Kellwood Company History

Company History:

Kellwood Company is a leading international private label and brand label manufacturer, marketer, and merchandiser of apparel, home furnishings, and recreational products. Sold through distribution channels from mail order to department stores, Kellwood's apparel products are the core of its business. The company's line of women's apparel accounts for 73 percent of its apparel sales, followed by men's and children's apparel, representing 24 percent and 3 percent, respectively. With 34 plants in Canada, the United States, the Caribbean Basin, and the Far East, Kellwood has experienced substantial periods of growth through prudent international and domestic acquisitions that have given the company a diverse line of soft goods.

In 1961, 15 independent suppliers of soft goods to Sears, Roebuck, & Co. merged to form Kellwood. The name was derived from the surnames of Sears executives Charles H. Kellstadt and Robert E. Wood. The merger brought together disparate managements and a diverse line of products, as well as 7,000 employees, 22 plants, and combined sales of more than &Dollar;86 million. This made the newly formed company the third largest apparel manufacturer in the United States. The union was sought in order to centralize and streamline the management of the individual companies. With 90 percent of its products sold to Sears and with Sears holding a 22 percent interest in the company, the consolidated management of Kellwood provided financial, engineering, and design services for the plants of the original companies that, initially, operated as 15 autonomous divisions. From these separate divisions, the company's leadership was drawn, with Maurice Perlstein, president of McComb Manufacturing Co., elected as Kellwood's first president. In its first year, the Chicago headquartered Kellwood offered a variety of apparel, bedspreads, tents, sleeping bags and tarpaulins.

Two years later, the company had surpassed sales objectives set out in its five-year plan adopted the year before. Still almost entirely dependent on Sears for its sales, Kellwood added all-weather coats and other outerwear, plus children's shirts, shorts, and pants, to its sales lines. Sales grew to &Dollar;100 million, and the company expanded to 29 locations in 11 states. Kellwood also expanded beyond the United States' borders for the first time, establishing a plant in Kingston, Jamaica. This initial foray into production outside the United States marked the beginning of Kellwood's international involvement that, years later, would define the company's success.

In 1964 Fred W. Wenzel, the former president of Hawthorn Company (one of the original 15 companies), was elected chief executive officer and chairman of the board, holding the latter position for 27 years. Also in 1964 Kellwood's corporate logo, a stylized "K" representing a thread through the eye of a needle, was created. By Kellwood's fifth anniversary, sales had increased 75 percent since its formation. The company invested its initial success toward expansion and also began enlarging the breadth of it concerns. By 1966 it possessed 36 plants in 13 states and employed over 11,000 people. Also in 1966, the company's headquarters were moved from Chicago to St. Louis. The previous year construction had been completed on its first data processing center, located in Tennessee, giving Kellwood the capability to effectively track inventory and lower administrative costs. In this signal year, Kellwood also displayed its future penchant for assimilating apparel companies by acquiring the Stahl-Urban Company, a manufacturer of men's and boys' outerwear and pants, as a subsidiary.

After ten years of business, Kellwood still outpaced the goals established by the company's original founders and had become the largest supplier of soft goods to Sears. Sales objectives for its ten-year plan had been surpassed in 1968, three years ahead of schedule, as each year of operation engendered record sales figures. Expansion during the decade caused earnings to fluctuate, but by 1971 the company stood on solid ground. As the company focused on acquiring companies that complemented its line of products, the organization of the manufacturing facilities was realigned to create a more homogenous structure than the original configuration. Instead of each division operating more or less independently, the manufacturing facilities were organized into eight consumer oriented groups.

Soon after the 1961 merger, Kellwood began opening factory outlet stores within its manufacturing facilities. Created to sell the company's irregular and surplus merchandise, these outlet stores had proliferated through Kellwood's brief history. Starting with three in 1965 and increasing to 17 five years later, the number of outlet stores had grown to 29 by 1973. In that year, a new operating group, Ashley's Outlet Stores, was formed to effect a sift in the marketing focus of the factory outlets from surplus stores toward genuine retailing concerns.

As 1974 drew to a close, Kellwood had experienced 14 years of robust growth in both plant expansion and diversification of its product lines. The number of employees had grown to 18,000 and 62 plants operated in 17 states. Having posted record sales each year since its formation and having increased its earning to &Dollar;8.5 million from less than &Dollar;2 million in its first year, the company thrived under the beneficent marketing umbrella of Sears. By supplying Sears with apparel and other soft goods to market and sell according to specifications made by Sears (a segment of the apparel industry called private label business), Kellwood enjoyed the security and tremendous volume base the retail and mail-order catalog giant provided. Sears accounted for 80 percent of Kellwood's sales, so the success of Sears largely translated into success for Kellwood--a relationship mutually beneficial during Kellwood's nascent years. By cornering the market as Sear's largest supplier of apparel, Kellwood has ascended into the upper echelon of the apparel industry at an enviable paces.

Kellwood's success ceased, however, in 1975. A decline in sales by Sears, coupled with a recessive economy, caused earnings to plunge to just over &Dollar;400,000 from the previous years &Dollar;8.5 million. This disappointing year quickly demonstrated the inherent dangers of bonding one company's future too closely with another's. Although drastic changes were not made overnight, the failure of 1975 convinced Kellwood's management to reconsider its relationship with Sears and re-examine the company's future direction.

By the following year, Kellwood rebounded and earnings jumped back up to more than &Dollar;7 million. The Stahl-Urban subsidiary expanded its profitable product lines of apparel and outerwear under a licensing agreement with the National Football League, than had been initiated in 1971. Kellwood also tapped into the accelerating demand for Western style clothing by manufacturing Tough-Skin jeans and corduroys for Sears.

Not forgetting the lesson of 1975, Kellwood made its first move toward developing a company more reliant on brand label business than private label business with its acquisition of the U.S. rights to the Van Raalte brand of women's hosiery and bodywear in 1977. As the popularity of disco dancing and physical fitness swept the country, the demand for the tight, lightweight dance tops, originated by Danskin, boomed, and Kellwood hoped to gain a foothold in the market share under the Van Raalte label. With Danskin possessing an almost unassailable advantage in the bodywear market, Kellwood aimed for usurping the number two bodywear manufacturer--Sears. This objective, however, did not indicated an assault on Sears by Kellwood. Sears still purchased 80 percent of Kellwood's volume and owned 22 percent of its soft good supplier.

Indeed, most of Kellwood's production energies were spent fulfilling Sear's soft goods orders. The American consumer's desire for denim products continued to rise, and by 1977 the sales of jeans and pants to Sears exceeded all of Kellwood's other product lines. Men's casual slacks, sport coats, and warm-up suits were added to its list of apparel products, as were down coats and vests. As consumers headed outdoors more frequently in the late 1970s for exercise and recreation, Kellwood added backpacks--sold under the Hillary label after famed mountain climber Sir Edmund Hillary--to its existing line of tents and sleeping bags.

Kellwood continued to enlarge its brand label business in 1978, a year in which sales exceeded &Dollar;500 million and earnings reached nearly &Dollar;13.5 million, by purchasing the rights to the Fruit of the Loom name for hosiery. With this move, Kellwood hoped to garner a portion of the &Dollar;1.39 billion sheer hosiery market from its two largest manufacturers, Hanes Corp. and Kayser-Roth, producers of the L'eggs and No-Nonsense lines. Kellwood had experience in this area; the company had manufactured hosiery for Sears since 1965 under Sear's Cling-Alon label.

In 1980 Kellwood significantly increased its offshore involvement by acquiring nearly a half interest in Smart Shirts Ltd. of Hong Kong. In 1972 Kellwood formed a subsidiary named Kellwood International Ltd. in Hong Kong to facilitate its import and export activities. A producer of high quality shirts and blouses under labels such as Gant, Arrow, and Eagle, Smart Shirts held the largest import quotas for shirts entering the United States, with sales of &Dollar;86 million and earnings of more than &Dollar;9 million. With a laudable clientele list that included Macy's of New York, Inc., Federated Department Stores, The May Company, and J.C. Penney Company, Inc., the acquisition of Smart Shirts would eventually enable Kellwood to lessen its dependence on Sears.

By the following year, Kellwood had completely redefined its corporate strategy. The small steps taken since 1975's downturn toward more parity between private and brand label business and less dependence upon Sears had not been enough to satisfy Kellwood's management. Although Sears would continue as a significant customer for Kellwood's products, more balance was desired. Chairman Wenzel commented in Barron's, "Our philosophy is not to do less business with Sears, but to reduce that percentage by selling more to other customers."

To accomplish this task, Kellwood's management decided to significantly increase its involvement in offshore manufacturing and sourcing, the practice of shipping U.S.-cut fabric overseas to be sewn and then returning the finished product back to the United States--at a more favorable tariff rate than a pure import as allowed by the 807 Tariff regulations. (To remain competitive, U.S. apparel companies needed to source because of the high cost of domestic production.) The company concentrated its focus on Central America, the Caribbean, and the Far East. Kellwood also re-examined the diverse businesses and products with which it was involved. Kellwood's marketing and production efforts under the Van Raalte and Fruit of the Loom labels were discontinued because of inconsistent profits.

As a result of its sharpened focus, Kellwood entered its third decade of business as a company still largely involved in private label business, seeking to diminish its reliance on Sears by developing a broader customer base. By 1982 earnings had rebounded from a disappointing &Dollar;216,000 two years earlier to over &Dollar;8 million. The decisions made a year earlier began to take shape with the introduction of a new line of women's apparel manufactured under the private label of 14 large department stores. The shift away from Sears--albeit a modest one at this point--affected Kellwood's sales volume, but earnings had climbed due to sharp reductions in inventory and by cutbacks in some of its product lines and manufacturing facilities. A move toward securing a greater international presence was also made in 1982 when Kellwood increased its holdings of Smart Shirts to 82 percent. With two large manufacturing facilities in Taiwan and Hong Kong, Kellwood increased its profits by manufacturing certain products in the more cost-efficient Far East.

In July of 1984, Kellwood purchased the remaining shares of its stock held by Sears, thereby ending the investment relationship between the two companies that had spanned nearly a quarter of a century. By the following year, Kellwood's sales to Sears were equal to the amount of sales made to its other customers. This significant drop in sales to Sears once again affected Kellwood's sales volume, but the 1985 acquisition of Cape Cod-Cricket Lane, Inc., a maker of women's coordinated sportswear, helped lift its sales figures and enlarged its domestic operations. Kellwood's presence in the Far East was fortified in 1983 by purchasing the remaining percentage of Smart Shirts and by the acquisition of a company slated to operate under Smart Shirts' management in the free-trade area of Sri Lanka. Created in 1984 to aid Kellwood's search for and acquisition of companies in the Far East, Kellwood Asia Ltd. enabled the company to expand its international operations. Kellwood worked with local manufacturers in the Caribbean and Central America on a contract basis to source its products under 807 regulations.

In the latter half of the 1980s, Kellwood augmented its acquisitions of both domestic and offshore apparel companies by purchasing companies featuring fashion-oriented, branded merchandise. As opposed to the lower-priced products it had supplied to Sears in the previous two decades, the higher-priced products required less inventory and typically offered greater profit potential. In 1986 Parsons Place Apparel Company became the second domestic marketing oriented company to be purchased after Cape Cod-Cricket Lane. This increase in Kellwood's domestic, branded segment was followed by the purchase of E Z Sportswear and its subsidiary, En Chanté, Inc., as well as Robert Scott Ltd, Inc., David Brooks Ltd, Inc., and Andrew Harvey Ltd. in 1987, and Crowntuft Manufacturing Corp. in 1989. These acquisitions helped to counterbalance the continued drop in sales to Sears. By the end of the decade, Sear's portion of Kellwood's sales had fallen to roughly one quarter.

Kellwood's decision in 1981 to discontinue products and close facilities it deemed unprofitable or inconsistent with its new corporate thrust affected two long-standing entities of the company. In 1985 the recreation division was sold and , a year later, Ashley's Outlet Stores, which operated approximately 100 stores at the time, was also sold. The sale of the recreation division, however, did not signal the end of Kellwood's involvement with recreational goods. In 1989 Kellwood purchased American Recreation Products, Inc. as a subsidiary.

Kellwood's Far East operations also grew with the 1989 acquisition of Saipan Manufacturers, Inc. located in the Northern Mariana Islands. A manufacturer of men's shirts and sport shirts for export into the United States, the company fell under Smart Shirts management. By the end of the decade, Smart Shirts accounted for more than 40 percent of Kellwood's operating profits and provided another economic boost to supplant the losses from Sears.

As Kellwood entered the 1990s, its growth over the previous 30 years positioned it as one of the leading apparel manufacturers in the United States. With over 250 major retail accounts that involved approximately 25,000 individual stores, the company's customer base had evolved from almost complete dependence on Sears to a large and diverse clientele. The addition of California Ivy Inc. in 1992 and A. J. Brandon in 1993 increased the number of divisions and subsidiaries to 14. It remains to be seen if the Kellwood's aggressive pursuit of domestic and foreign companies continues to fuel its success in the 1990s and beyond. However, with its broad line of both brand and private label apparel and its line of recreation and home furnishing products, Kellwood's products will most likely be staples in American homes.

Principal Subsidiaries: Smart Shirts Limited (Hong Kong); A.J. Brandon Inc.; American Recreation Products, Inc.; California Ivy Inc. Byrne, Harlan S., "Ailing Market Fails to Fase Apparel Producer," Barron's, January 8, 1990, pp. 42-43; Cochran, Thomas N., "A Product of Logical Growth," Barron's, September 12, 1988, p. 47; Kellwood: A History, St. Louis, Missouri, Kellwood Company, 1982; Kellwood Company Annual Reports, St. Louis: Kellwood Company, 1983-1992; Maturi, Richard J., "On Its Own...and Thriving," Barron's, March 10, 1986, p.57; Millman, Nancy F., "High-Stepping Bodywear Market Meets New Rival," Advertising Age, August 28, 1978, p. 236; Millman, Nancy F., "Kellwood Firming Plans to Snag Hosiery Share," Advertising Age, October 23, 1978, pp. 2, 112; "Seventeen Suppliers of Sears to be Merged into Single Operation," Wall Street Journal, September 12, 1961, p.10; "Soft-Goods Profits," Barron's, February 14, 1983, pp. 48-50; "World Enough?" Forbes, April 1, 1972, p. 49.

Source: International Directory of Company Histories, Vol. 8. St. James Press, 1994.