CALVIN KLEIN & WARNACO GROUP

Javier Romero-Requejo Ana Gonzalez de Castro Eugenio Sanjun Hinna Mohammad Stefan Mairegger Petra Mitterruztner

Index
1.

2.
3. 4. 5. 6.

Introduction Distribution practices and fashion retailing Jeanswear Category Background Calvin Klein Inc. And Mr. Calvin Klein Warnaco Group Inc. And Ms. Linda Wachner Details concerning the relationship

Introduction

&

Distribution Practises and Fashion Retailing

Department stores Chain Stores Mass Discounter

Speciality Stores

Off price reseller

Warehouse Clubs

Department stores

Superior product placement High consumer service High Quality products Premium Price Broad Assortment Shop in Shops Concept

Development of the department store concept

Innovators in the fashion business in the 1950s and 1960s
Rapidly growing throw growing suburban malls in the 1980s Time of crisis in the 1990s Shop in Shop Concept (calvin klein, ralph lauren) Own label merchandise Concept still under firer

Mass Discounter Store

Rapid growth at the expense of department stores Many well known brands at cheaper prices

Mainly self owned brands

Exclusive distribution, cooperation's with designer

Speciality shops
Rapid growth in the end of the 1990s Smaller Scale Trend right merchandise Target segment of costumers One brand shops with high services

Off prices retailers (Outlets)

Sold of brand name merchandise at lower prices Limited investments in sales associates, real estate, inventory, display and lighting Out of season branded fashion and split lines Great discounts to speciality shops

Warehouse Clubs
Started in 1976, clubs stores grew very fast during 1980s and 1990s
Wide Variety of merchandise, in which consumers are required to buy large, wholesale quantities. High quality, low-priced, branded products Stores are spare and service minimal (No frills concept) In and Out items

Jeanswear Category Background

1853 Levis Strauss introduced the first jeans Durable pants for gold miners American west image

Jeans evolved from utilitarian clothing to symbols of youthful rebellion Jeans became part of a unisex and basic look

Vanderbilt created a line of tightfitting, sexy jeans for woman Jeans became fashion

Early 90s jeans returned to basics cycle 1995 innovative silhouettes and washes became popular Many new brands were launched

1999 cK Calvin Klein had 27 % market share in womans department store jeanswear Department store status brand became stuck Discounters gained market share

Licensing Practices in the Designer Marketplace

In the 1970s the licensing took off as a low risk way to grow brands Distribution of fragrances, cosmetics, swimwear, footwear, furniture, cigarettes Licensing grew due to growth pressure Development of so-called diffusion lines- that made the designer accessible to the middle market

Licensing: designer received a percentage of wholesale sales volume in exchange for brand access rights. The degree of control and time horizons varied. Notable licensees

By the late 1990s fashion designers were reassessing licensing as a brand-building and revenue-generating tool
Many designers cancelled most of the companies licensed products Still licensing advocates remain

Calvin Richard Klein

19.11.1942, Bronx (NY) New Yorks High School of Art and Design

Calvin Klein Inc.: 1968 with Barry K. Schwartz Starting capital: 10 000$

Immediate success Vogue: ..a definitive picture of the American look..

1977/82 jeanswear and underwear line Fragrances and other categories; over 40 Image through taboo-breaking and norm questioning ads

Some campaigns banned

1990s debts almost bankruptcy

94 underwear business sold to Warnaco jeanswear license Hostile takeover by Warnaco bought company and cK Calvin Klein jeanswear license price decreases discounter distrubution From manufacturer to licensing empire: 90% of CKIs total revenue

No buyer for CKI -> taken off the market in

2000

92 cK Calvin Klein sub-brand as diffusion line/

bridge collection established

cK Calvin Klein Jeans: high awareness

Mind associations for Calvin Klein Brand

WARNACO GROUP, INC. AND MS.LINDA WACHNER

Originally named Warner Brothers 1960 more fashionable styles for upscale clientele, sportwear, hosiery and sweaters. 1986 hostile leveraged buyout by private group led by LINDA WACHNER. Company held licences such as:

Founded in 1874

Ms. Linda Wachner

Aggressive manager Started working at Macys in 1970s She introduced merchandizing measurement system for bra cup sizes, the Wonderbra, or the stretchy shoulder strap.

Joined Marketing department at Warnaco She was recluited from Warnaco to mastermind Maxfactor. When she heard that Warnacos CEO was planning to take his company private, she started a bidding war for the firm. She prevailed and purchased Warnaco in 1986 for $46,50 a share, or $550 million

Warnaco Group, Inc.

She focus the company on its two mainstays: intimate apparel and menswear. The group jettisoned Dior which commanded a significant licensing fee. The companys debt was cut by 40% and doubled cash flow Wachner took Warnaco public in October 1991. New license deal with Fruit of the Loom. One of Wachners most notable business successes involved cK Calvin Klein underwear line:

Warnaco Group, Inc.

It was at the time of the 400 license and trademark 300 acquisition. 200 Wachner moved to expand distribution across geographic 100 0 and channel bounds. (Asia, United States) She included the J.C Penneys chain and played in the demise of the Halston brand in 1983.

350

55

1994

1999

Sales ($ million)

Warnaco Group, Inc.

Business model was replicated with other brands (Oscar de la Renta, Speedo, Ralph Lauren, etc), which were grown from niche contenders to mass-market leadership positions through channel-expansion strategis and fashion flair. Wachners strategy in handling the Hathaway mens dress shirt brand wasnt successul because of limited advertising support, expanded distribution and general declines in product quality stremming from the use of cheaper fabric blends and slimmer fits.
Hathaway brand was sold in 1996 Warnacos licensing agreement terminated in 1994

Warnaco Group Sales History, 19861999

Year In the years leading up, 1999 to the CKI v.Warnaco case, 1998 Wachner focused on 1997 diversifying beyond 1996 innerwear and 1995 1994 championed 1993 acquisitions. 1992 THE STRATEGY INCREASED 1991 COMPANY DEBT 70% MARKET 1990 CAPITALIZATION IN 1999. 1989

Net Revenues 2,114.2 MM 1,950.3 MM 1,435.7 MM 1,963.8 MM 916.2 MM 788.8 MM 703,8 MM 625.1 MM 562.5 MM 548,1 MM

518.1 MM
425.0 MM

1986

Calvin Klein & Warnaco Group

In 1996 Designer Holdings sold the license The jeanswear license created a growing business and mutual interdependency situation
800 600 400 700

472

200
0 1996 1999

Wholesale volume cK jeans (m$)

Calvin Klein & Warnaco Group

License Agreement
$-Attention of point of sale

Growth and Change Innovation Improvement Ck Business

We expect from Warnaco to follow the same strategy as with underwear and to protect our brand

$-Deeper penetration within point of sale

$-Expanding fixturing shop in shop

$-Protect the brand

$-Change in distribution channels

-Control of merchandise

Calvin Klein & Warnaco Group

Details concerning Jeanswear relationship

Ck allowed the sale of jeans to Costco for value of 32,5 milllion $ in order to output the excess from previous seasons After a 40 million $ investment improving cK stores total profits amounted from 400 to 700 millions $

Calvin Klein,inc. Vs. Warnaco Group, inc.

In 1999 Warnaco reports talk about a profit of 150 m$ through companies as

DISTRIBUTION CHANNELS

*Sues to Warnaco *Merchandise not authorized by Ck *Unnaproved distribution discount outlets

*Ck is throwing stones at Warnaco *Distract the focus from highly deteriorated business state of Ck

Calvin Klein & Warnaco: End of the litigation and reaction

Both of them have a lot to lose, while klein is fighting for his identity, Wachner is fighting for her survival

Klein, himself appeared on CNNs Larry King Live shortly after the suit was filed and stated these practices have been taking place since Warnaco acquired the license three years prior.

The suit was settled in 2001 and sealed with a "fashionista air kisson the steps in front of a New York courthouse.

Calvin Klein and Warnaco Group

THANK YOU!