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BCBG Thinking Big in Afterglow of Financing Deal

BCBG Max Azria Group’s completion of a $53 million bond offering last week gives the Los Angeles-based company some financial muscle to flex, helping it to execute an expansion plan that includes entering the men’s wear business in a...

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BCBG Max Azria Group’s completion of a $53 million bond offering last week gives the Los Angeles-based company some financial muscle to flex, helping it to execute an expansion plan that includes entering the men’s wear business in a bigger way, increasing sales with its retail partners and entering new geographical markets.

The company launched dress shirts for Father’s Day this year. And more is on the way.

“We’ve been flirting with the men’s market, which is interesting,” said Ben Malka, president of BCBG. “There’s this metrosexual [customer type], as well as women doing a lot of the buying in men’s. We’re looking to launch sportswear and suiting for men’s as early as fall 2005, and definitely by spring 2006.”

BCBG has a diversified portfolio of brands, and 105 full-line domestic stores, including outlets. Annual volume in 2003 was $240 million, and BCBG anticipates ending 2004 hitting $375 million.

The goals may seem lofty, particularly with projected 2005 volume at $600 million. After all, the company was the focus of bankruptcy speculation in August 2001 as a way to get out of unprofitable store leases stemming from an overly ambitious expansion plan. BCBG wiggled out of that jam through financing from its longtime lender, GMAC Commercial Finance.

And while the volume has grown in year-over-year gains, there is still some doubt in the marketplace. One executive from a New York-based factoring firm, who spoke on condition of anonymity, said, “One of the big issues you have with BCBG is where do they fit in the marketplace? They say they’re contemporary, but that’s a huge market and there’s so much competition.”

Malka sought to rebut worry over the company’s position, describing such concerns as overblown. BCBG is on track to meet its 2005 goal, with half of sales from its wholesale operations and the balance from its retail stores, he said.

In a telephone interview from Paris on Monday — Malka and BCBG chairman Max Azria are also visiting Madrid and London to explore potential footholds for European expansion — Malka said, “This company is a very different company from what it was in 2001. Back then it had less to do with expansion plans than just the fact that it was bad timing. The [attacks] of 9/11 didn’t help. The brand, however, was never in question by either consumers or retailers, both of whom loved the product and the concept that we were doing.”

Malka said the company is now “two times” larger in volume, and has an umbrella of more brands than the BCBG Max Azria that existed in 2001.

He took over as president on Sept. 10, 2001, and has worked with the management team to initiate a strategy of controlled growth more clearly focused on where its consumers are located. First on the agenda was shrinking its distribution to department and specialty doors.

“Now we have gone deeper within Saks, and we have a deeper penetration in Bloomingdale’s and Neiman Marcus Group,’’ Malka explained. “By positioning BCBG away from the mainstream department stores, we have turned our focus toward select [upscale] doors.”

The company’s BCBG stores average 4,000 square feet, encompassing both retail and back-office space.

Malka foresees opening stores in Texas cities such as Austin. “There are cities that respond very well to contemporary product,’’ he said. “The border towns have that kind of customer. In New York City, for example, we have two stores. Fifth Avenue is a consideration. It’s not like we will be opening up 20 more stores, but there is the possibility of opening a store in another part of the city.”

Azria said he believed New York could sustain six to eight stores, while the Chicago market, which has two units, can support another four.

For Azria, the bond offering represented the company’s best opportunity for financial flexibility, even though other firms had expressed interest in acquiring the contemporary designer brand, he said.

“I guess the reason why I didn’t sell is because no one gave me the price that I expected,” Azria said.

The bond offering, a $53 million securitization of investment-grade asset-backed bonds structured in two tranches and rated “AAA” and “Baa3” by Moody’s Investor Service, was completed on Friday. It was privately placed by New York Life.

As for the securitization, the option was a logical step for BCBG. “Our intellectual property is a sleeping asset,’’ Azria said. “When you are chairman, your first job is to make sure the company makes money. We put to work the IP assets to give us room to grow comfortably.”

Andrew Jassin, of the management consulting firm Jassin-O’Rourke Group, is the backup manager for the business. The backup is required to get the bond offering completed.

“We did the brand study prior to the securitization. We have complete confidence in the brand,’’ Jassin said. “BCBG has several unique brands and targets prom girls all the way up to their moms. We found that BCBG has proved its niche in dresses and sportswear. It is the zone of choice for the younger female customer, even with competition from Tahari, Theory, A.B.S. by Allen B. Schwartz and Laundry.”

The company is focusing on providing trend-right fashion with great fabrication. “We don’t limit ourselves to a particular cloth or look,’’ Malka said. “It is more about the mind-set of our consumer. It’s about making our guests, who prefer body-conscious [fashions], feel good about themselves.”

Kevin McGarry, executive vice president of GMAC Commercial Finance, said the firm provided the $100 million working capital financing facility for BCBG because of its rapid growth potential and ability to “create magic” with consumers. The facility replaced the existing one that was set to expire.

Ripe opportunities for BCBG’s expansion are also in licensing, especially in its other divisions, and in greater penetration of its wholesale accounts, McGarry said. “You’re going to see a lot more in-store concept shops as well as stores giving more space to the brand.”

This past August, Macy’s, Dillard’s, Burdines-Macy’s and Marshall Field’s committed to 465 in-store shops for BCBGirls and To the Max, BCBG’s young contemporary divisions. Bloomingdale’s, which operates 36 stores in 12 states under parent Federated Department Stores Inc., said it’s also devoting more real estate to BCBG Max Azria.

“We’re buying more and selling more of the line,” said Frank Doroff, senior executive vice president of ready-to-wear at Bloomingdale’s. “The designs are great and are resonating as good item pieces. And, his dress business is extraordinary — both day and evening.”

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