Apparel & Footwear – Retailers & Brands

52 Pages·2014·0.58 MB·English

Industry Surveys
Apparel & Footwear: Retailers & Brands
Tuna Amobi, CFA, CPA, Consumer Discretionary Sector Equity
Analyst
SEPTEMBER 2014
Current Environment ............................................................................................ 1 
Industry Profile ...................................................................................................... 9 
Industry Trends ................................................................................................... 11 
How the Industry Operates ............................................................................... 19 
Key Industry Ratios and Statistics ................................................................... 26 
How to Analyze an Apparel Company ............................................................. 28 
Glossary ................................................................................................................ 34 
Industry References ........................................................................................... 36 
Comparative Company Analysis ...................................................................... 38
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CURRENT ENVIRONMENT
Shaking off winter hangover amid slow economic recovery
Several apparel and footwear brands are still recovering from the harsh winter, which resulted in a major
slowdown in sales during the first quarter and the beginning of the second quarter of 2014. Long after the
cold has thawed, retailers are still concerned about low foot traffic in stores. Gap Inc. reported a 7% sales
decline for June in its signature stores, echoing the 7% drop in comparable store sales in February, when the
company shut down more than 450 stores for at least a day due to bad weather conditions; its brands Gap,
Banana Republic, and Old Navy saw sales decline by 10%, 7%, and 6%, respectively. Guess? Inc. also
reported a loss of 4% in its stores and e-commerce during the first quarter of fiscal 2015 ended May 3,
2014. Hence, the company plans to close 25–30 underperforming stores in the US by fiscal 2015. In
Abercrombie & Fitch, comparable store sales fell 4% during the first quarter of 2014, while overall US
comparable store sales also fell 4% during the same period.
In an attempt to recover from a weak start to the year, apparel and footwear retailers have extended their
inventory-clearance sales, resulting in an ongoing promotional environment since the past holiday season. In
June, luxury brand Coach announced a factory outlet sale of up to 70%. Some brands, such as Skechers,
Nike, Victoria’s Secret, American Eagle Outfitters, Gap, and Aéropostale, are holding inventory-clearance
sales through their Internet stores and e-commerce websites. Others, such as Perry Ellis, have additional
promotions such as dining credit and free shipping on top their sales. Ralph Lauren is offering 50–70% off,
both in stores and online.
While affordable apparel brands saw recovered growth—although still missing estimates for the first half of
the year—luxury brands struggled as buyers remained cautious with their spending on premium products.
In June 2014, Coach announced that it would close more than 70 underperforming stores out of its 350
stores and 193 factory outlets in the US, and maximize its flagship stores in the top 12 markets by 2015. We
think focusing on better performing stores and factory outlet business will help compensate for the drop in
revenues and sales.
The National Retail Federation (NRF), the largest association of US retailers, has lowered its retail sales
forecast to 3.6% for 2014 (from a 4.1% year-over-year forecast in January) due to slow growth in the first
half of the year, but expects sales to grow at least 3.9% during the second half of the year. The NRF points
out that the severe winter, among other factors, had a negative impact on retail, but the outlook is now
positive, with sales growing at a moderate pace. Driven by a potentially stronger economy, consumers are
beginning to feel more optimistic about spending in the second half of 2014.
S&P Capital IQ (S&P) now thinks retail sales growth will come in closer to 4% in 2014. Through July
2014, retail sales were up 3.7% over last year, according to the US Census Bureau.
Retail spending is boosted by a number of factors. First, new jobs or improving unemployment are giving
more consumers money to spend. Second, gasoline prices are down about 6% year over year. As of July 28,
2014, the national average price of a gallon of regular gasoline was $3.54 versus $3.68 a year ago, according
to the US Energy Information Administration. In addition, low interest rates, and looser credit standards
have made consumer financing attractive and more accessible. Below are a few of our predictions for 2014.
 Working on limited budgets, consumers will be highly value-conscious and shop mainly around
calendar holidays.
 Online retail sales will outpace overall retail sales. Through the first quarter of 2014 (latest available),
online retail sales were up 15% over the same period last year, according to the Census Bureau. This
trend will be boosted by mobile commerce (m-commerce), driven by the increasing proliferation of
smartphones. We also expect free shipping offers, online-exclusive promotions, and product offerings to
support sales growth.

INDUSTRY SURVEYS APPAREL & FOOTWEAR: RETAILERS & BRANDS / SEPTEMBER 2014 1
 Although apparel is a relatively low-cost category, we expect consumers on limited budgets to invest
more in accessories and footwear, which offer more “bang for the buck.”
 Ongoing rationalization of store locations by US retailers will support further market penetration by
international competitors.
 Specialty apparel retailers that use customer feedback from social media sites as a tool to improve their
products and services will gain a competitive edge. This will be particularly true for teen retailers
moving away from a key item merchandising strategy to offering head-to-toe looks.
 We expect off-price retailers to gain market share, given their attractive value pricing, frequent in-flow
of new merchandise, and their ability to move in and out of product categories quickly based on
customer demand. We see the continued geographic expansion and market share gains of Ross Stores
Inc. and The TJX Companies Inc., putting pressure on value competitors in the off-mall channel. Ross
Stores plans to add about 75 new Ross stores and 20 dd’s DISCOUNTS locations by fiscal 2015, after
opening 55 new Ross stores and 22 new dd’s in fiscal 2014.
 Specialty apparel retailers will focus their expansion on outlet centers in order to reach cost-conscious
consumers who might otherwise not shop their brands and to raise brand awareness among
international shoppers.
 Retailers with strong balance sheets and those differentiated by product and brand positioning will be
best positioned to capture market share and expand internationally.
APPAREL RETAILERS HURT BY SHIFT IN DISCRETIONARY SPENDING
In the first half of 2014, unseasonably cool weather and difficult spending decisions resulted in many
apparel retailers reporting weaker-than-expected results. In addition, with the unemployment rate at 6.1%
in June 2014 (way down from the peak of 10.0% in October 2009), a recovery underway in the housing
and stock markets, and the availability of attractive financing terms, consumers have shifted more of their
discretionary spending toward big-ticket items such as automobiles and home appliances and away from
smaller purchases such as apparel.
RETAIL APPAREL STORE PERFORMANCE*
-- SAME-STORE SALES -- -------- NUMBER OF STORES ------------------- SQUARE FOOTAGE -----------
(YR-TO-YR % CHANGE) -- CHANGE -- --- MIL. SQ. FEET --- -- % CHANGE --
2012- 2013- 2012- 2013-
TABLE B05: RETAIL
2012 2013 2014 2012 2013 2014 2013 2014 2012 2013 2014 2013 2014
APPAREL STORE
SPECIALTY APPAREL RETAILERS
PERFORMANCE
Abercrombie & Fitch 5.0 (1.0) (11.0) 1,045 1,041 1,006 (4) (35) 7.8 8.0 7.7 2.3 (2.8)
Aeropostale Inc. (8.0) (2.0) (15.0) 1,057 1,084 1,100 27 16 3.7 3.7 3.7 0.1 0.4
Amer. Eagle Outfitters 4.0 9.0 (6.0) 1,090 1,044 1,066 (46) 22 6.3 6.0 6.5 (4.2) 8.0
Ann Inc. 6.8 3.3 2.3 953 984 1,025 31 41 5.6 5.7 5.9 1.8 3.3
Bebe Stores* 5.3 (7.5) (8.8) 252 252 242 0 (10) 1.0 1.0 1.0 (0.8) (3.0)
Buckle† 8.4 2.1 0.4 431 440 450 9 10 2.2 2.2 2.3 2.4 5.1
Chicos FAS 8.2 7.2 (1.8) 1,256 1,357 1,472 101 115 3.0 3.3 3.5 8.1 8.4
Gap Inc. (4.0) 5.0 2.0 3,036 3,095 3,539 59 444 37.2 36.9 37.2 (0.8) 0.8
L Brands† 10.0 6.0 2.0 2,941 2,876 2,923 (65) 47 10.9 10.8 11.2 (0.8) 2.9
Urban Outfitters† (3.8) (0.6) 6.0 429 476 511 47 35 3.3 3.3 3.5 2.5 4.6
OFF-PRICE RETAILERS
Ross Stores 7.0 6.0 3.0 1,125 1,199 1,276 74 77 26.4 27.8 28.9 5.3 4.0
The TJX Cos. 4.0 7.0 3.0 2,905 3,050 3,219 145 169 67.2 70.0 73.2 4.2 4.6
*Data for all stores is for fiscal years ended in January, except Bebe Stores which ended in June. 2013 data for BeBe Stores are
estimated. †Excludes online sales.
Sources: Company reports; S&P Capital IQ estimates.
According to the US Census Bureau, sales of motor vehicles and parts dealers were up 7.8%, year over year,
through June 2014, compared with the 1.5% increase reported for clothing and clothing accessories.
According to IHS Automotive, which provides automotive data and analysis, the average age of cars in the

2 APPAREL & FOOTWEAR: RETAILERS & BRANDS / SEPTEMBER 2014 INDUSTRY SURVEYS
US remained at 11.4 years as of June 2014. People had avoided replacing their cars during the recent
recession, but now an improved economic outlook has unleashed the pent-up demand for new automobiles.
High unemployment among teens has been another headwind for apparel retailers targeting the youth
market, such as Aéropostale Inc., American Eagle Outfitters Inc., and Abercrombie & Fitch Co. According
to the US Bureau of Labor Statistics, the unemployment rate (seasonally adjusted) among civilians aged 16
to 19 years stood at 22.9% in 2013. Further, competition from fast-fashion retailers such as Forever 21,
Zara, Top Shop, and H&M, and online retailers such as Nasty Gal, as well as off-price retailers TJX
Companies Inc. and Ross Stores Inc. are also hurting these companies. The combination of these factors
resulted in a disappointing back-to-school shopping season for teen retailers.
BRANDS AND RETAILERS EXPLORE RESHORING
Reshoring, which involves setting up local production and/or sourcing products domestically, is an emerging
trend among US apparel and footwear companies. Trend drivers include quality issues with overseas
production; increasing transportation costs; government incentives to boost production in the US; greater
flexibility and speed associated with having production nearby; and rising manufacturing labor costs,
particularly in China. According to Boston Consulting Group (BCG), a global management consulting firm,
a number of emerging markets known for low manufacturing costs have changed a lot over the last decade,
and are no longer cheaper than the US. On April 25, 2014, BCG released its research findings on the
shifting economics of global manufacturing, and Mexico now has lower manufacturing costs than China.
Along with five other economies, China has seen its cost advantage erode significantly since 2004, due to
sharp increases in wage and energy costs, productivity declines, and currency pressures. Hence, reshoring is
seen to benefit manufacturers’ labor and production costs.
Another benefit of reshoring is that it allows companies such as Kate Spade & Co. (formerly Fifth & Pacific
Companies Inc.) to meet consumer demand for American-made products. In 2013, the company’s Lucky
Brand division launched “Made in the U.S. of A.”, a capsule collection of jeans for men and women. Lucky
Brand manufactured the collection in Los Angeles and Tullahoma (Tennessee), using denim supplied by
Cone Denim, a Greensboro, North Carolina–based mill that has been in business since 1891. Companies
that have collaborated with domestic mills and small US apparel and accessories brands include
Abercrombie & Fitch (men’s jeans and tops), J. Crew (men’s jeans, pants, and accessories), and Ralph
Lauren Corp.’s Club Monaco brand (men’s tailored clothing, shirts, shoes, and accessories).
Most of the apparel and footwear brands covered by this Survey use independent contract manufacturers
outside of the US to manufacture most of their goods. That said, we think that reshoring could be a notable
component of Nike’s brand management strategy over the next three to five years. During the company’s
conference call in June 2014, Nike mentioned innovating manufacturing initiatives that are intended to
significantly reduce production cost. In the last quarter of 2013, the company reported that it was looking
at offering a highly customized product that is manufactured locally where the consumer lives.
GROWING BRAND PORTFOLIOS
Companies have been looking at rationalizing their brand portfolios with a view toward concentrating on
their key brands. They are also pursuing growth through international expansion, which has gained ground
after recent signs of slowness in US and European markets. The direct-to-consumer channel, including
online retailing, is also growing in popularity with consumers, from whom retailers are hoping to reap high-
margin returns.
Streamlining merchandising
Both apparel and footwear companies are streamlining to deal with the consolidation and merchandising
shifts in department stores. Many are focusing on their best-performing brands and divesting others.
 Men’s Wearhouse. In March 2013, The Men’s Wearhouse Inc. announced that it would work with
Jefferies & Co., a global private equity firm, to evaluate alternative strategies in its K&G Fashion
Superstore operations, a specialty retail chain featuring discounted men’s, women’s and children’s apparel.
K&G’s same-store sales fell 4.3% in the fiscal year ended January 2013 as its lower-income customers,

INDUSTRY SURVEYS APPAREL & FOOTWEAR: RETAILERS & BRANDS / SEPTEMBER 2014 3
whose spending remains constrained, did not respond as well as expected to promotions and a new
marketing campaign. As of July 2014, the company had no updates on K&G yet, as it was still under
strategic review. We think a sale of K&G would enable the company to focus on growing its core Men’s
Wearhouse and Moore’s chains.
In its investor call in July 2014, Men’s Wearhouse announced that it would leverage the experience of
recently acquired Jos. A. Bank and maintain a brand-specific organization of merchandising, planning and
allocation, brand management, and e-commerce. The company also highlighted how its licensee relationship
has helped build Joseph Abboud into a modern, sophisticated menswear and lifestyle brand.
 Kate Spade & Co. (formerly Fifth & Pacific Cos.). In October 2013, Fifth & Pacific Cos. entered into an
agreement to sell the intellectual property assets of its Juicy Couture business to brand management firm
Authentic Brands Group LLC (ABG) for $195 million in cash. ABG’s brand portfolio includes Hickey
Freeman, Adrienne Vittadini, and Judith Leiber. The deal, which closed in November, includes a short-term
licensing agreement between the two companies. Fifth & Pacific, which changed its name to Kate Spade &
Co. early in 2014, ran the Juicy Couture business through June 2014 and made a minimum royalty payment
of $10 million to ABG. S&P Capital IQ expects the sale proceeds to fund expansion of its fast-growing Kate
Spade business and to pay down debt. Following the divestiture of Juicy Couture and an agreement to sell
Lucky Brand, Kate Spade & Co. said it would focus on retail brands Kate Spade New York, Jack Spade,
and Kate Spade Saturday.
 PVH Corp. Also in October 2013, PVH Corp. entered into an agreement to sell its G.H. Bass & Co.
footwear division for $50 million in cash to G-III Apparel Group Ltd., a manufacturer and distributor of
apparel, luggage, and accessories. The transaction, which closed in early November, reflected PVH’s desire
to focus on its core lifestyle apparel brands, which include Tommy Hilfiger and Calvin Klein.
Online, omni-channel, and outlet investments
Both apparel brands and retailers are increasing their investments in the online and outlet channels, which
provide attractive growth and margins. The use of e-commerce is particularly gaining popularity and acts as
a convenient medium for retailers to reach out to customers on a global level. According to an April 2014
report by eMarketer, a provider of research on digital media and marketing, the apparel and accessories
category is emerging as the fastest growing category in the US retail e-commerce sector. According to the
report, online sales for the category grew over 17.6% to $45 billion in 2013 from $38 billion in 2012, and
are projected to grow another 16.2% in 2014.
Because of the growing popularity and success of online shopping, TJX Companies launched an e-commerce
website for its T.J. Maxx brand in September 2013. We think the company has an opportunity to leverage
e-commerce to reach new customers and to expand its product offerings beyond what it currently sells in its
stores (thus, online sales would complement rather than hurt brick-and-mortar sales). For the past three
years, TJX has been testing off-price e-commerce with its T.K. brand in the UK, and in 2013, it launched a
small T.J. Maxx e-commerce website. TJX expects its $200-million acquisition in 2012 of Sierra Trading
Post, a privately held off-price Internet retailer of apparel and home fashion, to be modestly accretive to
earnings starting in fiscal 2014.
Urban Outfitters also sees more consumers moving to the World Wide Web and believes that this change is
transformational for the industry. The company’s brand products—Urban Outfitters, Anthropologie, Free
People, and Shope Terrain—are available through its e-commerce websites. Besides expanding its online
assortments across brands and increasing e-commerce traffic, the company is looking at social media to
create a sense of community among brand lovers. In 2013, Urban Outfitters focused its advertising on
direct-to-consumer, catalog, and online marketing. This year, the company is working with clothing
company World Co., Ltd. to launch a Japanese e-commerce website.
Gap Inc. is investing in new omni-channel capabilities to increase sales productivity of both its direct
business and brick-and-mortar stores. In June 2013, Gap began testing a reserve-in-store option for online
shoppers in 40 stores located in San Francisco and Chicago. Reserve-in-store enables customers to reserve
items online at a nearby store, which holds the items until the end of the next business day. When customers

4 APPAREL & FOOTWEAR: RETAILERS & BRANDS / SEPTEMBER 2014 INDUSTRY SURVEYS
come in to try on their selected items, store associates have an opportunity to cross-sell (i.e., suggest other
items for purchase). We think the ability for store associates to engage with customers who have self-
identified as having purchase intent will give Gap an advantage over competitors offering in-store pickup
for online orders. The company is also focused on personalizing the online shopping experience for
customers, based on their previous transactions and visits.
Gap has transitioned to a new global brand structure in fiscal 2014 to drive its long-term growth. The
company has combined all channels (specialty, outlet, online, and franchise) and geographies under one
global leader each for Gap, Banana Republic, and Old Navy. In fiscal 2015, Gap expects to open about 185
company-operated stores, focusing on China, Navy Japan, Athleta, and global outlet stores. In addition, the
company will close approximately 70 stores in the US. This is expected to result in a 2.5% increase in net
square footage—the largest since 2007. The company also expects its franchise partners to open as many as
75 Gap and Banana Republic stores in fiscal 2014. We see Gap benefitting from cost-conscious consumers
seeking out value at Old Navy, Gap Outlet, and Banana Republic Factory stores, and investment core
categories across brands (e.g., denim at Gap). We also think that continued selective pruning of
underperforming Gap stores bodes well for improved productivity.
Foreign retailers enter the US
The move by a few US retailers to close underperforming stores in the US has created an opportunity for
foreign retailers to enter the American market. Among the first to arrive were Sweden’s H&M Hennes &
Mauritz AB (H&M) and Spain’s Industria de Diseño Textil SA (Inditex), owner of the Zara clothing chain.
H&M and Zara offer fashionable clothing at inexpensive prices, and they turn over their inventory more
rapidly than American competitors such as Gap—thus encouraging shoppers to visit often and buy items
that they like on the spot. Both companies have grown their brands by offering what some call “disposable
chic” or “fast fashion”—exceptional fashion quality at affordable prices. Both retailers enjoy healthy
margins. H&M’s gross margin was 59.0% for its fiscal year ended May 2014, while Inditex’s gross margin
was 59.2% in its fiscal year ended April 2014. By comparison, Gap had a gross margin of 46.3% for its
fiscal year ended May 2014.
Joe Fresh Style, a Canadian fashion brand owned by Loblaw Companies Ltd., expanded its presence in the
US through a partnership with J.C. Penney Co. As of August 2014, Joe Fresh products were available in
more than 650 J.C. Penney stores in the US. The shop-in-shops range in size from 750 to 2,500 square feet,
with all products priced under $70. Joe Fresh also had six stand-alone stores in New York City, including a
flagship store in the Fifth Avenue building.
Japan’s Fast Retailing Co. Ltd. is expanding its Uniqlo clothing chain in the US. As of August 2014, Uniqlo
had 21 stores in the US (San Francisco, Connecticut, New Jersey, and New York). The company plans to
open new stores in Philadelphia, Boston, San Francisco/Northern California, Connecticut, New Jersey, and
New York this year, with further plans to open a flagship store in Chicago in 2015. By 2020, Uniqlo
expects to have around 200 stores operating in the US, with a target of $10 billion in revenues from the US,
which would equal 20% of its total projected revenues for that year.
In October 2012, Uniqlo launched its US e-commerce website. Shin Odake, Uniqlo’s US CEO, intends to
make Uniqlo an American company and is keen on hiring Americans in the roles of top management,
designers, merchandisers, and public relations. Uniqlo’s previous attempt to expand in the US was a failure,
as it had to shut three stores in New Jersey in 2006. However, the company believes with greater brand
recognition, more extensive advertising, and larger stores, it will be successful in its expansion plans this
time. The company, known for quality-fabric basics at low prices, offers direct competition to retailers, such
as Gap, that cater to customers seeking affordable and basic clothing.
MERGER AND ACQUISITION OUTLOOK
The leveraged buyout (LBO) market is heating up again, with retailers and apparel brands seeing renewed
interest. Some reasons for the attractiveness of the fashion sector include high potential asset returns, high

INDUSTRY SURVEYS APPAREL & FOOTWEAR: RETAILERS & BRANDS / SEPTEMBER 2014 5
and growing cash balances, and balance sheets capable of supporting increased debt loads. Corporate
underperformance and undervalued shares are other factors financial sponsors target in LBOs.
Strategies are similar to a body shop: buy, fix, and sell. Many sponsors possess industry expertise and thus
believe they can turn around operations, reposition a brand, close underperforming stores, and improve
cash-on-cash returns. The true
APPAREL COMPANY MERGERS & ACQUISITIONS—2009–2014
fixation is on the exit strategy.
CLOSING APPROXIMATE
DATE ACQUIROR TARGET VALUE
Jun. '14 Men's Wearhouse, Inc. Jos. A Bank Clothiers, Inc. $1.8 billion  Men’s Wearhouse acquires
Apr. '14 Sycamore Partners, LLC The Jones Group, Inc. $2.2 billion Jos. A. Bank Clothiers. In June
Oct. '13 G-III Apparel Group, Ltd. PVH Corp.'s G.H. Bass & Co. division $50 million
2014, Men’s Wearhouse Inc.
Nov. '13 Authentic Brands Group, LLC Fifth & Pacific's* Juicy Couture intellectual $195 million
property assets acquired competitor Jos A. Bank
Oct. '13 Hanesbrands Inc. Maidenform BraTndAs IBncL.E B012: $575 million Clothiers for $1.8 billion, or $65
Jul. '13 Foot Locker Inc. Runners Point GAroPupPAREL $94 million
per share in cash. According to
Feb. '13 Apax Partners Nike's Cole Haan business $570 million
COMPANY
Feb. '13 PVH Corp. The Warnaco Group, Inc. $2.9 billion Men’s Wearhouse, this
Nov. '12 Iconix Brand Group Nike's Umbro buMsine&ssA $225 million acquisition will increase the
Nov. '12 Aeropostale, Inc. GoJane.com $25.2 million
Oct. '12 Clayton, Dubilier & Rice David's Bridal, Inc. $1.05 billion company’s scale and breadth,
Oct. '12 Blum Strategic Partners; Collective Brands, Inc. $2 billion and will be accretive to earnings
Golden Gate Capital
in the first full year.
Aug. '12 Sycamore Partners, LLC The Talbots, Inc. $391 million
Apr. '12 Fossil Inc. Skagen Designs, Ltd. $231.7 million
Feb. '12 Perry Ellis International Callaway Golf Co.'s Ben Hogan brands $6.8 million On September 18, 2013, Men’s
Wearhouse received an
Nov. ''11 J.C. Penney Co. Liz Claiborne's Liz Claiborne and Monet $267.5 million
unsolicited all-cash offer of $2.3
brands
Oct. ''11 Gores Group, LLC 81.25% interest in Liz Claiborne's MEXX $85 million billion, or $48 per share, from
business Jos. A. Bank Clothiers Inc. On
Oct. '11 Bluestar Alliance LLC Liz Claiborne's Kensie brands terms undisclosed
Oct. '11 Kohl's Corp. Liz Claiborne's Dana Buchman brand terms undisclosed October 9, the company rejected
the offer, which it believed
Sep. '11 Chico's FAS Boston Proper, Inc. $213 million
significantly undervalued its
Sep. '11 VF Corp. Timberland, LLC $2.3 billion
Jul. '11 Carter's Inc. Bonnie Togs Children's Wear, Ltd. $98 million assets. On November 2013,
Jun. '11 PPR SA. Volcom, Inc. $608 million Men’s Wearhouse made an
Jun. '11 The Jones Group, Inc. Kurt Geiger Ltd. $351 million initial offer to acquire Jos. A.
Mar. '11 Nordstrom HauteLook, Inc. $75 million
Bank for $1.5 billion, which was
Mar. '11 TPG Capital J Crew Group $3 billion
Feb. '11 DSW Inc. Retail Ventures $1.2 billion raised to $1.6 billion in January
Jan.'11 Perry Ellis Intl. Rafaella Apparel Group, Inc. $192.4 million 2014, and rejected until the
Nov. '10 LF USA Inc. Oxford Apparel $121.7 million
merger agreement in March
Oct. '10 Bain Capital Gymboree Corp. $1.8 billion
Aug. '10 Hanesbrands Inc. GFSI Holdings Inc. $228.3 million 2014.
May '10 Jones Apparel Group Stuart Weitzman, LLC $180.3 million
Mar. '10 Phillips-Van Heusen Tommy Hilfiger Group B.V. $3.2 billion Given its multiple long-term
Dec. '09 Essilor International FGX International Holdings Ltd. $568.1 million
growth drivers, which include
Aug. '09 Advent Int'l Corp. Charlotte Russe Holdings $371.1 million
Jul. '09 Amazon.com Zappos.com $823.0 million the August 2013 acquisition of
Jul. '09 Golden Gate Capital Eddie Bauer Holdings $286 million Joseph Abboud brand of men’s
Jul. '09 Dress Barn Tween Brands Inc. $157 million
clothing and the market leader
Jun. '09 Syms Corp. Filene's Basement $47.6 million
Jun. '09 Golden Gate Capital J.Jill $66.9 million in tuxedo rentals, and its
May '09 Levi Strauss Co. Anchor Blue Retail Group $72 million expansion in outlet centers, S&P
Apr. '09 Coach Inc. Coach Domestic Retail Business in China, terms undisclosed
thinks Men’s Wearhouse has the
HK, Macau
* Company changed its name to Kate Spade & Co. on February 2014. potential to receive other offers
Source: Company reports. in the near future.
 PVH Corp. acquires Warnaco Group. In February 2013, PVH acquired The Warnaco Group Inc., which
previously licensed the Calvin Klein jeanswear and underwear businesses, for $2.9 billion. We think the
acquisition will enable PVH to simplify the Calvin Klein brand structure and to accelerate growth in Asia
and Latin America by leveraging Warnaco’s presence there. However, given the time and the investments
needed to right-size the Calvin Klein jeanswear business and to enhance Warnaco’s infrastructure. Given
PVH’s track record with acquisitions, we look for a turnaround in jeanswear starting in the second half of
fiscal 2015 (ending Jan. 2015).

6 APPAREL & FOOTWEAR: RETAILERS & BRANDS / SEPTEMBER 2014 INDUSTRY SURVEYS
 VF Corp. drops Billabong bid. In July 2013, VF Corp. (which owns North Face, Timberland, Jan Sport,
Wrangler, and Lee, among others), dropped its bid to acquire Australia-based Billabong International Ltd.,
saying that the asking price was more than what VF Corp would take into consideration. In January 2013,
VF Corp. and Altamont Capital Partners made a joint offer to acquire all shares of the popular surf brand
at AU$1.10 ($1.02) per share, matching the offer made in December 2012 by Paul Naude, the former head
of Billabong’s Americas division, and Sycamore Partners, a private equity firm. VF Corp. was to acquire the
Billabong brand, and Altamont the other assets. However, after Billabong reported a loss of AU$537
million ($496 million) in the first half of fiscal 2013 (ended June 2013), compared with profit of AU$16.1
million ($14.9 million) in the year-earlier period, both parties lowered their bids. According to a Women’s
Wear Daily article dated April 5, 2013, the new bid by VF Corp. and Altamont was below AU$0.50 ($0.46)
per share, while the bid by Naude and Sycamore was between AU$0.55 ($0.51) and $0.60 ($0.55) per
share. On April 9, 2013, Billabong announced that it had entered into a 10-business-day period of exclusive
talks with Naude/Sycamore to acquire the company for AU$0.60 per share in cash. The exclusivity period
was extended for an additional 10 business days through May 8. On June 4, Billabong announced that it
had failed to reach an agreement with either Naude/Sycamore or VF Corp./Altamont.
 HanesBrands acquires Maidenform Brands. In October 2013, HanesBrands acquired Maidenform
Brands for $583 million in an all-cash deal. The company expects the acquisition to save costs, create
growth, and increase the scale to serve retailers. Further, according to HanesBrands, the acquisition
complements its Innovate-to-Elevate strategy, which “integrates the company’s world-class brands, low-cost
supply chain and product innovation.”
 Could Aéropostale be next? In September 2013, Sycamore Partners, a private equity firm, bought a
nearly 8% equity stake in Aéropostale and stated that the stock was attractive. A similar trend can be
observed in Sycamore’s previous takeovers of Talbots Inc. and Hot Topic Inc., wherein the firm acquired a
stake in each company before a buyout. One of Aéropostale’s stakeholders, Crescendo Parners, has been
urging the company to work on a strategic buyout, but Aéropostale is resisting. S&P Capital IQ thinks that
Aéropostale could be the next possible buyout target for Sycamore.
SUB-INDUSTRY OUTLOOKS
 Apparel, accessories, and luxury goods. As of September 2014, our fundamental outlook for the apparel,
accessories, and luxury goods sub-industry was neutral. We expect sales of both accessories and luxury
goods to outpace that of apparel over the near term. While apparel is a relatively low-cost category, we
expect shoppers on limited budgets to invest more in accessories, which offer more "bang for the buck."
According to international management consulting firm Bain & Co. and Italian luxury goods association
Fondazione Altagamma, worldwide sales of personal luxury goods grew an estimated 6.5% in 2013, to
more than €225 billion (on top of the 12% growth in 2012). Bain and Altagamma reported that worldwide
luxury goods sales grew 2% (6% at constant exchange rates) globally in 2013, including a 4% gain in the
Americas, and projected an average of 3%–5% annually from 2013 through 2016.
Among product categories, accessories are expected to be the strongest driver, followed by jewelry, watches,
and other "hard" luxury goods—with more modest growth for apparel and beauty products. Amid rising
global tourist shopping, we anticipate that growth will be supported by an underlying demand for luxury
goods in the US, Europe and Japan, as well as growing luxury demographics in Asia-Pacific, particularly
China and emerging markets.
Apparel, accessory, and luxury goods brands are increasing their investments in company-owned retail,
outlet, and online stores, which provide higher-margin growth opportunities than the wholesale channel and
enable them to showcase their entire merchandise assortment, enhance consumer brand awareness, and test
new products. Some companies are also pursuing growth through development of new product lines
specifically for discounters and mass merchandisers, as well as international expansion.
Finally, we expect supply chain improvements to support gross margin expansion for apparel, accessories and
luxury goods brands in 2014. We also look for companies to maintain discipline in inventory and expense

INDUSTRY SURVEYS APPAREL & FOOTWEAR: RETAILERS & BRANDS / SEPTEMBER 2014 7
management in support of earnings growth. We think that the companies with strong brands, differentiated
products, and attractive price-value propositions are likely to outperform their peers.
Year to date through September 5, 2014, the S&P Apparel, Accessories & Luxury Goods Index went up
1.3%, versus a 0.5% advance by the S&P 1500 Composite Index. In 2013, the sub-industry index rose
36.7%, versus a 30.1% increase for the S&P 1500.
 Apparel retailers. As of September 2014, our fundamental outlook for apparel retailers was neutral. We
expect apparel sales to grow 3% to 4% in 2014, supported by new fashion trends and sales promotions.
According to the US Census Bureau, sales at clothing and clothing accessories stores increased 3.8% in 2013
to $251.6 billion, versus a 5.5% gain in 2012. We also see increasing competition for share of customer
wallet from international retailers expanding in the US.
We think apparel retailers that use customer feedback from social media sites as a tool to improve their
products and services will gain a competitive edge. This will be particularly true for teen retailers, in our
view, as they move away from a key item merchandising strategy to offering head-to-toe looks. We also
expect apparel retailers to focus their expansion on outlet centers in order to reach cost-conscious consumers
who might otherwise not shop their brands and to raise brand awareness among international shoppers.
Given an uncertain outlook for consumer spending, as well as a highly promotional retail environment, we
expect companies to plan inventories cautiously to limit their markdown exposure. We also look for apparel
retailers to maintain expense discipline in support of higher earnings.
Year to date through September 5, 2014, the S&P Apparel Retail Index was up 2.3%, versus a 0.6% gain
for the S&P Composite 1500 Index. In 2013, the sub-industry index narrowly underperformed the broader
market, advancing 28.7% versus a 30.1% increase for the S&P 1500.
 Footwear. As of September 2014, our fundamental outlook for the footwear sub-industry was positive. We
look for footwear companies with strong brands to leverage quality, newness, and innovation in their product
offerings to stimulate consumer demand in a challenging US retail environment. We also expect geographic
diversification to benefit global footwear companies.
In a gradually improving, but still weak, economy, we see consumers seeking out value when making
discretionary purchases, but also stretching their budgets when the merchandise is right. As such, we view
footwear brands and retailers offering fashion newness and technical innovation in their products as having
the best chance of capturing sales and gaining market share. We also expect sales of performance athletic and
outdoor footwear, and related apparel and accessories, to be supported this year by the secular trend of people
becoming more active and health conscious.
While product cost inflation put pressure on gross margins in the past three years, many footwear companies
increased their earnings by raising retail prices (more on premium products and less on basic styles) and
leveraging expenses off higher sales. Despite higher labor costs, but with commodity costs easing since 2013,
and footwear companies leveraging new manufacturing technologies to increase production efficiencies, we see
an opportunity for footwear companies to expand margins in 2014. We also expect footwear brands and
retailers to maintain discipline in inventory and expense management in support of earnings growth.
Year to date through September 5, 2014, the S&P Footwear Index was up 4.5%, versus a 0.36% gain for the
S&P 1500 Index. In 2013, the sub-industry index advanced 53.2%, compared with a 30.1% rise in the S&P
1500. In our view, the outperformance of footwear industry stocks in 2013 reflected strong growth
momentum in the US, improving international sales trends, margin expansion on price increases, and well-
controlled expenses. 

8 APPAREL & FOOTWEAR: RETAILERS & BRANDS / SEPTEMBER 2014 INDUSTRY SURVEYS