Betsy White

U.S. Apparel Retailers Map an Expansion to the North

Risk-shy from the recession but anxious for growth, U.S. retailers are expanding internationally at a creep-into Canada. J. Crew Group Inc. is scouting its first non-U.S. locations. Limited Brands Inc. is bringing Victoria's Secret north, and plans to double its Bath & Body Works stores there by year end. Gap Inc. is opening more outlet stores. The border crossings underline a wider dilemma facing CEOs in many industries. Many feel the economy is still too fragile to take big ambitious risks, but they still need to restart growth. Canada offers a baby step: a way to expand internationally, but in a market that's closer and more familiar than Europe or Asia. Apparel CEOs have so saturated the U.S. in the last decade that even as consumers reopen their wallets, many retailers must look outside the country for substantial growth longer term. In a tacit nod to domestic limits, apparel retailers including Gap, AnnTaylor Stores Corp. and Talbots Inc. are closing locations and shrinking stores. Crossing into Europe and Asia is tricky. Retailers must learn different labor laws, shopping habits, body sizes and tastes. In the past, most U.S. clothing retailers have just stayed home. One exception, Gap Inc. expanded into Europe and Asia in the 1990s but slowed to focus on domestic sales. Canadians, by contrast, know American brands and share similar taste and body types. Canadian sales have held steadier through the global downturn than those in the U.S., and the market is less built up. Canada has about 14 square feet of shopping center space per capita, whereas the U.S. has roughly 23, according to the International Council of Shopping Centers, a trade group.

American Apparel Struggles to Stay Afloat

Middle age isn't being kind to Dov Charney. The fast-talking CEO of American Apparel—whose libertine lifestyle and racy marketing campaigns have kept the clothing chain controversial and on the minds of its young shoppers—has had to scramble to keep his beloved company out of bankruptcy. Charney had to give up a large equity stake in the operation to a private-equity firm, which rode to its rescue. He also was forced to slow the chain's rapid rate of expansion and had to deal with stores that couldn't even keep their shelves fully stocked thanks to the vise-like grip on cash kept by Lion Capital, the London-based investment firm whose March 2009 financing deal saved Charney's bacon. All this since he turned 40 in January 2009. It certainly didn't help Charney's mood when, on Friday, the racy retail chain's shares plunged 17 percent after the New York-based concern reported its fourth-quarter profits had dropped a jaw-dropping 23 percent. While soaring costs and anemic sales sapped profits, investors were likewise rattled as the company delayed giving an outlook for 2010, citing restrictions imposed on its operations by lenders. That spooked investors, who raced for the exits—sending shares to a close at $3.17, down 67 cents. American Apparel's party has also been pooped by the federal government. Last summer, the Immigration and Customs Enforcement agency charged that one third of the workers at the retailer's Los Angeles factory were illegal immigrants. At the time, the company said the forced firings of about 1,500 workers wouldn't materially hurt results. But there was a new tune being played last week.

(Cup) Size Matters as Agent Provocateur and Frederick's of Hollywood Battle for Market Share

Agent Provocateur features the sort of wispy underpinnings frosted with Chantilly lace and finished with extravagant bits of silk and satin while Frederick's of Hollywood frames the lady parts in shiny (mostly) artificial fibers. Each company is currently in expansion mode. Agent's plan is to open more stores and add more swimwear and accessories to cater to ladies lusting for all things luxe. Frederick's, um, thrust is in social media and online promotion to those who prefer more affordable frippery. But at either end of the market spectrum, size matters. You read that right. The secret to snagging the most customers is not the number of doors or web portals, it's in the cup (and panty, corset, garter, etc.) size. In the lingerie business, the bigger the range of sizes, the bigger the company's market share. As with apparel, a lucrative and rapidly growing segment of women's retail can be found in the plus-size intimates section. Companies offering sizes above 14 are experiencing double-digit increases (think teen retailer Torrid's impressive online sales).

Talbots Investors Protest Too Much On a Merger Proposal That Could Save the Company

Some retail-stock investors just don't know when they've got it good. Struggling women's apparel retailer Talbots found a way to get a $350 million cash infusion, via its merger with a deep-pocketed special purpose acquisition company (SPAC), but investors are suing to stop the deal. The deal with BPW Acquisition Corp.—headed by wealthy former Morgan Stanley exec Gary Barancik - would retire all of Talbots' debt. How many retailers would kill to clean up their balance sheets right now? For those unfamiliar, SPACs are publicly traded shell companies created for the purpose of finding distressed companies to acquire. They're often used as a back-door method for taking a company public without an initial public offering. Here, though, the SPAC-Talbots merger would simply combine BPW's money with the Talbots chain to create a single, financially stronger public company. Between the BPW deal and a new, $200 million revolving line of credit parent company The Talbots lined up with GE Capital, Talbots could wind up in a strong position to survive until more professional women resume buying upscale wardrobes. But Talbots shareholders are grouchy about a last-minute rule change under which BPW could create a new exchange rate on the day the deal closes, creating uncertainty about just how much of the combined company they'll end up holding. One Talbots investor, John Campbell, sued to stop the deal but withdrew his complaint in early March. Next came money-manager Pentwater Capital Management, which sued this week. That showdown caused Talbots to extend its share-exchange offer a few times—now existing shareholders have until end of business Monday April 1 to trade in their shares. Despite the small amount of uncertainty that's entered the deal, Talbots investors should take the deal they've got before Barancik loses interest and finds another retailer to bail out instead. Investors may get a little less than they want, but it'll be a far sight better than owning a bigger stake in a company that otherwise might not survive.

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