Supply chain threats fray fragile threads: making garments abroad slashes the price of labor, to the delight of shareholders. But the gains are sometimes easily erased with a snafu or two in the supply chain, leaving managers entangled in big headaches

Risk & Insurance, March, 2005 by John Williams

INDUSTRY RISK REPORT THE APPAREL INDUSTRY

It was Brooke Shields who once said that nothing came between her and
her Calvin Klein undergarments. Not so for risk folks. There's plenty
that comes between them and their garments: U.S. Customs, the World
Trade Organization and oversears competition, most notably from China.

Company                Location                CRO

Jones Apparel Group    Bristol, Pa.            Joseph Donnalley,
                                               Sr. VP,
                                               Corporate Taxes and
                                               Risk Management

Kellwood               St. Louis, Mo.          Kathy Brittin,
                                               Risk Manager

Levi Strauss           San Francisco, Calif.

Liz Claiborne          New York, N.Y.          Robert McKean, VP, Cash
                                               and Risk Management

Nike                   Beaverton, Ore.         Brian Beeghly, Director
                                               of Risk Management

Phillips Van Heusen    New York, N.Y.          Carla Eberling,
                                               Director,
                                               Risk Management

Polo Ralph Lauren      New York, N.Y.          Karen Jeanetti, VP,
                                               Treasury and Risk
                                               Management

Reebok International   Canton, Mass.           Meredith Harodecki,
                                               Director,
                                               Risk Management

VF                     Greensboro, N.C.        Ralph Shank,
                                               Corporate Risk Manager

Warnaco Group          New York, N.Y.          Virginia Maglio,
                                               Director,
                                               Risk Management

                                               2004 Total
Company                CFO                     Revnue

Jones Apparel Group    Wesley R. Card          $4,375 million

Kellwood               W. Lee Caps III         $2,346 million

Levi Strauss           James P. Fogarty        $4,090 million
                       (interim)

Liz Claiborne          Michael Scarpa          $4,241 million

Nike                   Donald W. Blair         $12,253 million

Phillips Van Heusen    Emanuel Chirico         $1,582 million

Polo Ralph Lauren      Tracey Travis           $2,649 million

Reebok International   Kenneth I. Watchmaker   $3,485 million

VF                     Robert K. Shearer       $5,207 million

Warnaco Group          Lawrence R. Rutkowski   $1,264 million

                       No. of      Primary
Company                Employees   Insurance   Captives

Jones Apparel Group    21,845      Withheld    No

Kellwood               27,000      Withheld    No

Levi Strauss           12,300      Marsh       Majestic Insurance
                                               International Ltd.
                                               (Bermuda)

Liz Claiborne          13,000      Withheld    No

Nike                   23,300      Marsh       Triax Insurance Inc.
                                               (Hawaii)

Phillips Van Heusen    9,000       Withheld    No

Polo Ralph Lauren      13,000      Withheld    No

Reebok International   7,760       Withheld    No

VF                     52,300      AIG         Accelerated
                                               Reinsurance Company
                                               Ltd. (Bermuda)

Warnaco Group          12,377      Withheld    No

Company Name:          Risk Exposure:

Jones Apparel Group    Less consumer spending and reduced shopping as
                       a result of general economic downturn, the
                       integration of acquired businesses into the
                       company's existing organization and operations,
                       exposures associated with foreign operations
                       and contracting, changes in the costs of raw
                       materials, advertising and labor costs.

Kellwood               Economic uncertainty caused by the elimination
                       of the quota and the effects of safeguards
                       (if any) put on Chinese imports into the
                       United States. Action of competitors might
                       also affect the company's performance. In
                       addition, the economic impact of uncontrollable
                       factors, such as terrorism or war can affect
                       the company. The firm is also exposed to risks
                       related to changing economic conditions such
                       as inflation/deflation, foreign currency rates
                       and oil prices and their relation to textile
                       prices.

Levi Strauss           Changing domestic and international retail
                       environments, the effectiveness of the company's
                       promotion and incentive programs with
                       retailers, changes in the level of consumer
                       spending, dependence on key distribution
                       channels, customers and suppliers, the
                       company's ability to remain in compliance with
                       its financial covenants, the impact of any
                       future restructuring activities; additional
                       costs related to company workers' compensation
                       and benefits plans.

Liz Claiborne          Risks associated with the market in which Liz
                       Claiborne operates include consumer confidence
                       and discretionary spending, the company's
                       ability to operate under intense operational
                       constraints, including the risk that
                       manufacturers will fail to produce or deliver
                       quality materials and products. Risk exposures
                       to increased sourcing costs, including costs
                       for materials and labor; possible delays or
                       unforeseen costs of integrating new business
                       lines or new acquisitions.

Nike                   Demographic changes, changes in consumer
                       spending and trends seasonal and geographic
                       demands for Nike products, difficulties
                       in implementing and maintaining Nike's
                       increasingly complex information systems and
                       controls, including supply and demand control
                       and inventory control, increased cost of
                       freight and delivery to meet delivery
                       deadlines.

Phillips Van Heusen    Weather conditions changes in the economy,
                       fuel prices, reduction in travel and fashion
                       trends all affect the company's revenue. In
                       addition, the availability of raw materials,
                       quota restrictions that could reduce
                       productivity, and the unexpected migration
                       and development of manufacturers can affect
                       business. Political or labor conflicts in the
                       United States or other markets affects the
                       company, as do epidemics and other
                       health-related concerns.

Polo Ralph Lauren      A substantial portion of the company's net
                       sales and gross profits are derived from a
                       small number of large customers. Business
                       could suffer as a result of a manufacturers'
                       inability to produce goods on time. Business
                       is also subject to risks associated with
                       importing products, and failure to maintain
                       licensing patterns could adversely affect
                       business. Nor may trademarks and other
                       intellectual property rights not be adequately
                       protected outside the U.S. The business is
                       subject to domestic and foreign currency
                       fluctuations.

Reebok International   Reebok's athletic footwear and apparel business
                       is subject to consumer preferences. Business
                       may also be adversely affected by the threat of
                       terrorism and related political instability and
                       economic uncertainty. Reebok's business may
                       be adversely affected by a decrease in the
                       popularity of the sports leagues and other
                       brands it licenses, and a strong American
                       dollar reduces the company's reported results
                       of operations from international business.

VF                     A lack of availability of new acquisitions to
                       increase shareholder value VF's ability to
                       successfully integrate and achieve sales and
                       earnings growth from the new acquisitions,
                       political factors in the markets where VF
                       competes, including recessions or changes in
                       market rates, price levels and capital market
                       valuations.

Warnaco Group          Increases in the prices of raw materials the
                       company uses, changes in federal regulations
                       or international trading regulations, the
                       company's history of loss, the company's
                       ability to protect its intellectual property
                       rights, the company's exposure to conditions
                       in overseas markets, the consequences of
                       current SEC investigations, shortage in supply
                       of sourced goods and the adverse effect of
                       business interruption costs, the level of debt
                       and the firm's ability to obtain additional
                       financing all affect how the company operates.

Company Name:          Risk Strategies:

Jones Apparel Group    Jones Apparel's risk management policy includes
                       the use of derivative financial instruments
                       for relevant market risk exposures, including
                       interest rate risk and foreign currency
                       fluctuations. The company's interest rate
                       hedging strategy aims to effectively float a
                       portion of the exposure on the company's fixed
                       rate financing arrangements.

Kellwood               Interest rate risk is managed through a
                       portfolio of variable- and fixed-rate debt
                       composed of short- and long-term instruments.
                       Inflation risks are managed through price
                       increases and cost control procedures when
                       possible.

Levi Strauss           Levi Strauss is partially self-insured for
                       workers' compensation and certain employee
                       health benefits. Insurance has also been
                       purchased for claims in excess of $200,000.
                       Levi Strauss does not hold any interest rate
                       derivatives. The company manages market risk
                       through a variety of instruments, including
                       spots, forwards, options and swaps. The
                       company also evaluates foreign currency
                       fluctuations on a global basis.

Liz Claiborne          Liz Claiborne uses foreign currency forward
                       contracts to hedge variabilities and currency
                       fluctuations associated with markets in Canada
                       and Europe.

Nike                   Nike monitors foreign exchange rate and
                       interest rate risks through a variety of
                       techniques, including reviews of market value,
                       sensitivity analyses and value-at-risk, a risk
                       analysis tool used primarily to measure and
                       identify foreign currency risk.

Phillips Van Heusen    The company may from time to time purchase
                       foreign currency forward exchange contracts
                       to hedge against changes in exchange rates.

Polo Ralph Lauren      Polo Ralph Lauren maintains whole life
                       insurance policies on several senior
                       executives. The company also entered into an
                       interest rate swap to minimize the impact of
                       changes in the fair market value of the Euro
                       debt due to changes in EURIBOR, the benchmark
                       interest rate.

Reebok International   The company offers life and supplemental life
                       insurance and AD&D programs to several levels
                       of employees. The company also uses foreign
                       currency forward contracts, options contracts
                       and interest rate swap agreements to hedge its
                       exposure to domestic and international market
                       risks.

VF                     VF manages fixed and variable interest rate
                       debt in order to limit the interest rate
                       fluctuations on net income and cash flows. The
                       company monitors net foreign currency market
                       exposures and may enter into foreign currency
                       exchange contracts to hedge foreign currency
                       transactions. VF also maintains nonqualified
                       deferred compensation plans.

Warnaco Group          The company entered into an interest rate
                       swap agreement to hedge interest rate risk
                       exposures. The company also has general
                       liability insurance covering personal injury,
                       workers' comp and advertising liability. The
                       company also maintains coverage against theft
                       and destruction of products and materials.