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By Jordan K. Speer - 11/01/2006

In September, Hanesbrands Inc., marketer of innerwear, outerwear and hosiery, was spun off as an independent company from Sara Lee Corp. Although, at $4.5 billion, apparel represented a significant chunk of its $20 billion business, Sara Lee has probably been better known for its cheesecake squares and deli meat than its undergarments. The spin-off will give Hanesbrands the opportunity to focus more intensely on its core apparel brands, particularly on innovation, design and marketing.

Rich Noll, CEO, who rang in Hanesbrands' launch with the starting bell on the floor of the New York Stock Exchange on Sept. 6, recently spoke with Apparel about the company's plans to redefine its image and renew its focus on its core brands through innovation, cost-saving initiatives and a focus on the consumer.

Apparel: The opportunity to shed its CPG skin and stand alone as one of the largest apparel companies in the world gives Hanesbrands a great opportunity to redefine its entire image. What will that be?

Noll: We're a large, strong company that with the focus created by the spin-off, is going to get even better. As an independent company, we will focus on a few major strategies: Building our leading market brands; improving our overall cost structure; and using our strong cash flows to pay down debt. By focusing on those three components of our strategy, we believe we can create tremendous shareholder value.

Apparel: Hanesbrands has a stable of world-class brands, but the majority is in highly price-sensitive, and also very replenishment-driven categories. What are some of the company's plans to stand out from competitors such as Warnaco Group, Victoria's Secret and VF? Do you expect that initial growth will come from building new brands, enhancing opportunities with existing brands or expanding into new categories?

Noll: Our focus for growing our sales and building our brands is very clear. It is to build our largest, strongest brands in our core categories, by driving innovation in key items.

We believe there is a tremendous amount of opportunity to focus on the brands that we have in the categories that we have.

Take for example the Hanes tagless tee. In fact, most consumers believe that we invented the tagless concept, but we did not. It was an innovation that was out there in the marketplace in a small niche category. We took that innovation and put it into a core category, men's underwear, in a key item, men's underwear T-shirts, and used all the disciplines of a consumer products company -- PR, advertising, coordinated POS at retail, promotion -- to cement the concept of tagless in consumers' minds.

That took the men's underwear T-shirt category, which at the time was declining at about 2 percent annually, and driven by our growth, turned the category to growing 8 percent per year.

That's the type of key item innovation in a core category in a large brand that we'll be using in the future. Our current emphasis is on the comfort-soft waistband products for both men and women. As we did with the tagless tee, we've introduced that innovation in some core categories, and consumers are very receptive to that comfort innovation. Those products are doing extremely well.

You'll see a whole host of those types of innovations over time. Those two were in the Hanes brand. We've done other product innovations recently, such as the Champion O2 Cool bra and Champion vapor T-shirt. We also introduced a front-closed bra in the 18-Hour Playtex line this past winter, which was the largest new product launch in Playtex' history.

Apparel: From a sourcing perspective, how will its break with the CPG side of the business enable Hanesbrands to change its sourcing strategy? Recently you closed some facilities in the United States. Can you comment on future plans to change your sourcing mix, and your overall sourcing strategy?

Noll: Our strategy is to have the lowest-cost supply chain, and in today's environment, that means we need to operate it on a global basis. In the long term, we expect to balance our supply chain across both the western and eastern hemispheres. Today we're centered a little bit more on the Western Hemisphere, but over time you'll start to see that equalize.

From a sourcing vs. self-owned perspective, we have a balanced strategy there as well. For product on which we can earn a good financial return by investing our own capital in self manufacturing -- and that's generally where there's a large scale advantage in manufacturing -- we'll self manufacture.

For categories where we can't achieve a substantial scale advantage in manufacturing ourselves, we'll source that from third parties. Many of our competitors have a strategy to either self manufacture or source 100 percent. We believe a balanced strategy is the more appropriate one for our business mix.

Apparel: What other changes do you expect to implement in your supply chain?

Noll: Lean manufacturing processes are a big focus. Under our old structure, we were more decentralized as an organization than we are now; today we are one operating company. In the past, some of our divisions were further along than others in terms of adopting lean manufacturing techniques. Now, those practices are being adopted and implemented company-wide. I'm a strong believer in lean techniques as a way to be much more successful in the future.

Apparel: Can you tell me about Hanesbrands' RFID initiatives, and what benefits, if any, you've been able to reap at this point?

Noll: RFID is a technology that's clearly evolving. Because we're so big with some of our large retail customers, as they were looking to investigate and start to blaze the RFID trail, we were one of the suppliers that they looked to partner with. So we've been working quite closely with some major retail partners to develop those technologies and figure out what the long-term benefits are going to be. I'm convinced that the long-term benefits are going to be huge, but like any major technological advance, it's going to take a long time for the technology to continue to mature and the processes to continue to evolve, for all of us to reap the full benefits that will one day be there.

Apparel: Sara Lee sold its European apparel business earlier this year. How will that affect Hanesbrands' growth strategies going forward? Do you see the Asian market as a hotbed of potential Hanesbrands consumers, and if so, what are your plans to expand into that area?

Noll: We believe we have great growth potential in Asia. Today we have about a $100 million business in Japan. We've sold both the Hanes and Champion brands there for well over two decades, and we believe that we can use that strong base in Japan to grow more broadly in Asia. A little over a year ago we introduced the Hanes brand in China, and we're quite pleased with our very early results, as well as now in India.

Apparel: How does your approach to these marketplaces differ from your U.S. strategy?

Noll: Clearly the supply chains supporting Asia are a little bit different from the supply chains supporting the United States. However, as we globalize our supply chain and balance it more equally across hemispheres, we'll integrate those supply chains over time. That will give us a big advantage in continuing to push our growth in Asia, because it will give us operating scale that we wouldn't have if we were operating those entities on a stand-alone basis.

From a marketing perspective, the brands have a very similar position as they do in the United States. However there's a cachet of being an American brand and selling in Asia. Americans are considered to be on trend, rather hip and cool, by people in the rest of the world. Hanes is viewed as a symbol of quintessential American heritage, and we tried to take advantage of that status in Japan, and use that concept in our advertising.

Champion targets everyday athletes and that same strong heritage. The positioning here in the United States is the same positioning we would have in Japan. There are not very many dissimilarities.

Apparel: As far as your individual brands, do you see any of them taking the helm, so to speak, or do you expect all of them to maintain a pretty solid balance in your portfolio?

Noll: We're very satisfied with the brand portfolio that we have today. Hanes is clearly our largest brand. It's over $4 billion at retail [and more than $2 billion net sales to Hanesbrands]. That's large not only by apparel standards, but by any consumer goods company standard. Champion, Playtex and Bali are our next three largest brands on a retail basis. They're all around that $500 million mark at retail, so they're also large, strong, sizeable brands. And our other brands, barely there, Just My Size, Wonderbra, to name a few, are good strong brands in their particular market segments, and our plans are to be able to grow all of those brands.

Apparel: How, if at all, will the company's new standing change its relationship with its retail customers such as Wal-Mart and Target? Do you anticipate any changes in your channels of distribution? Do you think they'll view you now as more of a competitor, or is it business as usual?

Noll: We have large, strong brands, and we have either the No. 1 or No. 2 share position in all of our categories. We bring innovation to the market, and it helps grow those categories and therefore grow our retailer sales. Because we're so big and important in these categories, while the retailers are very important to us, we're also very important to them. As we continue to invest in our business, invest in our supply chain, invest in our brands and invest in innovation, we'll continue to enjoy those strong customer relationships that we've always had. And I think that they look positively on the spin-off and the focus it creates to allow us to continue doing that in the future.

Apparel: The end consumer is what it's all about. What types of plans or systems do you have in place to monitor the desires and habits of your consumer base at your retail customers' locations, or otherwise, to ensure that you continue to be what she wears?

Noll: We have a sizeable consumer research department that helps us execute a tremendous amount of research to help us keep our finger on the pulse of the consumer. We also have our own retail outlets. We operate about 200 outlet stores in the country as well as have our own direct-to-consumer business, mainly under the One Hanes Place catalog, so we do have some interaction with our customers on a regular basis. But the lion's share of what we do is through traditional consumer packaged goods techniques using research and focus groups and quantitative studies, and test markets to really help understand what consumers are looking for, and what's going to resonate very well with them.
Jordan K. Speer is senior editor of Apparel. She can be reached at [email protected]