WWD List: 15 Fash­ion Com­pa­nies Up Capex

WWD Digital Daily - - Front Page - BY EVAN CLARK

Af­ter some belt-tight­en­ing last year, re­tail­ers are boost­ing their cap­i­tal ex­pen­di­tures this year, seek­ing to keep up with con­sumers.

Rein­ven­tion isn’t cheap — but fash­ion can’t af­ford to stay the same.

Af­ter a lean year in 2017, when many re­tail­ers hit what might have been rock bot­tom and closed thou­sands of stores, longer-term spend­ing plans are up at most of the large U.S. ap­parel com­pa­nies.

A WWD list of 15 re­tail­ers and brands boost­ing their cap­i­tal ex­pen­di­tures this year showed an over­all in­crease of 18 per­cent. Lead­ing the list with break­away spend­ing were Michael Kors Hold­ings and Ralph Lau­ren Corp., with plans for re­spec­tive in­creases of 108 per­cent and 70 per­cent this year. (Not ev­ery­one is feel­ing so flush: J.C. Pen­ney Co. Inc., for in­stance, cut its planned cap­i­tal ex­pen­di­tures this year to $375 mil­lion, down from $395 mil­lion in 2017.)

Cap­i­tal ex­pen­di­tures are planned in ad­vance and re­flect longer-term spend­ing on prop­erty, equip­ment and other tan­gi­ble as­sets. Pub­lic com­pa­nies de­tail their planned ex­pen­di­tures for the year ahead in reg­u­la­tory fil­ings, and where the money goes of­ten says much about where they see their fu­ture.

Plans for this year were laid in late 2017 as busi­ness started to fi­nally pick up with fall spend­ing gains that flowed into the Christ­mas rush and ex­tended into the first quar­ter.

“The capex spend is a re­flec­tion of the op­ti­mism that started build­ing in the back half of last year,” said Bill Lewis, a di­rec­tor of AlixPart­ners’ retail prac­tice.

Lewis said re­tail­ers are putting money into “what they’re call­ing cus­tomer ex­pe­ri­ence.”

“The ones that are do­ing it right are al­low­ing their cus­tomers to ex­pe­ri­ence their brand or their retail ser­vices in any way they want,” he said.

For some, that’s build­ing or ex­pand­ing their buy on­line, pick up in store ca­pa­bil­i­ties, while for oth­ers it might mean adding more de­liv­ery op­tions.

Some of it is what Lewis de­scribed as “catch up in­vest­ments” af­ter lean times.

“They’re feel­ing bet­ter about the in­vest­ments,” Lewis said. “They’re just go­ing for it.”

One com­pany clearly go­ing for it now is Ralph Lau­ren.

The fash­ion group went into 2017 with plans to spend $300 mil­lion to $320 mil­lion, but ended up with cap­i­tal ex­pen­di­tures of just $162 mil­lion, or 2.6 per­cent of rev­enues.

Chief fi­nan­cial of­fi­cer Jane Nielsen told in­vestors at a meet­ing last week that the com­pany was go­ing back to spend­ing 4 per­cent to 5 per­cent of rev­enues, but would be al­lo­cat­ing the funds dif­fer­ently than in years past.

“The last two years have been a test and learn phi­los­o­phy,” Nielsen said. “We tested the small for­mat stores…we’re do­ing the L.A. mar­ket test…we’ve tested RFID and are now ready to roll that out in a more sig­nif­i­cant way. We’re ready. We’ve tested these ideas. We know they re­turn [on their in­vest­ment].

“We are go­ing to put our in­vest­ments to face the con­sumer, to change their ex­pe­ri­ence, to change the shop­ping en­vi­ron­ment, to change our dig­i­tal en­vi­ron­ments, to add func­tion­al­ity there,” she said. “So if you think about where we were, flip it. We’re go­ing to be about more than two-thirds con­sumer-fac­ing and a lit­tle less than one-third on in­fra­struc­ture and in­ter­nally fac­ing in­vest­ments.”

Re­tail­ers have found a per­haps un­ex­pected ally as they spend to mod­ern­ize their busi­nesses and com­pete in the age of Ama­zon. In­vest­ment across the sec­tor is be­ing sup­ported by the tax re­form pack­age pushed through by Pres­i­dent Trump just be­fore Christ­mas last year.

While the par­tic­u­lars vary, the sweep­ing tax changes cut the cor­po­rate rate over­all to 21 per­cent from closer to 35 per­cent.

Tar­get Corp., for in­stance, added $1 bil­lion to its capex plans for this year and is lay­ing out $3.5 bil­lion to in­vest in its stores and sup­ply chains.

“The an­swer to the ques­tion ‘What are you go­ing to do in light of tax re­form?’ is sim­ple,” said Cather­ine Smith, Tar­get’s ex­ec­u­tive vice pres­i­dent and cfo, dur­ing a call with an­a­lysts in March. “We’re in­vest­ing in our busi­ness and our team to sup­port Tar­get’s long-term sus­tain­able growth. We first look to in­vest in projects that prom­ise to gen­er­ate long-term value, then we want to sup­port our div­i­dend… and fi­nally, we look to re­turn any ex­cess cash [to share­hold­ers].”

For re­tail­ers, how much goes to the busi­ness and how much goes back to share­hold­ers could make all the dif­fer­ence.

Here, a look at 15 fash­ion com­pa­nies spend­ing more this year and where they’re putting their money, ranked by per­cent­age in­crease in their planned spend­ing.

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