Lucky Will Roll With Leonard Green

by , Dec 11, 2013, 7:56 AM
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Lucky Brand Jeans — a product that trumpets its non-commodity status in its name and has literally done its branding on the fly — was sold yesterday to Leonard Green & Partners, a $15 billion private equity firm based in Los Angeles that also holds substantial investments in J. Crew, Jo-Ann Stores, David's Bridal, Container Store, Petco and Sports Authority, among other companies.

Back in the 1990s, “denim veterans and Lucky co-founders Gene Montesano and Barry Perlman used clever marketing — including the ‘Lucky You’ label stitched into the fly — to create one of the country's most popular mid-level denim jeans,” Stuart Pfeifer writes in a Los Angeles Times piece that ledes with the fact that brand ownership is returning to its roots.

“Founded in Vernon in 1990 and moved last year to a 1940s Art Deco building in downtown Los Angeles, [Lucky] will be locally owned once again,” Pfeifer says.

Currently, “the 23-year-old Lucky is the second biggest-selling brand for [New York-based] Fifth & Pacific, behind only Kate Spade, bringing in $346.4 million in sales for the first nine months of the year,” Michael J. de la Merced reports in the New York Times. With the divestiture, Fifth & Pacific will actually be pared down to only two brands — Kate Spade and the Adelington Design Group jewelry line, as Bloomberg’s Matt Townsend reports.

“Fifth & Pacific, formerly Liz Claiborne Inc., changed its name last year after selling the namesake brand to J.C. Penney Co.,” writes Townsend. “CEO William McComb has trimmed the company’s portfolio from more than 30 brands when he started in 2006.”

“It is truly an historic day at Fifth & Pacific Companies — a return to our roots as a mono-brand company,” McComb said in statement announcing the sale for $140 million in cash at closing and $85 million to be financed with a three-year seller note. As McComb pointed out in October when the sale of Juicy Couture to Authentic Brands Group, a unit of Leonard Green, was announced, the process has been a year in the making.

“We believe that by focusing all of our resources on the huge opportunity at Kate Spade, we can deliver the strongest value creation opportunity for our shareholders,” McComb continued yesterday. “This is all about bringing Kate Spade to its full potential. The opportunity we have today is not unlike the opportunity that launched our corporation back in 1976: Kate Spade is a rapidly growing brand, with global appeal and strong margins, offering consumers something more than any of its competitors. “

Kate Spade primarily competes with Michael Kors and Coach, Reuters reports. Its “rocket to the top has allowed Fifth & Pacific to launch a spin-off brand, Kate Spade Saturday, which is aimed at a younger, less affluent crowd,” The Motley Fool’s Andrew Marder points out. “That secondary brand is already growing, along with Kate Spade's international business.”

Marder also writes: “Kors has been dominating the luxury handbag and accessory market recently,” while pointing out that “Coach has had a rough year, and a burst of focus and activity from Kate Spade isn't going to help.”

Writing on Seeking Alpha last week, Jay Zaffos acknowledged Coach’s difficulties but he views most of the many changes it is going through as “opportunities” for “patient, long-term investors.” Its value stems from its strong brand heritage. 

“The very word ‘coach’ itself conjures up images of luxury handbags due to the pervasiveness of the company's global and cultural reach,” writes Zaffos,

As for Lucky, NPD Group chief retail analyst Marshal Cohen tells the Los Angeles Times’ Pfeifer that “Lucky should take a lesson from bigger rival Guess Inc. and create a lifestyle brand focused on much more than denim.”

“It still has good, strong recognition and loyal followers,” Cohen said. “The key is: How do you expand the brand to go beyond denim? To really get growth they've got to do a better job of creating innovative and diversified products.”

All these analysts want, it seems, is everything.

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