The Cherokee Group Inc. is following its biggest U.S. licensee into Canada.
This story first appeared in the May 3, 2013 issue of WWD. Subscribe Today.
The brand management company reported that its Cherokee and Liz Lange Maternity brands, both licensed to Target Corp. in the U.S., will be sold under license in Target’s stores in Canada. Henry Stupp, chief executive officer of Cherokee, told WWD that the two brands are in the more than 20 former Zellers units already opened by the Minneapolis-based discounter in the Canadian market, a number expected to expand to 125 by the end of the year.
Zellers had been the Canadian licensee for the Cherokee brand prior to the sale of the retailer’s real estate to Target.
The Cherokee license was amended for Canada with a flat loyalty rate, rather than the de-escalating rate in place for the U.S. A separate three-year agreement was signed for Cherokee uniforms, a category Cherokee took back from a former licensee, at a flat 2 percent royalty rate. For Liz Lange, acquired by Cherokee last year, the Canadian agreement contains a higher minimum guarantee than the U.S. pact, Stupp said.
Stupp told WWD that another critical piece of its business — the Cherokee license held by Tesco for Central Europe and the U.K. — was being relaunched. “We were basically down to our minimum guarantee and have now introduced the brand in 279 stores, and on tesco.com, in a premium position,” he said. “The experience with Tesco — our need to do things to reinvigorate the brand there — really led to our new 360-degree strategy with our licensees. The product is greatly improved with slightly higher prices, and we’ve backed that with better suppliers, better in-store and outside marketing, better product development and support.
“The time and money that we spent on Tesco,” he continued, “were time and money we needed to spend anyway. As a brand owner today, it’s a fundamental requirement that you strengthen your existing relationships, especially if you want to cultivate new markets. The idea of ‘let the retailer do the heavy lifting’ is not working.”
In return for its expanded services, the royalty rate paid by Tesco to Cherokee was raised to 4 percent of sales from 3 percent. Prior to this adjustment, royalties from Tesco declined to $723,000 last year from $2.8 million in the prior 12 months, reducing Tesco’s share of royalty revenues to 3 percent from 11 percent.
Royalties from Target rose to $15 million, about 57 percent of the total, from $13.8 million, or 54 percent of the total, in the prior year.
The disclosures about the Target business in Canada came as the Sherman Oaks, Calif.-based company belatedly reported net income of $1.1 million, or 13 cents a diluted share, for the three months ended Feb. 2, 29.9 percent below the $1.5 million, or 18 cents, reported in the prior-year period. Revenues, all derived from royalty revenues, rose 0.4 percent to $6 million. Full-year profits dropped 9 percent to $6.8 million, or 81 cents, as revenues rose 3.7 percent to $26.6 million. Publication of the results had been delayed by an internal review of financial controls.