A Hard-Working Suit

The New Sweet Spot Is $500 to $700; They Don't Look Cheap, or Like Dad's

Wall Street Journal
By Sarah Nassauer

It can cost a man a lot less to feel like a million bucks in his suit these days.

There are more suits priced between $500 and $700 that include features once found typically on more expensive suits: fine Italian fabrics, modern cuts and narrow lapels. The goal is to attract younger men who increasingly want the current fitted, formal styles as opposed to the boxy suits and more casual officewear of their dads.

Big suit makers like Brooks Brothers and HMX, which sell suits between about $600 and $3,000, say their lowest-priced suits are experiencing the fastest sales growth. And next month Amsterdam-based Suitsupply, with 35 stores in Europe, plans to open its first U.S. store in New York with suits starting at $385. Suitsupply will offer its sometimes flashy suits with details like Italian wool fabric, brightly colored lining and working button holes, features that usually carry a higher price tag.

Other efforts to keep up quality at lower prices include J. Crew Group Inc.'s expanded men's suit selection. Sales of its men's suit have more than doubled since 2008, when the clothing company introduced a slimmer style, made with Italian wool and superior interior construction, a spokeswoman says. The style, called Ludlow, starts at about $600.



At HMX, which owns American suit brands like Hickey Freeman and Hart Schaffner Marx, the fastest growth is in its lower priced suits, around $795, says Joseph Abboud, president and chief creative officer for HMX. Sales of Hart Schaffner Marx suits, the company's brand in that price range, are up 27% year to date compared to last year, says Mr. Abboud.

The briskest sales growth at Brooks Brothers is happening in its recently expanded Suiting Essentials line, priced starting at $598, says Guy Voglino, divisional merchandise manager for men's clothing at the company. Sales of the line are up 28% in 2011 to date, compared to the same period last year, Mr. Voglino says.

Introduced in 2007 offering one fit, the line has expanded to four different fits, most recently the brand's narrowest cuts, the Fitzgerald and the Milano. Brooks Brothers offers some made-to-measure options including about 20 fabrics. The ability to individualize appeals to younger men who want to stand out even in a room of suits, says Mr. Voglino. Because each suit is specially ordered, the company saves money by producing only what it actually sells and doesn't risk bloated inventory.

The interest in suits at this price range comes amid an overall pick up in suit sales at some manufacturers. Brooks Brothers says sales of its 1818 Collection, priced about $1,000, are up 26% year-over-year. HMX is seeing double digit growth in volume and dollar sales across brands and price points, says Mr. Abboud.

"We are seeing the suit business really come back in the last six months very very strongly," says Robert Burke, a luxury-goods consultant and founder of Robert Burke Associates in New York.

Many men wait for seasonal sales in order to find a good price on a suit, but suit makers hope the new $500 to $700 range will encourage men to buy retail instead of waiting for price cuts.

Suitsupply is able to keep down prices, in part, by picking store locations slightly off main shopping streets with lower rents, says Fokke de Jong, chief executive and founder of the company. The company's new Soho New York location will be on a second floor with no street level window display. About 15% of Suitsupply suits are sold through the website.

J. Crew, like Suitsupply, controls more aspects of production from design to distribution, cutting out payments to third-party companies that typical move suits into department stores.

Men's Wearhouse which sells suits from about $199 to $700, keeps prices low by offering two-for-the-price-of-one deals, increasing sales volume and therefore buying power with its suppliers, says Doug Ewert, president and chief operating officer of the Fremont, Calif.-based company.

Maintaining the current price-to-quality relationship in men's suits is likely to become increasingly difficult. Raw material prices for desirable natural fabrics like wool and cotton are rising sharply. "If I have to guess, price is going to go up 10% to 15% on the wholesale side" heading into spring 2012, says Ronny Wurtzburger, president of Peerless Clothing which manufactures men's suits for brands like DKNY, Calvin Klein and IZOD.

We enlisted two experts for an unscientific, blind review of six suits: Salvatore Giardina, a men's suit designer and professor at the Fashion Institute of Technology, and Salvatore Cesarani, a designer and professor at Parsons The New School for Design.

The testers found striking differences in quality, sometimes out of line with the suit's price. Both testers said the $614 Suitsupply suit matched the $3,625 Armani in quality. Both saw little difference in quality between the two, or at least not enough to justify a $3,000 difference in price. Each is made with soft Italian fabric and showed the maker cared about details like pockets with extra stitching at their edges.

"It's a work of art," said Mr. Giardina when examining the sewing job in the waist band of the Armani suit pant. But after learning of the large price difference, "that means that won," Mr. Giardina said, pointing to the Suitsupply suit.

The J. Crew suit fared well with the testers noting its neat construction and that it is made of high-end Italian fabric and Bemberg lining (a type of rayon favored for its breathablity and moisture absorption).

The testers said the Hart Schaffner Marx suit didn't live up to its $895 price. Mr. Giardina noted some fraying strings on button holes and said its "AMF stitching" didn't achieve a handmade look. (AMF stitching is a wider stitch that's an aesthetic touch.) Mr. Cesarani said the jacket didn't move freely in the chest.

The test method "is an imperfect science and it's an opinion," says Mr. Abboud, noting that the suit tested is made from "super 110s wool made in Italy. "We take great pains," he adds, to make sure fabric and construction is high quality.

Mr. Giardina said the H&M suit used a lower thread count wool fabric and basic construction, but still pulled off a nice overall look. Mr. Cesarani dismissed it as "cheap looking." He docked points for the lack of extra fabric for future tailoring where the lining inside the cuff of the jacket meets the exterior fabric.

"We know that our suits are appreciated by many of our customers," said an H&M spokeswoman.

The Target suit isn't worth more than $89, both testers agreed, calling the polyester fabric a major negative.

"Target is committed to offering quality merchandise at a great value," says a Target spokeswoman. "For our business-focused guests, this means finding suits for less than $100."

J. Crew Goes Bigger on Fifth Avenue

by Sharon Edelson
From WWD Issue 04/08/2011

J. Crew’s newly expanded and remodeled flagship at 91 Fifth Avenue here is described by a long list of superlatives. It’s the largest store in the chain, having grown to 20,800 square feet from 15,000 square feet. According to sources, sales are expected to exceed $1,100 to $1,200 a square foot.

The location, near 17th Street, is also J. Crew’s first three-level store and the first to house men’s, women’s and Crewcuts, its children’s brand, under the same roof. (A unit at Garden State Plaza in Paramus, N.J., offers the three businesses, but in adjoining stores with separate entrances.) The flagship boasts the chain’s first proper shoe and handbag departments, and the first men’s and women’s suit areas. It also has the first dedicated area for personal shopping, a lounge with private dressing rooms off the main floor. Home delivery and complementary “house calls” will be coordinated from the store.

With a lighter and more open design, the store’s decor is a nod to a midcentury modern sensibility with art and objects from the Thirties to the Sixties, such as Bradley Hughes’ “Lucille” lighting fixtures and a curated art collection. There’s also an installation on the wall of hundreds of gloves that form an abstract bird’s wing and a neon legend behind the cash wrap: “Take Me (I’m Yours)” that could be a Barbara Kruger work. Throughout the store, industrial wire and glass panels are used to frame areas, create alcoves or delineate the entrance to a new department.

“We want to make sure each store speaks to its environment,” said Jenna Lyons, J. Crew’s president and executive creative director. “Each store reflects the neighborhood it’s in. Cookie cutter stores are not creative or conducive to people shopping. There’s a vibe and energy you always feel in any good store.”

“It articulates in a very clear and concise and emotional way what J. Crew is,” said chairman and chief executive officer Millard “Mickey” Drexler, who visited the store on Tuesday afternoon for a walk-through with his team. “It’s about a store that gives the merchandise an environment and connects emotionally with customers. We’ve been able to articulate businesses here that hadn’t presented well [elsewhere]. The store has everything we’ve had but [the store design] makes it easier to see and feel. This has been one of our landmark stores for a long time.”

The store, which caters to office workers and residents during the week and is a destination for tourists on weekends, opened in 1996.

Nothing escapes Drexler’s keenly observed eye. During the store visit, he saw something that reinforced the idea that the brand is appealing to more affluent shoppers. “This, I love to see,” he announced in the shoe department. “Chanel shoes on a customer.” Earlier that day, when Drexler stopped by the new Crewcuts department on the second floor, a half-dozen strollers deposited near the entrance caught his attention. “I was on the store loudspeaker saying, ‘We need a stroller parking lot,’” he said.

Drexler chatted up employees and consumers alike, eliciting their opinions on anything and everything. He insisted that some new business ideas come from customers. A shopper recently asked him why J. Crew doesn’t make baby and layette products. “We’re working on it, –ish,” he said.

The women’s collection on the main floor features classic J. Crew items: Italian cashmere, wear to work suiting and the higher priced J. Crew Collection displayed in raw wood fixtures with an emphasis on wardrobing. There’s an expanded selection of new and vintage jewelry. A distressed Chesterfield sofa, raw birch floors and antique carpets define the second floor shoe lounge, which has a Venetian dandelion chandelier hanging overhead. Niches off the lounge create environments for handbags.

“We’ve always had a very well developed men’s business in this neighborhood,” said Drexler. “We hope it will be even more productive.”

The third floor men’s department was inspired by turn-of-the-century New York City garment factories. There’s oak flooring, a grid of pendant light fixtures and other masculine touches such as portals and transoms made from blackened steel and antique glass wire to define the shops for suiting, denim and shirting. In Good Company third-party partnerships and collaborations include Belstaff for leather bomber jackets and Quoddy of Maine for artisan moccasins, among others.

The Retail Megadeal Is On The Rise Again

by Evan Clark
From WWD Issue 03/28/2011

Not only is the retail mergers and acquisitions market continuing to heat up, but the megadeal is back on the table.

Certainly there’s enough money out there for both deal size and valuations to balloon.

Chris Meyer, director at McKinsey & Co., said private equity firms have as much as $100 billion that could be invested in retail.

“It’s a big number,” he said. “The funds are feeling pressure to put that money to work.”

And growth is the order of the day.

“If you believe that growth in consumer spending is going to be muted versus what it was during the last decade, retailers are going to figure out how to compete in what is essentially a share war,” Meyer said. “Folks are going to pay a premium for those assets that have some real growth potential in them.”

It’s hard to compare one deal with the next on overall size — retailers have a varying number of stores, different management teams, brands and so on. To level the field, bankers look at multiples, which typically are determined by dividing a company’s enterprise value — the value of its stock and debts minus cash on hand — by earnings before interest, taxes, depreciation and amortization for the previous 12 months.

In specialty retail, the $3 billion acquisition of J. Crew by TPG Capital and Leonard Green & Partners equated to about nine times EBITDA, while Gymboree Corp. went for about eight times, according to Thomson Reuters. That means that Aéropostale Inc., one of several companies that has been said to be a buyout candidate for months, is still attractive from a valuation perspective. Its stock is trading at a multiple of 4.12 times, so a buyer could pay current shareholders a healthy premium and still come in below the range established by the other deals in the sector.

There are plenty of companies with relatively low valuations in the sector. Gap Inc., for instance, trades at a multiple of 4.62 times. In February, Sears Holdings Corp. chairman Edward S. Lampert revealed that he had bought 5.8 percent of the company, or 35 million shares. (For more on current multiples across retail, see chart below.)

All the action is being spurred by a number of factors. The recovery is on surer ground, stock prices have come roaring back and financing is easily available. So observers believe multiples are bound to head up, as will the size of the deals.

“I don’t see any reason why there isn’t a $5 billion to $10 billion deal out there,” said David Shiffman, investment banker and managing director at Miller Buckfire & Co. “Because of the Fed policy, as it relates to interest rates, money is incredibly cheap and we’re back to seeing financial packages that look like they did pre-crash. Absolute levels of leverage are beginning to creep up as well.”

Just look at AT&T Inc., which last week secured a $20 billion bridge loan from J.P. Morgan to acquire T-Mobile.

“Deals like that excite the marketplace,” Shiffman said.

And the market had already proven to be rather excitable. So far this year there have been 53 retail buyouts in the U.S. totaling $9.31 billion — well ahead of the $1.61 billion in deals seen a year earlier, according to Dealogic.

“I don’t think there’s been a better time, really, for the M&A market,” said investment banker Elsa Berry, head of Houlihan Lokey’s cross-border consumer coverage. “It’s a unique time. Never before have you seen companies pile up so much cash. If you’re a public company sitting on a ton of cash and you’re not deploying it somehow, shame on you. You know what happens to those guys, they’re not independent for long.”

Companies across the spectrum are on the move. Walgreen Co. inked a deal to buy Drugstore.com, Revlon Inc. bought the Sinful Colors brand and Nordstrom Inc. acquired online private sale firm HauteLook Inc. for $270 million. In Europe, LVMH Moët Hennessy Louis Vuitton agreed to buy Bulgari for $6 billion and has been slowly amassing a stake in Hermès, which now stands at 20.2 percent.

Still, big deals can bring big challenges and the market still seems far from the days when rumors of a $100 billion buyout of Home Depot seemed credible enough.

To make a big deal work, the target company has to be in expansion mode to be worthwhile.

“There are still a number of companies to consolidate,” said Gilbert Harrison, chairman of Financo Inc. “One of the problems that you have to take a look at if you’re going to look at any of these companies seriously is, ‘What is the growth rate?’ If the company can’t continue to grow at 12 to 15 percent a year, there’s going to be a greater difficulty in getting payback. The bigger the company is, the harder it is to do that.”

And not all fashion mergers are Master of the Universe stuff.

Middle-market apparel producers — who usually count their sales in tens of millions of dollars, not hundreds of millions — are also busy consolidating, buying up friends and enemies as they cope with changing retail realities.

“They used to say, ‘I’m in Macy’s and J.C. Penney.’ Now they’re saying, ‘I’m in T.J. Maxx and Burlington [Coat Factory] and Stein Mart and the regionals,’” said Jack Hendler, president of Net Worth Solutions Inc. “There’s an overabundance of production. They’re looking to buy because they lost volume over time. Organic growth really does not exist unless you’re some mega-brand, a Polo, a Calvin [Klein], a Nike. Anybody else has extreme difficulty getting more shelf space and the only way they can do it is by making an acquisition.”

Hendler said more of the smaller companies need to be absorbed, making for larger, stronger vendors that can work more effectively with retailers.

“There are still companies that are clearly doing well and have found a niche and have an identity and keep remodeling and keep reenergizing their product categories,” he said. “Some of them have recognized that they’re unique, but are also getting tired of the difficulty in the market place. A number of healthy companies with real EBITDA [earnings before interest, taxes, depreciation and amortization] are looking for acquirers.”

Already some buyers and sellers have connected. In January, Kellwood Co. bought contemporary sportswear brand Rebecca Taylor and Perry Ellis International Inc. acquired Rafaella Apparel Group Inc. from Cerberus Capital Management.

The Rafaella deal includes $80 million and 106,564 warrants to purchase Perry Ellis stock. That makes for a multiple of about six times.

J. Crew's CEO Inks New Deal

by Arnold J. Karr
From WWD Issue 03/24/2011

Millard “Mickey” Drexler, chairman and chief executive officer of J. Crew Group Inc., has a new contract that will keep him on the job until after his 70th birthday.

As part of the acquisition of J. Crew by TPG Capital and Leonard Green & Partners that closed on March 7, Drexler, 66, signed a new employment agreement that runs through the fourth anniversary of the acquisition in 2015. After that date, it is automatically renewed for one-year extensions without limit unless Drexler or the company provides notice of nonrenewal at least three months before its anniversary.

Drexler, who retains an equity interest in the firm he joined as ceo in 2003, will continue to receive a base salary of $200,000 and will remain eligible for a cash bonus with a target amount of $1.2 million, as well as time- and performance-based equity awards.

Details were disclosed in J. Crew’s annual report, filed with the Securities and Exchange Commission earlier this week. There were no modifications in the contracts of Jenna Lyons, president and executive creative director, or James Scully, chief administrative officer and chief financial officer, both of whom continue to work on the basis of automatic one-year extensions unless notice of nonrenewal is furnished at least four months prior to their anniversary dates. Their base salaries are $675,000 and $600,000, respectively, although their 2010 salaries were $885,000 and $661,000.

Excluding a cash bonus still to be calculated, Drexler last year earned $4.9 million. His $5.8 million in 2009 total earnings included a discretionary cash bonus of $2 million granted “in recognition of both individual and company performance.”

For 2010, the J. Crew ceo is eligible for cash bonuses ranging from $267,000 to up to $2 million if the company achieved earnings before interest, taxes, depreciation and amortization — EBITDA — of at least $280.3 million. Its income from operations — equivalent to earnings before interest and taxes, or EBIT — was $214 million last year. J. Crew expects to disclose Drexler’s bonus no later than April 15.

J. Crew Profit Shrinks 90% in Q4

by Vicki M. Young
From WWD Issue 03/22/2011

In what is likely to be its last annual regulatory filing, J. Crew Group on Monday said fourth-quarter income fell 90 percent.

The specialty chain, which became private on March 7 upon the completion of its acquisition by affiliates of TPG Capital and Leonard Green & Partners, said income for the three months ended Jan. 29 fell to $4 million, or 6 cents a diluted share, from $40.4 million, or 61 cents, in the year-ago quarter. Total revenues rose 2.4 percent to $471.5 million from $460.6 million. Same-store sales for the quarter were not reported in the filing.

Included in both quarterly and full-year results were $20 million in pretax selling, general and administrative costs incurred in connection with J. Crew's acquisition.

The annual report, filed with the Securities and Exchange Commission Monday, referred to a "softening of the sales trend in both stores and direct, primarily in women's apparel, in the second half of the year" and indicated that the company expects a continuation of weakness "at least through the first quarter of fiscal 2011."

For the year, income fell 1.5 percent to $121.5 million, or $1.84 a diluted share, from $123.4 million, or $1.91, in 2009. Total revenues rose 9.1 percent to $1.72 billion from $1.58 billion. The company said same-store sales rose 4 percent for the year.

The firm said that by operating division, revenue from its stores rose 7.4 percent to $1.19 billion from $1.11 billion, while that from its direct channel gained 14.6 percent to $490.6 million from $428.2 million.

By segment category, the men’s business grew in 2010, while the women’s category declined. Women’s was 62 percent of the business compared with 65 percent in 2009.