California Apparel News

When 7 for All Mankind went looking for a major investor in its hot denim venture, the Los Angeles apparel maker did not go to the usual suspects in the investment banking community.

Instead, Peter Koral, president of 7 for All Mankind, turned to an unlikely source. He sought help from an old friend at the Buxbaum Group, a decades-old liquidator known more for getting rid of apparel inventory than for investing in it.

But the inventory liquidation business, always a cutthroat industry dominated by a handful of national companies, has changed over the last few years. And so has the Buxbaum Group, a closeout specialist in Calabasas, Calif., that has staged hundreds of going-out-of-business auctions and fire sales for dying retailers and foundering companies.

In the last few years, the Buxbaum Group has veered in a new direction, investing in three wellknown apparel companies, two on the brink of bankruptcy. And the company is hunting for more garment companies to turn around.

The metamorphosis from inventory liquidator to investment banker is a smart move because not as many retail chains have been closing their doors in the last couple of years.

“Liquidations, which used to be our primary revenue generator, are now the smallest revenue generator for our company,” said Paul Buxbaum, chairman and chief executive of the company, which was founded by his father, David, in 1974. “There are fewer companies with bleeding assets.”

The decline in the liquidation business prompted The Ozer Group, a major liquidator in Needham, Mass., to agree to be acquired in July by the Gordon Brothers Group, a leading inventory-management company in Boston.

Buxbaum is following the same course as Gordon Brothers, which started buying or investing in companies eight years ago, and is opening a downtown Los Angeles office in September.

In 1997, Gordon Brothers bought Party America. In 2004, the company purchased Spencer Gifts. And this month, the Boston firm acquired Casual Corner Group.

“There are just not as many deals out there,” said Rick Briggs, senior vice president of The Nessi Group, a major U.S. liquidator located in Westlake Village, Calif. “The Wal-Mart impact on all those stores competing against the retail giant has been fairly well cleaned out. There are no more regional general merchants around.”

Changing course

That’s why the Buxbaum Group started diversifying its business structure by becoming an investor and finding investors in apparel companies.

It started in 2002, when Peter Koral, wanting to take his high-end denim company to the next level, turned to his friend Paul Buxbaum, an easy-going businessman who is as comfortable wearing blue jeans and sitting behind his 300-year-old Regency-style wooden desk as he is wearing a business suit and sitting in a boardroom.

In October 2002, the Buxbaum Group prepared a glossy financial portfolio and made presentations to potential backers, including Liz Claiborne Inc. and Jones Apparel Group Inc.

Soon after, however, Koral’s partners, designer Jerome Dahan and marketing expert Michael Glasser, left the company and sued Koral for their 50 percent share of the business.

After a five-week trial in Los Angeles Superior Court in 2004, a jury awarded Dahan and Glasser $55.5 million for their share of the venture. With the legal dust settled, Koral was again able to look for investors.

In March 2004, the Buxbaum Group arranged for Bear Stearns Merchant Bank to acquire 50 percent of 7 for All Mankind for more than $100 million.

The Buxbaum Group owns a small percentage of the blue jeans company.

On the rampage

In 2003, the Buxbaum Group was called on to help Rampage, a 20-year-old juniors manufacturer in Los Angeles that was facing the prospect of filing for Chapter 11 bankruptcy protection for a second time. Buxbaum had helped Rampage emerge from its first Chapter 11 bankruptcy in 1998.

“The CIT Group [the factoring company that held many of Rampage’s accounts receivables] asked us to help Rampage out, and we decided to become investors,” recalled Buxbaum, whose company now owns 50 percent of the manufacturer.

When the Buxbaum Group stepped in, it found several problems, including Rampage’s inability to deliver much of its collection on time and its overproduction of goods. Consequently, Rampage had numerous orders canceled and was struggling with charge-backs issued by retailers.

To cut production time, the Buxbaum Group had Rampage stop spending 20 days to ship its fabric from Asia to Guatemala, where the bulk of the company’s apparel production took place. Instead, the group had Rampage set up a sourcing office in Shanghai and moved its production to Asia, India, Mexico and Central America, where 75 to 85 percent of the line is now produced.

Also, the Buxbaum Group had Rampage stop producing goods on spec to fill last-minute orders, a practice that often resulted in Rampage getting stuck with excess stock.

By November 2004, Rampage was able to buy out the creditors’ trust that was receiving 50 percent of the apparel manufacturer’s revenue from 17 licenses.

In 2004, Rampage’s sales were $70 million, Buxbaum said. The company’s sales are expected to be about the same or slightly lower in 2005, as the company licenses out some of its production in childrenswear and denim, according to Buxbaum.

Grabbing for Gramicci

Last year, CIT called on the Buxbaum Group to aid another ailing apparel company, Gramicci Inc., the Oxnard, Calif.–based venture that Don Love founded in 1982 to make hiking and climbing apparel. Gramicci is a popular label at REI and other outdoor retail chains.

The Buxbaum Group financed Gramicci for a few months and then foreclosed on the outwear company’s assets. Gramicci’s parent company, Sole Survivor Corp., filed for Chapter 7 bankruptcy late last year.

The Buxbaum Group now owns 100 percent of the company.

“What happened is they were enjoying a good business and competition came in,” Buxbaum said. “They did not manage their design and production. So we reorganized the whole production and operations departments.”

Gramicci moved its headquarters from Oxnard to Westlake Village, Calif., and shrunk its staff from 120 people to roughly 20.

Before, about 80 percent of the company’s production was done in Southern California. Now, about 80 percent is done in Asia, India and Central America and 20 percent is completed in the Los Angeles area.

Arnold Rubenstein, a 23-year veteran of the apparel industry and part of the Buxbaum Group’s management team, was named the new president of Gramicci. Don Love is now a creative consultant.

Buxbaum said his goal for Gramicci is for the company to beef up its sales volume, which he would not disclose, in the next few years and become more profitable.

Despite all these investments, Buxbaum said he never intended to become a long-term investor in apparel companies. Already, Rampage is rumored to be on the auction block.

“Around here,” the inventory specialist said, “our motto is, ’Nothing is forever.’”