CK&Warnaco Case

8/3/2019 CK&Warnaco Case

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CALVIN KLEIN &WARNACO GROUP

Javier Romero-RequejoAna Gonzalez de CastroEugenio Sanjun

Hinna MohammadStefan MaireggerPetra Mitterruztner


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Index

1. Introduction

2. Distribution practices and fashion retailing

3. Jeanswear Category Background

4. Calvin Klein Inc. And Mr. Calvin Klein5. Warnaco Group Inc. And Ms. Linda Wachner

6. Details concerning the relationship


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Introduction

&


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Distribution Practises and Fashion Retailing

Department stores Chain Stores Mass Discounter

Speciality Stores Off price reseller Warehouse Clubs
http://upload.wikimedia.org/wikipedia/commons/a/a8/Illinois_Target_Store.jpg


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Department stores

Superior product placement

High consumer service

High Quality products

Premium Price

Broad Assortment

Shop in Shops Concept


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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

Development of the department store concept


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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


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Sold of brand name merchandise at lower prices

Limited investments in sales associates, real estate, inventory, display andlighting

Out of season branded fashion and split lines

Great discounts to speciality shops

Off prices retailers (Outlets)


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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


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Jeanswear CategoryBackground

1853 Levis Strauss introduced thefirst jeans

Durable pants for gold miners

American west image

Jeans evolved from utilitarian clothingto symbols of youthful rebellion

Jeans became part of a unisex and

basic look


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Vanderbilt created a line of tight-fitting, sexy jeans for woman

Jeans became fashion

Early 90s jeans returned to basics cycle

1995 innovative silhouettes and washesbecame popular

Many new brands were launched


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1999 cK Calvin Klein had 27 % market share inwomans department store jeanswear

Department store status brand became stuck

Discounters gained market share


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Licensing Practices in the DesignerMarketplace

In the 1970s the licensing took off as a low riskway 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 middlemarket


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Licensing: designer received a percentage ofwholesale sales volume in exchange for brandaccess rights. The degree of control and timehorizons varied.

Notable licensees


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By the late 1990s fashion designers werereassessing licensing as a brand-building andrevenue-generating tool

Many designers cancelled most of thecompanies licensed products

Still licensing advocates remain


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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$


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Immediate success

Vogue: ..a definitive picture of the Americanlook..

1977/82 jeanswear and underwear line

Fragrances and other categories; over 40

Image through taboo-breaking and norm

questioning ads

Some campaigns banned


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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


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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


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Mind associations

for Calvin KleinBrand


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WARNACO GROUP, INC. ANDMS.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 byLINDA WACHNER.

Company held licencessuch as:

Founded

in 1874


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Ms. Linda Wachner

Started working at Macys in 1970sShe introduced merchandizing measurement

system for bra cup sizes, the Wonderbra, or the

stretchy shoulder strap.

Aggressivemanager

Joined Marketing department at Warnaco

She was recluited from Warnaco tomastermind Maxfactor.

When she heard that Warnacos CEO wasplanning to take his company private, she

started a bidding war for the firm.

She prevailed andpurchased Warnaco in

1986 for $46,50 a share,or $550 million


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Warnaco Group, Inc.

She focus the company on its two mainstays: intimateapparel and menswear.

The group jettisoned Dior which commanded a

significant licensing fee. The companys debt was cut by 40% and doubled cash

flowWachner took Warnaco public in October 1991.

New license deal with Fruit of the Loom.

One of Wachners most notable business successesinvolved cK Calvin Klein underwear line:


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Warnaco Group, Inc.

0

100

200

300

400

1994 1999

55

350

Sales ($ million)

It was at the time of thelicense and trademarkacquisition.

Wachner moved to expanddistribution across geographic

and channel bounds. (Asia,United States)

She included the J.C Penneyschain and played in the demiseof the Halston brand in 1983.


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Warnaco Group, Inc.

Business model was replicated with other brands (Oscarde la Renta, Speedo, Ralph Lauren, etc), which weregrown from niche contenders to mass-marketleadership positions through channel-expansion

strategis and fashion flair. Wachners strategy in handling the Hathaway mens

dress shirt brand wasnt successul because of limitedadvertising support, expanded distribution and general

declines in product quality stremming from the use ofcheaper fabric blends and slimmer fits.

Hathaway brand was soldin 1996

Warnacos licensingagreement terminated in

1994


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Warnaco Group Sales History, 1986-1999

In the years leading up,to the CKI v.Warnaco case,Wachner focused on

diversifying beyondinnerwear andchampionedacquisitions.

THE STRATEGY INCREASEDCOMPANY DEBT 70% MARKET

CAPITALIZATION IN 1999.

Year Net Revenues

1999 2,114.2 MM

1998 1,950.3 MM

1997 1,435.7 MM

1996 1,963.8 MM1995 916.2 MM

1994 788.8 MM

1993 703,8 MM

1992 625.1 MM

1991 562.5 MM

1990 548,1 MM

1989 518.1 MM

1986 425.0 MM


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Calvin Klein & Warnaco Group

In 1996 Designer Holdings sold the license

The jeanswear license created a growingbusiness and mutual interdependency

situation

0

200400

600

800

1996 1999

472

700

Wholesale volume cK jeans (m$)


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License Agreement

Growth and Change

Innovation

Improvement Ck Business

$-Attention of point of sale

$-Deeper penetration

within point of sale

$-Expanding fixturing shopin shop

$-Protect the brand

$-Change in distributionchannels

-Control of merchandise

We expect from Warnaco tofollow the same strategy as withunderwear and to protect ourbrand


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Ck allowed the sale of jeans to Costco forvalue 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 700millions $

Details concerning Jeanswear relationship


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Calvin Klein & Warnaco: End of thelitigation and reaction

Both of them have a lot to lose, while klein is

fighting for his identity, Wachner is fighting for hersurvival

Klein, himself appeared on CNNs Larry King Live

shortly after the suit was filed and stated thesepractices have been taking place since Warnacoacquired 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.

C l i Kl i d W


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Calvin Klein and WarnacoGroup

THANK YOU!

Documents

CK&Warnaco Case