California Apparel News

BP Clothing, the Los Angeles–area apparel company that, until recently, held the license to make Baby Phat clothing, primarily for Wal-Mart, filed for Chapter 11 bankruptcy protection.

The company, located in Commerce, Calif., filed bankruptcy papers on Dec. 12 in U.S. Bankruptcy Court in New York.

BP Clothing, founded in 2003 by Steven Feiner along with Scott London and investment company Steel Partners, listed $57.4 million in assets and nearly $94 million in debt.

The list of creditors reaches far into the apparel and finance worlds. The top three secured creditors were Guggenheim Corporate Funding, owed $58 million; MVC Capital Inc., owed $24 million; and First Capital factors, owed $3.7 million.

Others on the list to collect money included Majestic Realty, operators of the company’s former warehouse. Majestic is in line to collect $272,377. Foyal Garment Co., based outside of Chicago, said it is owed nearly $200,000. Pacific Continental Textiles of Rancho Dominguez, Calif., has a claim in for $145,000.

Tough economic times, falling apparel prices and skyrocketing cotton prices have challenged the company that once occupied a 111,400-square-foot warehouse in Pico Rivera, Calif., until it could no longer pay the $65,000 monthly rent.

Recently, BP Clothing moved to a 13,000-square-foot facility in Commerce and is renting a warehouse to hold its stock, the company said in court papers.

As an example of its financial hardship, the apparel venture rolled out a slew of statistics showing its revenues in fiscal year 2010 declined to $89 million after hitting high marks of $101 million in 2009 and $132.8 million in 2008.

According to court papers, the company has been battling a cash-flow problem that hampered its ability to finance its Baby Phat production. Subsequently, BP Clothing early this year lost its license to sell Baby Phat clothing to Wal-Mart.

Currently, the only label BP Clothing is selling to Wal-Mart is its own Susie Rose line of apparel.

The idea is for the company, which employs 42 people and uses eight contractors, to quickly exit bankruptcy with a plan supported by its creditors, who may end up receiving equity in the company as opposed to receiving money.

“We are attempting to repair the balance sheet and reorganize around the current licenses we own,” said Michael Fox, BP Clothing’s bankruptcy attorney. He noted that the company is still up and running.

According to court papers, “The debtor seeks to efficiently reduce the substantial debt burden that hinders its ability to effectively compete in a competitive market that has been challenged by overall economic conditions. A successful restructuring will allow the debtor to concentrate its resources on generating revenue and expanding market share.”

Celebrity roots

BP Clothing’s venture was formed around the Baby Phat—“phat” stands for “pretty hot and tempting”—brand, the hip-hop-centric label started by power couple Russell Simmons, a music executive and co-founder of the Def Jam music label, and his model wife, Kimora Lee Simmons, who is now divorced from him.

With the Simmonses’ star power and ability to place the brand on high-wattage celebrities such as Tyra Banks, the label grew exponentially.

In 2003, BP Clothing Holdings bought Adamson Apparel and BP Clothing Company Inc., which was manufacturing, distributing and selling the Baby Phat brand, a branch of Phat Farm Industries, later bought by the Kellwood Co. for $140 million.

The new BP Clothing venture entered into a trademark license agreement with Aris Industries, which had the Baby Phat license at the time.With the Baby Phat endeavor rolling along, BP Clothing then started expanding its licenses. In 2008, it acquired the rights to sell the Fabulosity label to JCPenney. But last year JCPenney terminated the deal.

The loss of JCPenney’s business was just one element that started BP Clothing’s financial fall. It came to the point that the company was no longer able to pay the contractual minimum royalties due to license the Baby Phat label, court papers said.

Early this year, BP Clothing received a letter to end the Baby Phat license and the license to sell the goods to Wal-Mart. “The loss of the licenses has been extremely detrimental to [BP Clothing] going forward,” court papers said. “Currently, the debtor’s main asset is its Susie Rose trademark.”

BP Clothing continues to sell the Susie Rose label to Wal-Mart. It also has a license with SME Consolidate to manufacture and sell Susie Rose bags, for which BP receives a 5 percent royalty of net sales.

The last few years have been extremely challenging for apparel companies, especially those operating on a tight profit margin. Retail sales are down, and stores are demanding lower prices. According to the U.S. Census, retail apparel sales for men’s and women’s clothing have slowly edged downward from $49.3 billion in 2007 to $44.7 billion in 2010.

At the same time, cotton prices have risen steadily, from 66 cents a pound in mid-2007 to $2.29 a pound in March this year. They have since started to decline, hovering around 85 cents a pound.