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Hartmarx Corp. Files for Chapter 11

The tough economy has really hit home with President Barack Obama — literally affecting the clothes on his back.

The tough economy has really hit home with President Barack Obama — literally affecting the clothes on his back.

This story first appeared in the January 26, 2009 issue of WWD.  Subscribe Today.

Late Friday, the President’s favorite tailor, and one of the oldest and best-known names in men’s wear, Hartmarx Corp., filed a voluntary petition for Chapter 11 bankruptcy court protection.


Founded in 1872, the apparel firm and 50 affiliates filed in a Chicago bankruptcy court. The Chicago-based firm, whose Hart Schaffner Marx clothing label was President Obama’s brand of choice for his inauguration and campaign, has secured a $160 million debtor-in-possession credit facility from its pre-petition lenders, which include Wachovia Capital Finance Corp.

The company’s Canadian affiliate and other non-U.S. holdings have not sought bankruptcy protection.

Hartmarx said on Friday that it will continue to operate its business as management focuses on developing a restructuring plan, which “may include the sale of substantially all of its assets.”

“We believe that today’s filing and our DIP financing provide us with sufficient funding and allows us to operate our business currently as we pursue strategic alternatives,” said Homi Patel, chairman and chief executive officer, on Friday.

The Chapter 11 petition lists between 5,000 to 10,000 creditors, and assets and liabilities each at between $100 million and $500 million.

The top unsecured trade creditor is Wooyang Co., New York, at $2.8 million. Other unsecured creditors include U.S. Customs, owed $518,730 for duties; Amalgamated Cotton Garment & Allied Industrial Fund, New York, owed $341,736 for employee benefits; Perry Ellis International, Miami, owed $312,500 for royalties, and Nicklaus Marketing Inc., Miami, owed $300,000 for royalties.

Glenn Morgan, chief financial officer, said in a court affidavit that 75 percent of the company’s revenue is from its men’s apparel business, and 25 percent from women’s apparel. He said that two of its largest customers are Dillard’s Department Stores and Nordstrom’s, representing 22 percent and 13 percent of sales, respectively.

Morgan said revenue has dropped over the past few years as demand for moderately priced tailored apparel has decreased. In addition, the company also found itself with a decrease in borrowing availability due to the tightening of credit. Factors have “left the company without adequate cash to meet its day-to-day operating needs, and the company was forced to commence these Chapter 11 cases,” he said.

Morgan said that, as of Friday, the company had about $70 million of trade debt. It does about $500 million in annual sales. However, the company was notified by pre-petition lenders that, as of Jan. 13, the principal amount of indebtedness under the pre-petition credit facility “exceeded the company’s borrowing base by over $7 million.”

While Hartmarx’s bankruptcy proceedings would be high profile under any circumstances due to its long and storied history and union production connections, they will be even more so in light of recent events. The company scored a public relations coup when President Obama tapped Hart Schaffner Marx to make a wardrobe of tailored apparel for major campaign events, including the Democratic National Convention and election night. Last Tuesday, on the night of his inauguration, as Hartmarx struggled to right its financial course, Obama wore a Hart Schaffner Marx tuxedo to the many balls he attended in Washington.

Certainly, Hartmarx’s profile — a Chicago-based, moderately priced brand with a long history of manufacturing in union shops in the U.S. — was compatible with Obama’s political message and background. But the costs of producing domestically cut into margins and ultimately made it difficult for the company to maneuver through the recession.

Patel cited softness in the company’s luxury division, which includes Hickey Freeman and Bobby Jones, as another reason for Hartmarx’s downturn. But the company had been experiencing flat profits and losses in the last 18 months, principally because of the weakness of its moderate clothing business. Through the first nine months of last year, the company lost $7.5 million, versus net income of $2.5 million in the corresponding period a year earlier, and saw sales decline 8.9 percent to $374.5 million.

While Hartmarx remains among the largest makers and distributors of suits in the country, softness in the classification and a portfolio of underperforming brands began to drag down top-line growth.

For the past two years, Patel worked to lessen its exposure to the moderate price suit market, dismantling licenses, emphasizing the growth of its successful luxury brands and acquiring smaller brands in the contemporary and women’s markets. Still, the firm’s crown jewels are undoubtedly Hart Schaffner Marx and Hickey Freeman.

Over the weekend, bankers identified Spencer Hays, who owns Oxxford Clothing and had attempted to acquire Hartmarx in the early part of the decade, as the top candidate to make a play for the Hart Schaffner Marx and Hickey Freeman brands. Other brands that could attract buyers include Bobby Jones and Monarchy.�