California Apparel News

Arnold Simon sits in a large leather chair in his spartan office contemplating his next move.

Last year, the Aris Industries Inc. chief executive officer took his company out of the design, manufacturing and marketing business and entered it into licensing in an effort to lessen its $35 million debt. In May, he sold one of the company’s most profitable brands, junior label XOXO, to New York investment company Global Brand Holdings for $43 million in cash. The deal not only included XOXO, a well-known junior line founded in 1991, but also two other Aris labels: Fragile and Lola. Once the transaction is finalized, Global Brand plans to sign a licensing agreement with Kellwood Co., a $2.2 billion apparel powerhouse based in St. Louis, to begin producing XOXO junior sportswear, dresses and intimate apparel this fall.

Evolving from a clothing manufacturer to a licenser of apparel brands is a business strategy that companies such as Cherokee Inc. and Mossimo Inc. have undertaken in recent years to climb out of debt. The lesson is not lost on Simon, whose company has been in a financial free fall for the last two years. Aris’ net loss totaled $13.7 million in 2002 and $3.4 million in 2001.

“It’s a very good deal for the company—it takes Aris completely out of debt,” said the 49-year-old Simon in a recent interview at Aris’ 160,000 square-foot facility in Commerce, Calif. “We’re always working on new strategies.”

Popularizing Calvin Klein jeans

As a clerk earning $85 a week at Mr. Ralph Pajamas in 1970, Simon learned marketing techniques he would use later in his career. Early on, his strategy was to make major designer labels affordable for consumers.

In 1995, Simon formed Designer Holdings Ltd. and for $40 million acquired a 75-year exclusive licensing contract to produce and distribute Calvin Klein jeans and sportswear for men, women and boys. He lowered the wholesale price points for retailers so they could maximize their margins. As a result, the line received a wide range of retail distribution.

Other big-name designers, including Tommy Hilfiger and Donna Karan, followed suit. At one point, Karan reached a similar agreement with Designer Holdings, but fearful that broad exposure would cheapen her line’s cachet, backed out of the deal, according to sources.

In 1997, Simon sold Designer Holdings, including the Calvin Klein license, to Warnaco Inc. in a stock transaction valued at $365 million.

Simon said the decision to sell XOXO was no different from the Calvin Klein deal.

In 1999, he purchased XOXO from founder Gregg Fiene, who stayed on as XOXO’s chief executive officer. Fiene, who declined to comment for this article, will remain an Aris employee, according to Simon.

The sudden sale of the XOXO label after only four years comes as a surprise to some industry observers.

“It’s surprising to me because XOXO is Aris’ biggest asset,” said Tarrant Apparel Group Chief Executive Officer Gerard Guez, who with partner Todd Kay owns approximately 7 percent of Aris Industries’ stock. “It’s also a surprise that the company was sold without having an evaluation made for the brand and without giving other companies an opportunity to bid on the label.”

Moving into misses

Aris, in its new role as licenser, is managing a panoply of men’s, boys’ and women’s brands in categories including outerwear, activewear, sportswear, loungewear and swimwear for labels such as Members Only, a men’s outerwear collection sold at mid-tier department stores such as Wal-Mart, and Baby Phat, a $25 million urban street wear line for young women. Selling XOXO gives Aris a clean slate to acquire and build new brands, Simon said. He is contemplating an expansion into the misses category, an area the company has overlooked in the past.

“It is something that is very new for our company, and there are some possibilities we will look into for the future,” he said.

A few months ago, the publicly held company acquired the licensing rights to produce two misses contemporary labels: Kosiuko, a South American–based womenswear line, and La Pepita, a European womenswear line. Aris has not yet appointed a president for either company.

Simon admits Kosiuko and La Pepita are not likely to have the same crossover appeal that XOXO has had. But, Simon, is looking closely at the salability of the misses denim market. He plans to update the styles of both lines to reflect a cross between young contemporary and misses.

Aris also plans to focus on Baby Phat, which will be adding plus sizes for women and new denim styles, said Steven Feiner, XOXO’s former president who will now serve as Baby Phat’s president.

“Baby Phat is growing quite a bit,” Simon said. “It’s not as big as XOXO, but I think in the next couple of years it will be.”

Part of Aris’ brand-building strategy will be to sub-license products for its brands.

“We think that once we develop the core business, which is the sportswear and jeanswear business, then we can start licensing out the brand,” Simon said.

One major transition is a new marketing strategy for retailers and clientele. Currently, the company has about 1,200 accounts with department and specialty stores in the United States. Roughly 90 percent of XOXO’s sales occur at department stores— including Macy’s, Robinsons-May and Nordstrom—while 70 percent of Baby Phat’s distribution is in specialty stores, such as D.E.M.O.

In building up Kosiuko and La Pepita, Aris will focus on specialty retailers.

“The specialty stores go after a niche customer who can afford to spend a little more on apparel, where the department stores are stuck in price points per category,” Feiner explained. “And [in specialty stores] there is less pressure to meet margin goals.”

East and West

Aris’ headquarters are in New York, where the company employs 25 workers. But a large portion of the company’s production takes place at Adamson Apparel, a Commerce, Calif.–based manufacturing facility that Simon owns. The company will produce Baby Phat and the new misses lines at Adamson and will do any remaining production in South America and Asia. The company will produce the XOXO line at Adamson until Sept. 30.

Plans to pay off all Aris’ debts to secured and unsecured creditors are in the works, Simon said.

“Debt reduction in a deflationar y environment is a good thing to do,” said Carl Steidtman, chief economist at Deloitte Research in New York. “Many business managers have grown up in an inflationar y environment where managing debt was much easier. We’re in a different environment today where prices are falling, and that makes managing debt more difficult.”