Marc Ecko Enterprises plans to sell or spin off its noncore brands, according to an internal memo obtained by WWD.
“The market has made it clear to us that each of our individual businesses is worth more on a stand-alone basis than combined. Accordingly, we are working to decentralize the businesses of Marc Ecko Enterprises,” read the memo, which went out to employees on Friday. “We want to ensure that the difficult environment does not ultimately impede the continued growth and development of any business unit….Each brand should be aligned with the strategic or financial partners that will optimize its future growth and opportunities.”
The memo went on to say that the potential investors in the core Ecko Unltd. brand are different from those interested in the company’s Avirex, Zoo York, Complex magazine and Marc Ecko Games businesses. Several “exciting opportunities” have presented themselves to the company from investors but no official announcements were ready to be made, it added.
The memo was signed by Seth Gerszberg, co-founder and chief executive of the company, Marc Ecko, co-founder and chief creative officer, and Marci Tapper, president of Zoo York (and Ecko’s twin sister). The three founded the company together in 1993 and retain sole ownership of it, with Complex publisher Rich Antoniello a partner in that business.
The memo did not say which businesses would be sold off, or whether just a minority stake could be sold in certain brands. Gerszberg was not available for comment.
Ecko acquired Zoo York in 2001, launched Complex magazine in 2002, acquired Avirex in 2005 and launched its video game unit in 2006.
The company hired investment bank Peter J. Solomon in November to assess and facilitate strategic options related to a potential sale of certain assets. The company is in need of cash to pay down large debt loads owed to a group of lenders headed up by CIT, as well as trade receivables owed to its sourcing agent Li & Fung. Certain covenants were violated on the CIT loans when the company did not meet certain earnings requirements in 2008.
However, the internal memo said the company is now in compliance with all its current lending provisions. “The combination of a weak retail environment and poor timing of growth initiatives has created challenges that we have addressed,” it read.
The company went on an ill-timed spending spree over the past two years, opening a slew of new stores prior to the recession. It now operates 96 full-price and outlet stores in the U.S. “As most of you know, we’ve already hurdled the most painful steps of reorganizing our operations by cutting costs and right-sizing our company to today’s realities,” noted the memo. “Over the past several months we have reduced head-count, shut down underperforming businesses, eliminated unnecessary capital expenditures and licensed categories that we recognized were not realizing their fullest potential.”
On the upside, the memo pointed out that Ecko Unltd. stores performed well in the first quarter of 2009, with same-store sales gains of 25 percent in full-price stores and 15 percent in outlet stores. The company plans to open five to 10 full-price Ecko Unltd. stores in the second half of this year. “We have materially exceeded the sales and profit projections that were submitted and approved by our lenders and other financial stakeholders,” it read. “Additionally, we have signed new licenses, we are seeing strong growth in our international businesses, and have two new video games launching this summer.”