a result of acquisitions and innovative, diverse product assortments. Stagnation in pricing is occurring as production has consistently been moving to lower cost offshore manufacturers, mainly in China, India, and smaller Asian countries. The competition in this sector comes from specialty stores (approx. 30%), mass merchants such as Wal-Mart and Target (18%), department stores (17%), national chains such as Sears and J.C.Penney (15%), discounters like T.J. Maxx and others (8%); while the remainder is divided among factory outlets and pure play direct channels of distribution.

-JNY core business comes from the department store channel of distribution. This is a down-trending sector as the mass merchants and specialty retailers are picking up market share. This being said, JNY still has a considerable market share in the mid tier department store channel with other national chains, competing for business including Liz Claiborne, Polo Ralph Lauren, and VF Corp.

-Since the department store segment has identified differentiation as one of the keys to their success, they are relying more heavily on the development and implementation of their own private label programs and signing exclusive licensing deals with branded vendors. JNY shares an advantage with some of its competition by direct retailing channels utilizing approx. 400 specialty stores and approx. 675 factory outlet stores.

-JNY has also gained an edge in visibility to the entire luxury retail market from their acquisition of Barney’s, inclusive of the trendsetting Barney’s New York Co-Op concept. This gives them access to the high end market and a testing ground for reinterpreting the hot trends coming from the designers.

-As JNY has diversified itself with their acquisitions and (weaker) internal development initiatives totaling over 20 apparel, accessories, and footwear brands, they have somewhat mitigated their operational risk through a lesser dependence on fewer brands.

-JNY has proven that it can produce strong assortments from its teams in the Design and Marketing silos. As these teams work closely with Product Development and Production, JNY should maximize their edge in global sourcing. (Management needs to make this a focus).  JNY has shown a relative weakness in their development and introduction of new internal brands, putting pressure on their numerous acquisitions to maintain top line growth. JNY’s savvy in the acquisition of relevant, trendiest brands has kept their offerings attractive, but in no way extraordinary. As previously mentioned, JNY has yet to reap the full benefits that the acquisition of Barney’s  can bring to the company. This acquisition has put JNY in a position to ensure growth in the luxury retail sector, which is the fastest growing sector in the apparel market and is impervious to macroeconomic trends. JNY should experience incremental growth through the opening of new Barney’s locations and the expansion of the Barney’s Co-Op concept. As capital expenditures have outpaced JNY’s earnings, this will is not a long term concern as the recent high level of expenditures from the acquisition of Barney’s, new store construction and the development of new retail concepts (involving store openings.) will abate.

-JNY, along with its competitors, understands that they are trading in a down trending sector as Federated is expected to close up to 100 duplicate locations from their May Co. acquisition. There has also been a rash of ownership changes in the other department stores , involving Saks, Profit’s, McCrae’s, Belk, Inc., Bergner’s, Carson Pirie Scott, and other region-specific department stores. This will ensure a forecast of flat to down trending profitability in the mid-tier department store sector.

SUMMATION:

-With JNY’s portfolio of apparel, accessories and footwear brands acquired and developed, growth coupled with operational synergies should ensure margin stability if not growth. JNY is strategizing to expand their bridge apparel lines with the acquisitions of other brands, i.e., Kasper. Overall, Barney’s should prove to be a great acquisition; as it diversifies JNY’s portfolio, it will decrease their future dependence in the department store channels of distribution. The recent JNY sale effort should not affect their relationships with their key accounts but is not a positive for the companies P.R.