JOE BOXER RACES CLOCK IN DISPUTE

Byline: Vicki M. Young / Karyn Monget

NEW YORK — Joe Boxer Corp. says it doesn’t need money. What it needs, and is hoping to get, is some time.
Even as they investigate consolidation and other cost-cutting measures, officials at Joe Boxer are hoping to get extra time to pay the $3.15 million judgment to its former intimate apparel licensee Van Mar Inc.
But, with a court hearing set for a Jan. 16 determination of Boxer’s assets, the clock is ticking away. Once the discovery procedure is completed under California law, Van Mar’s attorneys can apply to the court for an order allowing the former licensee to collect on the available assets.
As reported, in court papers filed in a San Francisco state court seeking satisfaction of the judgment, Van Mar’s counsel wrote: “There is a very real threat that respondent Joe Boxer Corporation will file bankruptcy in the near future.”
In addition, market and financial sources in the last two weeks had Boxer speeding down the runway to a possible Chapter 11 restructuring.
Not so fast, said Nicholas Graham, chairman and founder of Boxer. In an interview with WWD at Boxer’s showroom here on Tuesday, he and W. John Short — named president, chief executive officer and chief operating officer last Friday — confirmed that the company was in a restructuring mode, but that the focus was heavily weighted on product and licensing opportunities.
“We’re looking at the company structure, such as combining divisions, and reviewing sourcing and back-end operations,” Graham said.
In the award and determination of liability, the arbitrator noted that Boxer in 1998 had embarked upon an extensive program to create a new line of Boxer branded garments to replace those which were being sold by Van Mar. The arbitrator wrote: “It is apparently not uncommon for a licensor to want to be able to show a successor line to that of a terminated licensee in the manner that Boxer wanted.” While two exhibits demonstrated the manner in which that could be done, the Boxer-Van Mar pact “contained too little.”
Short said “Van Mar alleged that Boxer was in the marketplace. We had a six-month overlap because its license was due to expire at the end of 1998. There’s a natural evolution of a transition, but there was no provision in the license for how we could have co-existed without tripping over each other.”
Because Boxer and Van Mar were in the same channel of distribution, the arbitrator ruled in the ex-licensee’s favor.
“Are we disappointed? Absolutely. We’ve continued to be actively negotiating to get this settled. We’ve offered to pay one-third [now], followed by installments over the next 24 months. Van Mar has the proposal, but in our conversations with Van Mar, they’ve said they want to be paid 100 percent right away,” Short said.
He added: “We fully intend to pay. We owe the money and we have the assets to do so. They won an award and we will pay them in full. They want 100 percent of it today. But not many companies have $3 [million] or $4 million in cash lying around.”
Jed Schlacter of Schlacter & Associates, Van Mar’s counsel, said: “Since August 2000 we had been willing to allow them to have a payout plan subject to security that would guarantee full payment at some point in time. We’ve conducted settlement talks over the course of four months. We finally advised them in December that unless they made a good faith payment and provided the appropriate security to assure satisfaction of a payout plan, we would be compelled to seek the full $3.15 million immediately. This position was reluctantly arrived at by virtue of their threats of bankruptcy.”
Short expects that the parties will be able to resolve the dispute soon. “There’s a lot going on in this marketplace. The last thing we, or Van Mar president Scott Shulman, need is this type of distraction,” he said.
A settlement would help Boxer avert potential for a financial crunch, according to Ronald W. Jones, of the Moss Adams accounting firm in Los Angeles, who has knowledge of Boxer’s financial condition and has advised apparel firms on financial restructuring. The San Francisco office of Moss Adams serves as Boxer’s auditors.
Jones noted that Boxer has been working on restructuring its business focus, and that full satisfaction of the judgment would hurt both Boxer and Van Mar. Neither Jones, Short nor Graham would rule out the possibility of a bankruptcy filing in the event that a settlement is not reached.
“There’s strength in the Boxer brand,” Jones said. “It has tremendous potential. I don’t understand why Van Mar is forcing the issue for 100 percent payment. If that is the case, the strength of Boxer is its label and the continuation of the business. Speeding up the payment process will not help them. If there is a bankruptcy filing, Van Mar would be the last to get paid.”
He pointed out that Boxer has good relationships with its factor, CIT Group in Los Angeles, and banker, BNP Paribas: “Under the arrangements with the bank and factor, the immediate payment demand causes a problem because no one foresaw that it would have to be paid immediately. That’s what’s causing the financial distress. There is no one I know of that is pushing for a filing. Boxer has very few unsecured creditors. The company imports the majority of its goods.”
Regarding current business at Boxer, Graham said men’s products comprise 60 percent of the mix and women’s accounts for 40 percent. Distribution continues to be aimed at 1,700 doors of major department and specialty stores. Over the past year, distribution of a core business — men’s packaged underwear — has grown from 130 to 650 doors.
Aggressive product expansions have expanded Boxer’s direction of addressing different lifestyles and categories on a regional basis as well as a broader product range. Graham said he expects annual wholesale sales in 2001 should be approximately the same as the prior year: $60 million is generated in wholesale revenues through Boxer’s core products and $40 million through licensees.
Licensees include: children’s underwear and sleepwear with Hampton Industries; men’s and women’s slippers and casual footwear with Wolverine Worldwide; men’s, women’s and children’s opticals and eyewear accessories with Charmant Group Inc.; and bags and small leather goods with Worldwide Dreams. There are international licensees in Europe, Canada, Mexico, Japan and Australia.
Short, whose background includes top international positions with Esprit and 11 years at the international banking group of Citibank, said: “The consumer loves this brand. December performance in women’s sleepwear was up 55 percent over the prior year; month-to-date, 34.6 percent; and season-to-date, 21.6 percent.”
Addressing retail reaction to the lawsuit, Lynn Leavitt, executive vice president of core products, said buyers at last week’s market were “very supportive. The attitude was business as usual and we’ve had 16 to 17 appointments a day.”
“We’ll wait and see what happens,” said Pam Simpson, sleepwear buyer at Parisian.
Regarding licensee reaction to the Van Mar-Joe Boxer lawsuit, Owen Baxter, president of the Wolverine footwear license, said: “What’s happened at retail with the Joe Boxer product has been excellent. In business, especially with licensing agreements, there are litigations all of the time. I don’t think it will have any impact on our relationship.”
What the new focus and initiatives that are under way will bring in by way of revenue stream is still unclear. Neither Short nor Graham would discuss any specifics about the company’s financial data. Nor would they even state whether the company posted a profit or loss for the fiscal year ended June 30, 2000.
“Our cash flow is absolutely fine. We’re a private company. We don’t disclose our financial information,” the ceo said.
According to a financial source in New York, the company should hope that a settlement is reached shortly. Although numbers for the last fiscal year weren’t available, a financial source said Boxer had a consolidated net worth of $7.1 million for the fiscal year ended June 30, 1999. Sales for that year were $62 million, the company lost $217,000 and total debt stood at $15 million.
“If you take a look at net worth compared to debt, it won’t be easy for Boxer if it has to take a hit of $3.1 million,” the source said.
In the same set of financial statements, Boxer reported $38.1 million as the cost of sales, $1.9 million in licensing income and $24.8 million in operating expenses.
According to a Dun & Bradstreet Inc. report from last year, which also reports the June 1999 results, Boxer posted a $2.4 million profit for the year ended June 30, 1998 and a $2.1 million profit for the year ended June 30, 1997. The report also said that Graham owns 61 percent of the company’s stock. Dun & Bradstreet said Wednesday that Boxer has not yet provided June 2000 figures.
The dispute is a far cry from the creative, often zany products, promotions and ads that Graham, a former punk rocker from Calgary, Canada, has made his signature since starting Boxer on a “wild hunch” in 1985.
“I still love what I do,” Graham said Tuesday. “I love the challenge of creating and building a brand. It’s still in my blood.”
His views on branding — and Boxer’s mission — are crystal clear in statements that adorn the showroom. One is particularly poignant: “A brand is a terrible thing to waste.”

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