Kenneth Cole & Paul Blum: The Sequel

Enter stage left: Paul Blum, who reprised his role as the business head of Kenneth Cole Productions Inc. last year and has made quick moves to reorganize the company, instill an entrepreneurial spirit in his team and manage expenses — so far to critical acclaim.

Enter stage right: Kenneth Cole, chairman and chief creative officer of the firm, who is relishing being back in the spotlight in a much more visible role.

Scene: Through the large bay windows of the firm’s Manhattan headquarters, rays of January sunlight dapple both executives. They are locked in conversation, turning only occasionally to address a small group of Footwear News and KCP staffers, as a camera clicks away in the background.

Cole sits. He speaks.

“The opportunities for this company are clearer than they’ve ever been,” he says. “And I’m loving that I can go back to spending more time doing what I love to do, which is being more creative and being with the product.”

Cole, after all, spent much of last year juggling a host of duties. He took the reins as interim CEO of his eponymous company after Jill Granoff left the position last February; continued to chair AmfAR, his longtime passion; and even served as a judge on reality show “Project Accessory.” At the same time, the founder, known for conjuring witty puns and ad slogans about everything from the New York Giants to politics (see the recent “Electile Dysfunction” billboard, above), also found himself at the center of an online controversy after he tweeted a joke about the Egyptian revolution.

Meanwhile, for Blum, 2011 marked a homecoming. He officially reassumed his spot at the helm of Kenneth Cole in June after being CEO of David Yurman for five years. (The exec previously spent 15 years at Kenneth Cole in various roles including president and COO.)

“It’s so interesting to return to a company [with which] you spent so many years involved in its growth, then to go away, learn other skills, [explore] other markets and come back to see if you succeeded [previously],” he said.

Blum also looks forward to being one half of a dynamic duo with Cole again.

“Kenneth and I are both very entrepreneurial, and we’re about creating — be it ideas or solutions. We’re both product-obsessed — it’s a serious affliction — and that enables us to speak the same language about business, which keeps the whole company focused,” he said.

Blum is not exaggerating when he says that every discussion at the firm starts — and ends — with product. In fact, the word crops up 51 times during a one-hour interview with him, and another seven times in a 15-minute sit-down with Cole.

“We’re very comfortable that the demand for the brand is there. Now we have to create the product that intrigues and compels it,” the founder said.

The energized pair’s first order of business is to raise the curtains this fall on the freshly rebuilt Kenneth Cole New York women’s footwear line, which was pulled from shelves last year after a period of underperformance.

That initiative is the cornerstone of an effort to refuel growth in the firm’s overall shoe business, which now comprises just a third of total revenue. (It used to be the majority.)

While Blum declined to lay out specific goals for the footwear segment, he’s clearly very committed.

“At our heart, our core, we’re a shoe company,” he said. “As a designer, Kenneth designs a lot of categories, but footwear is truly his passion, and it drives a lot of our total presentation. Our new focus on design is really going to take our business to the next level.”

Taking Stock
It’s no secret that the company has had a rough few years: It lost $14.8 million in 2008, $63.2 million in 2009 and earned just $2.1 million in 2010.

Even as the firm started seeing certain improvements last year, it was still missing some sales targets, which analysts attributed to poor sell-throughs of women’s product. Those, in turn, were caused by the lack of a strong fashion-value proposition in the collections.

While the men’s business still showed sustained, healthy growth, Sterne Agree analyst Sam Poser said, “They had trouble finding a higher-end customer for women’s. The product just wasn’t compelling enough.”

Blum didn’t deny there’s work to be done. He candidly admitted the design concept wasn’t clearly communicated to the whole team, then added, “But I don’t think that’s a valid excuse, because many brands thrived during the recession. I really believe it was a lot about the [poor] execution across all our touch points that was the issue.”

The recession didn’t help, either. “We found it hard to fix the women’s shoe business in [that sort of economic environment],” Cole said. “We’ve taken a few steps back in the hopes of taking many forward.”

The company also had to close 17 underperforming stores over the last two years, among them the prominent Rockefeller Center flagship opposite Saks Fifth Avenue.

“That was hard,” said Cole, his voice pitch rising and face grimacing. “It was one of the toughest decisions we had to make, but at the end of the day, we’ll be a better business for it. And we can focus on what really matters now, which is employing significantly more resources to make sure the product gets to where it needs to be.”

Full-year 2011 results are slated for release at the end of this month, and while Blum said it’s still early, he’s already seeing improved product sell-throughs in the fourth quarter because of the investment in product, as well as good expense management.

In the third quarter, Kenneth Cole earned $5.8 million, or 31 cents a share, up from $2 million, or 11 cents a share, a year ago. Fourth-quarter earnings per share are expected to be between 37 cents and 39 cents, versus the prior year’s loss of 15 cents.

Analysts also are generally upbeat on the firm’s progress. Calling it “still a transitory time at the company,” Steven Marotta, analyst at CL King & Associates, said, “Paul is doing a terrific job rallying everyone to focus on ‘the product.’ Whether it’s at a finance or distribution or sourcing meeting, product is placed in the middle of the table [and he asks], ‘How can we better support this?’”

B. Riley & Co. analyst Jeff Van Sinderen agreed: “It’s not all turnaround in a huge way yet, but they’re starting to get some traction. Kenneth is great in the role he’s returned to, and you’ll see numbers go up gradually this year.”

The Next Chapter
As Cole and Blum work to get the financials back on track, they are laying out several growth initiatives that include expanding key product lines, reinventing retail, ramping up online growth and moving faster into global markets.

In addition to relaunching the core Kenneth Cole New York women’s business, Blum said the company will expand the higher-end Kenneth Cole Collection across the brand’s top retail doors. That line also will wholesale in one or two key retailers to preserve exclusivity.

Priced between $200 to $350 and encompassing a combination of must-have fashion and the company’s patented 9-2-5 comfort technology, the Kenneth Cole Collection “represents the pure form of the brand,” said Blum. And this fall it will add special pieces in the men’s and women’s footwear offerings.

“It’s a really good time to do this now because there’s always a market for special, well-designed, limited-distribution and high-quality product, and especially in international markets,” Blum added.

Calling global expansion one of his key initiatives at the firm, the CEO said he expects the international business to double over the next three years, to 30 percent of total revenue, from 15 percent now. Retail is set to be a key component of the strategy, as store count will also double to between 150 and 175 doors, across Latin America, parts of Europe, the Middle East and Asia.

Last November, it inked a deal with Reliance Brands Ltd. to open five stores in India over the next three years, and an additional 20 in the following five years. And the firm’s pact last month with Delta Galil Industries Ltd. is to produce and distribute internationally loungewear, underwear, hosiery and socks for men and women under the Kenneth Cole New York and Kenneth Cole Reaction labels.

Back at home, the firm is also overhauling its consumer-direct business, encompassing both retail stores and e-commerce. Carol Massoni, president of consumer direct for Kenneth Cole, was recently tapped for her 13-year experience with the Nine West Group.

“The focus is on product and customer experience,” Massoni said. “We’re changing store designs, and the opportunity is to get the footwear and handbag businesses to a different level.”

Blum is most excited about the potential in e-commerce and social commerce — and is relaunching the brand’s website this fall with a new look and an expanded assortment.

“Nowadays, a virtual flagship could have a lot more influence than a physical flagship, so we’re looking at online as a really significant growth area in the future,” he said. “The fact that we have reduced our store count is not a problem for me in terms of developing the brand. Over time we will look at store locations and possibly, if it makes sense, reopen more stores, but right now, there’s a lot we can do with the business with [what we have].”

While the brand already sells through Facebook, other avenues of social commerce are poised to be growth areas in the next two to three years. With Kenneth Cole having 18,670 Twitter followers and at least 187,700 Facebook fans at press time, the brand “has a head start because Kenneth Cole has a lot of people who care about our issues,” said Blum. “The opportunity for us is to convert that social issue awareness into an awareness of our incredible product.”

For now, Kenneth Cole’s execs are feeding off the energy of those watching their performance. Retailers have started to increase their buys, said Chris Nakatani, president of wholesale. “The beauty of our brand is that our department-store partners want us to succeed,” he said. “At the end of the day, there aren’t many living, breathing designers that can [move products] the way Kenneth Cole can.”

Richard Arnstein, EVP and GMM of menswear at Macy’s, is one such merchant looking forward to continuing his longtime partnership with Kenneth Cole and Reaction. “They have always been leaders in fashion newness, and they’re open to listening to what we consider trend-right at the moment. We share common goals,” he said.

Of course, while the stage is set, the next scene is still unfolding.

“What’s most important is we can now move fast because the world is changing fast. We’re not a slow organization anymore, and the one thing we can be sure of is that things will change,” said Blum. “Both Kenneth and I thrive in environments like that — it energizes both of us.”

Kenneth On…

How the target customer has changed:
“Today, the consumer is less compromising. They’ve come to realize they can have something that looks good and feels good that they can wear during the day, on the weekends, this season, next season, [all in] a brand they can feel good about.”

What it takes to be a global brand today:
“To be viable anywhere you have to be relevant everywhere. The world’s gotten very small and relatively seamless. We’ve been somewhat opportunistic over the years, but we have retrenched both domestically and globally in the hope of taking a very thoughtful and appropriate step forward.”

The criteria for winning product:
“You have to pass several tests ultimately. First, it has to look good; then it has to feel good and fit well; third is the price-value [proposition], and we’re very focused on all those things.”

The importance of being recognized as a designer more than as a social activist:
“It’s important for the brand that people understand I’m still here as a creative force. I’ve probably been a little more visible as the social voice, but not as much as the fashion voice. Hopefully you’ll see that change.”

Rumors last year of a possible takeover by his brother’s firm, Iconix Brand Group Inc.:
“Neil and I have always talked about working together a lot over the years, so this is no different than any other time. We’re not proceeding in that direction if that’s your question. It could’ve been and might’ve been. I mean, Neil’s very good at what he does, but it’s very different from what I do. Our focus now is to make this a great business and hopefully realize the potential of the brand, which is much bigger than it is currently.”

Being a reality TV star on “Project Accessory”:
“[Representing] the brand was kind of a unique experience and an enjoyable one, but I don’t know if it will happen again.”

 

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