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How Kenneth Cole Could Cash in Selling to Iconix

Kenneth Cole, designer and founder of Kenneth Cole Productions (KCP), is reportedly at the deal table, in negotiations to sell his apparel and footwear company to Iconix Brand Group (ICON). Huh? When we last checked in with Mr. Cole, he was helming a re-positioning of the brand and had a new deal at Macy's (M).

Back-to-back losses may be forcing his hand. Yet that's precisely the reason it's hard to believe Kenneth Cole would be attractive to any buyer, licensing group or otherwise. Even with recent gains in net revenues of 10.2 percent to $217.5 million, KCP stock's lost about half its value over the past five years through last week. In contrast, Iconix posted total revenue of $76 million for its second quarter representing a 35 percent increase over 2009.

However, it's hard to say if Iconix can keep its winning streak going. Its latest splashy deals have had lukewarm results -- namely, the way Madonna's Material Girl line for Macy's is languishing on markdown (as witnessed by a recent trip to the flagship in Herald Square) and Bongo's yawn-worthy presence in Kmart and Sears (SHLD). The holiday shopping season will be the true test of the success or failure of these new deals, but right now, it's promising. Sales gains are making retailers optimistic across the board.

So what's in it for Iconix? For starters, it would keep the company in the family. Iconix is owned by Kenneth Cole's brother Neil Cole, who may be perfectly comfortable leaving the nitty-gritty of operating retail stores to someone as close as a sibling. And it's not like Kenneth Cole hasn't earned his chops. With 110 stores, products placed in over 5,000 department and specialty stores and an e-commerce site, Kenneth Cole has a distinct advantage over his brother's licensing company, which has built a business without owning inventory or running a direct-to-consumer operation.

As an apparel retailer, Kenneth Cole's margins are already slim. If he sells the brand and goes the licensee route, he'd have an even smaller cut because he'd have to pay royalties on sales.

The advantage for KCP is that Iconix has forged solid relationships with almost every mega-retailer. Iconix's brands are in Walmart (WMT) with Danskin and OP, Sears with Joe Boxer and Bongo, Kohl's (KSS) with Mudd, and Mossimo at Target (TGT). If Kenneth Cole merges with Iconix, there's a strong possibility a whole new collection of Kenneth Cole licensed product (for less than what's selling in department stores!) could be coming soon (and cashing in) at a discount outlet near you.

Image via Kenneth Cole


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