CHIC’S TOUGH TAKE
Mass market jeans maker Chic by HIS Inc. is braced for another tough year in 1996. It doesn’t see any chance for a real turnaround until 1997.
“I think it’s going to be a very, very difficult year,” Burton M. Rosenberg, chairman and chief executive officer, said at Chic’s annual meeting at New York’s Doral Court Hotel last week.
“It’s the type of year where you hunker down and strengthen your balance sheet in order to be there when the turn comes. If you have a good brand, it will eventually pay off,” he said.
In its fiscal year ended Nov. 4, Chic’s profits collapsed 90.4 percent to $1 million, or 20 cents a share, while sales nudged up 0.3 percent to $277.9 million. The disappointing year caused Chic’s top executives to miss out on bonuses last year.
Rosenberg earned a base salary of $403,846, down from total compensation of $569,892. The decline reflected a bonus of $195,000 in 1994.
Other top executives whose pay dropped sharply included: Robert F. Luehrs, president, earning $342,324 against $514,231; Roland L. Kimberlain, president of manufacturing operations, $362,833 ($526,247); Milan Danek, managing director in charge of European operations, $397,906 ($530,579), and Stephen Weiner, executive vice president and national sales manager, $287,093 ($453,846).
Jesse S. Siegel, a director and a son of founder Henry I. Siegel, receives an annual fee of $500,000 from Chic as a consultant on women’s apparel. Siegel had been chief executive officer from 1948 to 1986.
Rosenberg said Chic has been hurt by turmoil at the discount channel that has accelerated the closing of nonperforming stores. He mentioned the bankruptcies of Bradlees Inc. and Caldor Corp., and other consolidations, such as the planned merger of Rose’s Inc. and Fred’s Inc.
“There are too many firms in financial trouble,” Rosenberg said. “There are going to be shakeouts and you wind up serving fewer doors.”
Most of Chic’s customers are mass merchandisers, with Kmart and Target combining for 50.3 percent of its U.S. business in 1995.
To shore up the bottom line, Chic is undergoing a major downsizing that includes closing facilities and layoffs of 1,100 employees, or 22 percent of its work force. A $15 million provision to pay for these moves led to a $13.7 million loss in the first quarter ended Feb. 3.
The restructuring is designed to cut costs and align production with anticipated revenues. After running as low as 38 percent of capacity in its first quarter, Chic’s plants are now at 100 percent capacity, thanks to the arrival of back-to-school orders, Rosenberg said.
In another bid to cut costs, Chic, which currently makes all its products domestically, is looking at offshore production, and has explored joint partnerships in Mexico, according to Rosenberg. Any new production will likely be done in Mexico, he said.
A true turnaround in Chic’s U.S. growth, however, will depend on a healthier retail climate.
“If they’re not getting the traffic, you’re not going to have a good year,” Rosenberg said. “But the world isn’t coming to an end. It will turn.”
Meanwhile, Chic’s balance sheet has been cleaned up, with no borrowings currently under its $50 million bank credit line, said Rosenberg.
The weakness in the U.S. contrasts with continued strength in Europe, where the company did about 27 percent of its business last year. Rosenberg said this would be another solid year for European operations.
ROAM INTO ASIA
Roam, an Irvine, Calif., jeans manufacturer, is opening its first freestanding store next month in Osaka, Japan.
The three-year-old sportswear manufacturer decided to go into Japan rather than open domestically because of a partnership that formed last August, said Steve Mann, Roam’s 24-year-old chief executive officer. That’s when Mann was approached by Chris Nagao, a Japanese private investor. Nagao’s wife had brought the line to her husband’s attention after buying one of Roam’s low-slung, boot-cut jeans styles in an upscale Japanese store called Bob.
The new store will be 2,200 square feet and will carry only Roam merchandise, which is manufactured under the label Abery Collection. The line includes denim jeans, shorts, shirts, vests, overalls and jackets and wholesales from $33 to $73.
“The store design will be very American, modeled after the clean, outdoor look of the Banana Republic stores,” said Mann.
Wholesale volume for Roam grew to $1.8 million in 1995 from $400,000 in 1994, due to a new focus on specialty store business, Mann said.
Mann is projecting $4 million to $5 million in wholesale sales for 1996. He expects the Osaka store to do $1.3 million in its first year.
Roam products are sold in Nordstrom and Jacobson’s stores as well as smaller specialty stores such as Boulmiche in Los Angeles.
No U.S. stores of its own are currently in the works, but Mann says if the Osaka store does as well as he expects, Roam plans to open at least five more stores in Japan by the end of 1997.