Byline: Vicki M. Young

NEW YORK — Confounding observers who were expecting a sale or even closure, Arnold Simon will instead move Aris Industries, XOXO and its other divisions out of manufacturing and into licensing in an alliance with a large Mexican conglomerate. Simon, chief executive officer of Aris, told WWD Thursday that Aris has entered into a “unique situation” with Grupo Xtra, a Mexican conglomerate with annual volume of $3 billion. The arrangement — a trademark licensing agreement — transforms Aris from a manufacturing firm to a licensor of trademark rights. Grupo has guaranteed Aris minimum royalties of $8.1 million, increasing 14 percent annually to $13.5 million, for the rights to the U.S. firm’s names and trademarks.
Under the terms of the agreement, Grupo has the exclusive right — for an initial five-year term and renewable by Grupo at its option for four additional five-year periods — to manufacture, market and distribute XOXO women’s jeanswear and sportswear, Fragile women’s jeanswear and sportswear, and Members Only sportswear and outerwear for the U.S., Puerto Rico, the U.S. Caribbean Islands and Israel. The arrangement also includes Baby Phat apparel and Brooks Brothers Golf apparel, subject to certain conditions.
“It’s a unique situation,” Simon said. “We’re getting paid to run the company. Aris will become a licensing firm.”
The uniqueness of the situation, he explained, is that Aris retains its residual licensing business as well as licensing rights for the popular XOXO brand that are part of Aris’s XOXO Clothing Co. subsidiary.
“We’ve signed licenses in Japan, Canada, Mexico, South America and Saudi Arabia. We’re working on Europe,” Simon disclosed when asked about future plans. The company’s licenses are for sportswear and denim apparel, handbags, eyewear, swimwear and outerwear.
Simon even suggested that Aris might be hitting the acquisition trail sometime soon.
Currently all Aris products are manufactured in Mexico. “Mexico is a great place for manufacturing our product. The sewing plants meets our needs and the large mills are more used to manufacturing our denim products,” Simon said.
Simon will continue as ceo of Aris. Other senior members of the management team who will remain with the company include Steven Feiner, president of Aris; Gregg Fiene, ceo of XOXO, and Holly Fiene, XOXO’s vice president of merchandising and design. Aris, which now has a head count of about 40, will retain 15 staffers. The balance of workers will become employees of Grupo.
Aris — which will remain a stand-alone public company trading over-the-counter — would continue to handle marketing, design and sales responsibilities from Los Angeles and maintain its showroom in New York. Grupo would be responsible for taking over control of back office operations, such as production, shipping and financial details.
On the financial side, the deal gives Aris a bit of breathing room. Substantially all of Aris’ future contractual commitments have been assumed by Grupo, although Aris remains secondarily liable should the Mexican firm fail to perform on its obligations. Aris’s obligations for warehouse operations in New Bedford, Mass. and the loans with CIT and Bank of New York, however, were not assumed by Grupo.
Aris fell on difficult times last year, amidst heavy losses. For the third quarter ended Sept. 30, the company posted a $3.4 million loss, against $3.3 million in earnings in the comparable year-ago quarter. Its stock, which has traded for as high as $1.25 and as low as 13 cents in the last year, was down 4 cents to 49 cents Thursday.
Aris, according to Simon, has received a $7 million cash infusion from a private venture capital firm in Los Angeles. He remained coy about the identity of the firm. Another $3 million investment from the firm “will be forthcoming in a few weeks,” Simon said.
In exchange for the investment, Aris has agreed to issue a total of $10 million in convertible debentures maturing in three years, with an interest rate of 8.5 percent per annum and payable every quarter. The debentures are convertible to shares of common stock at the rate of 46 cents per share. Of the $10 million total, $7 million have already been issued.
Aris will receive another cash infusion by July 6, 2001, once Grupo purchases the entire closing inventory of Aris at Aris’s cost basis, less a reserve for obsolete inventory.
“We took a lot of heat last year. Everyone thinks you can turn around a company in six months. That’s impossible. We had to get rid of the brands that didn’t work for us. Aris will have a very substantial stream of steady income,” Simon said.
Grupo Xtra is controlled by Mexican industrialist Isaac Saba, who has moved aggressively in the past few decades to acquire assets, in Mexico and other markets as well, in the fiber and fabric businesses. The alliance with Aris could provide a platform by which he could move his holdings towards vertical integration in apparel manufacturing and marketing.