HMX Group — while still in turnaround mode — expects to turn a profit this year, with plans to eventually become a $1 billion business.
This story first appeared in the May 24, 2012 issue of WWD. Subscribe Today.
“We are in the bottom of the eighth inning,” Doug Williams, chief executive officer, told Men’s Week when asked how far along the turnaround road the former Hartmarx Corp. has traveled since being acquired out of bankruptcy by Indian firm S. Kumars Nationwide Ltd., or SKNL, in August 2009. London-based Emerisque Brands holds a minority stake. The transaction was a $105 million debt and assumed liability deal. Since the acquisition, “we’ve paid down $35 million of debt,” Williams said.
He said the company expects to end the year with sales of $250 million and earnings before interest, taxes, depreciation and amortization in the “seven digits.” While Williams declined to provide actual figures in deference to when SKNL, a publicly traded firm, releases consolidated results, a market source said profits could range between $7 million and $8 million.
“The improvements we’ve made in operations have been very substantive,” Williams said. For example, back-office duties for all the company’s brands, previously separate, have been consolidated. Offices that were strewn around the country have been brought together in one location in New York City, and seven factories have been “rightsized” to two, in Chicago and Rochester, N.Y., as well as one in Canada.
The company also inherited six information-technology operating systems — Hartmarx had spent $12 million in IT expenditures, according to the ceo — and has since whittled that down to two, and will have just one by yearend. That alone has resulted in savings of more than $6 million a year, according to Williams.
The former Hartmarx had also traditionally stockpiled fabric and trim worth in excess of $38 million for six to eight months. “But when I looked at it, I thought: ‘All of our cash is in these tubes.’ It’s taken two-and-a-half years to change that mentality.”
Another example was building a “pants shop” at the Chicago factory where sport coats were cut, utilizing the space that was available and ensuring that pants and sport coats that use the same fabric are manufactured in the same location. Previously, they were made in two separate spots, which required the pants to be shipped and then matched. While the cost to build the shop, which handles a volume of 1,500 pairs of pants a week, was between $300,000 and $400,000, the cost savings were $1 million, according to Williams.
And Hartmarx was inefficient, Williams said. “I was shocked at the gross margin profit numbers,” he said. “They were sub-10 in the last year before the bankruptcy, but we’ve managed to move into the 30s.
“The top line is very important,” he added, “but gross profit is what pays the bills.”
Williams characterized the old Hartmarx as “like the old General Motors. The product was well-made and they didn’t bastardize the brands, but they didn’t connect with consumers. The product had no passion.” Enter Joseph Abboud, president and chief creative officer, who has worked over the past two-and-a-half years “making product that is relevant to the consumer and speaks to the American man,” Williams said, adding that his and Abboud’s aim is to create a wardrobe for the “modern Marlboro Man.” He has upgraded the quality and design of the company’s three hallmark men’s labels — Hickey Freeman, Hart Schaffner Marx and Bobby Jones; reintroduced Palm Beach; consulted on SKNL’s Reid & Taylor apparel launch, and created a 125th anniversary collection for HSM that will debut at retail this fall. He was also integral in the design of the company’s new retail concept, Streets, and is working with Russell Simmons on the relaunch of the Argyle Culture collection for fall.
Now the goal is to turn the collections into lifestyle brands, expanding Hickey and HSM into categories such as casualwear, shirts, leather goods, eyewear and even footwear.
“My job over the past two-and-a-half years has been to focus and revitalize our anchor brands,” Abboud said. “When I got here, there were 18 or 19 brands, but we’re focusing on our heritage brands. Our growth is coming from Hickey Freeman and Hart Schaffner Marx — they’re our crown jewels.” In addition to updating the suits, he has worked to create entire lifestyle offerings around the labels.
“We aren’t there yet,” Abboud said. “We have to beat down old perceptions. But we’re not selling clothes for old men anymore.”
And the company is working to attract a younger customer.
“The young consumer has a desire for heritage brands,” Abboud said. “And there are no more authentic brands in tailored clothing than Hickey Freeman and Hart Schaffner Marx.”
Williams acknowledged that in the past, Hickey and HSM were viewed as “boardroom suits for a 60-year-old man.” Today, the model that would appeal to that guy is 10 to 15 percent of the business, and the silhouette targeted to men ages 30 to 50 has become the strongest seller at Hickey. HSM is experiencing similar results. “Hart Schaffner Marx was a well-made suit for $695, but it was a box,” Williams said. “Now, we’re getting the fit right and the performance is better.”
Made-to-measure has also seen a significant uptick, accounting for 35 percent of the business at Hickey, 30 percent at HSM and more than 40 percent at the company’s Coppley division.
But all these changes have not come without some pain.
Williams admitted there have been hiccups along the way and times when the company has experienced a short-term liquidity crunch. But he addressed rumors that HMX Group is not paying its bills. “That’s false. Have there been liquidity issues at times? Absolutely, just like every other company. Did some vendors not get paid for 30 or 60 days? Yes, but we communicate with them, tell them what’s going on with the company and where they fit into the strategy. The idea that we’re not paying our bills is crazy. We pay a lot of bills every day.”
Williams stressed several times that the integrity with which he, Abboud and SKNL aim to run HMX would never allow him to walk away from paying the company’s bills. On the contrary, HMX took on the bank debt of the old Hartmarx after the bankruptcy and is repaying that, even though it could have loaded that debt onto the old Hartmarx.
Internally, the company is investing in product and marketing. “Creativity drives profit,” Abboud said.
Williams agreed. “We’re investing in our brands. People don’t see the savings I’m making in IT.”
He also dismissed notions that the company has taken on too many tasks at the same time. “We don’t feel we’ve bitten off more than we can chew,” Williams said. “We have heads and design teams for each business, and it’s a lot, but we have the team to do it. And we have the support of our parent, SKNL.”
Williams also denied reports that the company is no longer working with advertising whiz David Lipman, who orchestrated the company’s latest campaign featuring former New York Rangers player Sean Avery. “David Lipman and his team are great,” he said. “We haven’t severed our relationship. But the [work on the] campaign is done and we’re taking a little break” since the images were meant to be seasonless and will continue to be used through fall.
Williams also reported that the Streets of Georgetown store, which opened last fall and brings together several of the HMX brands in one location, is doing well. “It’s a spectacular laboratory for us,” he said, noting that sportswear sales are much higher at this store than in a Hickey Freeman unit — around 40 percent versus 12 percent. There is also a Streets store in Beverly Hills, in a former Hickey location that was converted, and that store has had a “tougher” time, however, Williams said.
HMX will open a third Streets store in Chicago this fall and eventually hopes to have eight to nine locations in the U.S. “There’s no plan for a rollout of 100 stores, but we’ll add them in strategic locations,” he said. Looking ahead, Williams said HMX has an “aggressive growth plan of 22 to 23 percent this year. And we’re on track to deliver those results.”
He said “business was spectacular until last August,” after which the company “saw a material slowdown in men’s tailored business” as worries over the global economy caused consumers to pull back on spending. There was a “more positive spirit” in November and December, although Williams said the ongoing problems in the euro zone, the upcoming election and the gyrations of the stock market continue to impact customers.
Despite the ups and downs, Williams said the HMX team and its parent company are committed to the long term. “There’s no exit strategy. This was never a financial transaction, and SKNL is committed to becoming clothier to the world,” he said.
“We plan to take this to a $1 billion company,” Williams concluded. “We just have to get the heartbeat right first.”