CHEROKEE LICENSES CARREFOUR

Byline: Kristi Ellis

LOS ANGELES — If the deals never get any bigger than this one, that will be just fine with Robert Margolis, chairman and chief executive officer of Cherokee Inc., which just signed a retail license agreement for its Cherokee brand with France’s Carrefour SA, the international distribution giant.
Trailing only Wal-Mart on the worldwide retailing stage, Carrefour is the largest global retailer outside of North America, with more than 9,000 stores in 26 countries worldwide. The Paris-based company plans to launch the Cherokee brand in the second half of 2001.
Terms of the deal were not disclosed. However, while Cherokee expects its Cherokee brand to reach $2 billion in retail sales for the fiscal year ending next January, industry sources said the Carrefour arrangement could help it reach $2.5 billion in retail sales in the year ending January 2002.
“I’m never going to do anything bigger or better than this,” Margolis said in a phone interview. “Carrefour is four times the size of Target,” which sells the Cherokee brand exclusively in the U.S.
Negotiations began last November.
A year after merging with rival retailer Promodes, Carrefour reported last month that first-half net profit grew 10.7 percent to $271 million, compared with $245.7 million during the same period last year. Sales increased 27.7 percent to $27.6 billion, calculated on a pro forma basis to reflect the inclusion of Promodes.
Under the terms of the deal, Carrefour would have the label exclusively in countries where it now conducts business, as well as other countries, if and when it enters them, according to Margolis. However, if Carrefour came to the U.S. or Target expanded into France, neither retailer could carry Cherokee outside of their exclusive territories, he said.
Carrefour’s European markets include France, Spain, Italy, Poland, Greece, Turkey, Portugal and the Czech Republic. Asian retail operations cover markets including China, Korea, Thailand, Taiwan, Malaysia, Indonesia and Singapore. Although not located north of the U.S.-Mexican border, the company does operate stores in Mexico, Argentina, Brazil, Chile and Colombia.
As in similar retail-direct arrangements, Carrefour will handle all sourcing and distribution. Margolis said that Cherokee will provide marketing and merchandising support to market the brand in Europe, though those details have yet to be hammered out.
There are synergies among Target, Zellers,which licenses the Cherokee name in Canada, and Carrefour, Margolis said.
“They are in the same markets globally where they service the upscale discount market, and they have the same type of business strategies,” he said, noting that the three will ultimately share sourcing opportunities. “They are the keepers of the brand.”
Although officials from Carrefour could not be reached for comment at press time, Vincent Mercier, general manager of Carrefour, said in a statement: “The Cherokee formula has proven to be one of the most successful and compelling concepts in retailing today.”
“This is more of a coup for Carrefour than Cherokee,” said R. Fulton McDonald, an industry strategist and president of the International Business Development consulting firm. “Cherokee is a moderately prestigious brand and Carrefour is a lower-market retailer,” he said.
“This is like taking a semiprestigious brand and tying it into Sears or J.C. Penney: The retailer comes out on top,” he added.
McDonald noted that Cherokee will benefit from substantial exposure in the middle market through Carrefour.
Cherokee, which owns the Cherokee and Sideout brands, has begun to act as a licensing agent for third-party brands. It helped negotiate Mossimo’s groundbreaking retail-direct licensing deal with Target’s discount stores.
The company, which began as a footwear brand in 1973, has more than 30 international wholesale or retail-direct licensing agreements. Outside of the U.S., its licensees cover markets including Japan, China, the Philippines, South America and Canada.
The company also recently signed a retail-direct license for its Sideout brand, which is not included in the Carrefour deal, with Sport-Scheck GmbH that will bring a broad assortment of merchandise under the Sideout label to Germany, Austria and Switzerland beginning in spring 2001.
Sideout is expected to attain retail sales of between $120 million and $150 million by fiscal yearend.
Margolis noted that he is currently in discussions with other regional U.S. partners for Sideout, which Cherokee acquired in November 1997.
“Cherokee is a family oriented brand, encompasses all age ranges and offers a broad array of products, while Sideout, [a beach-oriented, active brand] is a younger, hipper young men’s and junior brand,” said Margolis.
“The Cherokee template is being embraced as an oligopoly of retailers forming,” he added, referring to the dynamics that take place in markets that consolidate, but still support six or more players.
The breakdown of Cherokee’s projected $2 billion in sales comprises 30 percent women’s, 25 percent men’s, 25 percent boys’ and girls’, 6 percent footwear, 5 percent accessories and 4 percent other products.
In the quarter, Cherokee had net profits of $2.8 million, 30.3 percent above the prior-year’s quarter, on revenues, all from royalty income, of $7.7 million, up 20.4 percent. For the six months, earnings have risen 45.1 percent to $7 million while revenues are up 30 percent to $17.3 million.

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