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editor’s note Top 50 - Happy Days Are Here Again What a difference a year makes. Although all Top 50 companies in last year’s rankings were profitable, much of that profitability was achieved through severe cost-cutting measures across their enterprises. The Great Recession forced companies to become more flexible and innovative, to right-size inventories and stores, but it also led them to batten down the hatches as they hoped to weather the storm. Last year’s report found companies peeking cautiously from the hold to see if the winds had abated, and this year, finally, they have fully opened the hatch and emerged to capture the headwinds and steer toward a sunny day. It’s a complex story and each company has a different tale to tell, but a quick look at the numbers is quite revealing: Last year’s Apparel Top 50 reported declining revenues at 27 companies — more than half — vs. just six companies this year, while 15 companies reported declining net income last year vs. just seven this year. In short, the Top 50 are generating more topline growth, and keeping more of it. They are generating more sales, experiencing fewer markdowns and running less wasteful enterprises. Still, as Nike’s CEO Mark Parker puts it,“Nobody is out of the woods yet.”Despite more confident consumers and a return to shopping, all brands and retailers face challenges from still-high unemployment on one hand, and from global market volatility on the other, reflected in the escalating prices of cotton, labor and transportation — costs that they have finally begun to pass on to consumers. But, while no one can control the global economy, the Top 50 show determination to control what they can — tightly managing inventories, improving assortment and allocation planning, streamlining the supply chain, fostering creativity and looking for new opportunities for growth. Where is that growth coming from? International expansion and e-commerce may be the top two answers — although there’s still plenty of opportunity here in the US of A. International markets, both developed and emerging, represent a huge and virtually untapped opportunity. (Even the most globally venturesome of our Top 50, such as Ralph Lauren (with international revenues totaling almost $1.9 billion) and Nike (with revenues from China, for its NIKE Brand alone, totaling $1.7 billion) have really only just begun to get their feet wet.) Apparel brands and retailers are eyeing China’s rapidly growing middle class, which offers a contrast to the slower growing economy and population back home, with eager anticipation. Indeed, BlackRock’s Bob Doll estimates that during the next five years, 70 percent of the incremental earnings of S&P 500 companies will come from outside the United States. As for, let’s just call it Global Connectivity 3.0, it’s impossible to overstate its impact. As retailers try to keep up with the insane pace of change, they are working to perfect the “omni-shopper’s”experience, appealing to the shifting expectations and 24/7 purchasing habits of consumers via interactive experiences, location-based mobile apps, rock concerts, loyalty programs, social networking, new and remodeled stores — and great products. As always, growth also comes from M&A activity, spurred in part by input-cost inflation and rising wages in China that are pushing smaller companies to join forces with larger enterprises that have deeper pockets and greater clout with suppliers. Gymboree, bought by private equity firm Bain Capital in October, exited the Top 50, while No. 15 J. Crew (acquired by two equity firms) and No. 17 Timberland (acquired by No. 14 VF) take their final bows with this year’s rankings. There are some newcomers to the Top 50, and as always, some that did not weather the turmoil well and dropped out of the rankings, namely, Phillips-Van Heusen, bebe, Hot Topic, American Apparel and Christopher & Banks. There are also those who shone particularly bright. In exploring some of the strategies that led each firm to profitability, we begin with the brightest of those stars, No. 1 lululemon. JORDAN K. SPEER is editor in chief of Apparel. She can be reached at [email protected]. www.apparelmag.com • JULY 2011 1 COVER STORY 2 JULY 2011 • www.apparelmag.com #1 lululemon athletica It turns out that namaste means “really big profits.” Who After several years of cost- knew? While its customers rest comfortably in shivasana cutting and right-sizing, apparel (that’s the final yoga pose), lululemon is achieving bliss of a different sort. To put its profit margin of 17.11 percent in per- companies are taking bold steps spective: in the 20 years that Apparel has published its Top 50 report, no company has ever broken the 17 percent threshold, toward growth as they expand and just two (Wet Seal and True Religion) came even close, internationally, build bigger and breaking the 16 percent threshold in FY2009, and both FY2008 and FY2007, respectively. So, what is the secret to financial better flagship stores, invest in nirvana? While lululemon’s soaring profits reflect an uneven their strongest brands and put economic recovery that saw high-income consumers ready to splurge on luxury items — such as $100 yoga pants — as oth- one seamless face across their ers proceeded with caution, the company’s success also stems omni-channel enterprises. from its relentless focus on customer and product. Yoga instructors offer in-store classes (and drive brand awareness) while behind the scenes the company has grown its men’s clothing business and rapidly expanded into running wear and other new categories such as bags, underwear and outer- wear, while not losing sight of its core yoga business. Last year it introduced Silverescent, a line of yoga performance wear with silver-thread odor-fighting technology for easy transitioning from the gym to Starbucks. Through its 142 stores in North America and Australia (and its web site lululemon.com), the company continues to spread its message of positive thought — and to sell a lot of yoga-inspired apparel. #2 The Buckle Buckle up for another great ride, as this denim destination turns in another fantastic performance, with net sales up 5.7 percent to a record $949.8 million and net income up 5.8 percent to $134.7 million. 2010 also marked the 4th consecutive year of positive comp-store sales, which were up 1.2 percent. Buckle’s private-label brands continued to flourish, growing from 29 percent to 33 percent of the business, and expanded to include new offerings and several brand extensions, including the expansion of bestselling brand BKE across all product categories. Building on its reputation for exceptional customer ser- vice, the company expanded its loyalty program by partnering with key brands to offer one-of-a-kind promotions, and enhanced its personalized shopping program, Get Fitted, with the addition of call-ahead shopping appointments. Buckle completed its new 240,000-square-foot DC in Kearney, Neb., opened 21 new stores and completed 25 full remodels, while also focusing on the online experience, helping to grow buckle.com sales by 19.3 percent to $62.4 million, or 6.6 percent of net sales. www.apparelmag.com • JULY 2011 3 THE TOP 50 #3 Oxford Industries Charging up from No. 43, Oxford Industries takes the award for the biggest leap up the Top 50, with a transformational year that saw the operator of Tommy Bahama, Ben Sherman and Lanier Clothes sell its Oxford Apparel Group (to a subsidiary of Li & Fung, for $121.7 million) and acquire the Lilly Pulitzer brand — taking two huge steps toward the company’s strategic goal of repositioning itself from a private-label apparel manufacturer to a marketer of aspira- tional lifestyle brands. The company experienced a strong year across its portfolio, with its largest business, Tommy Bahama, improving comp-store sales and e-commerce, with net sales up 10 percent to almost $400 million and operating income up 36 percent to $51 million, due in large part to the continuing evolution of its merchandising strategy: When Oxford acquired Tommy seven years ago, approximately two-thirds of sales were wholesale and one-third came from the direct channel. Today that mix is reversed, with two-thirds of sales generated through its 89 company-owned retail stores, 13 restaurants and TommyBahama.com. Expect new stores this year, abroad and at home, including a new signature location at 5th Avenue and 45th Street in Manhattan. Tommy Bahama, Oxford’s largest business, will open a new signature location on 5th Avenue in Manhattan this year. #4 Urban Outfitters #5 True Religion Apparel Perhaps more surprising than the 2008 addition of garden center It slipped a few notches, from No. 2 last year, but there’s no Terrain to its portfolio of specialty retail, direct-to-consumer and reason to lose faith in this brand, whose still-impressive wholesale properties across its Urban Outfitters, Anthropologie near 12 percent profit reflects a devoted following of the and Free People nameplates is the February online launch of popular “Malibu-hippie-bohemian-chic” style developed bridal brand BHLDN. With its heirloom gowns and artisanal by visionary founder, CEO and chief merchant Jeffrey hair pieces, the brand fills a demand for beauty and elegance Lubell, who continues to oversee every aspect of marketing while giving tradition a twist — think wedding at the beach vs. and creative development. True Religion Brand Jeans, before the altar — and extends to 2nd-dress and honeymoon which often sell in the range of $168 to $376 per pair at attire and just about anything needed for the perfect wedding, retail, are found in the company’s branded retail stores (94 including table décor, lighting and even thank-you notes.

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