G-III Apparel Group, Ltd.
G-III Apparel Group, Ltd.
Incorporated: 1974 as G-III Leather Fashions, Inc.
Sales: $117.7 (1997)
Stock Exchanges: NASDAQ
SICs: 2386 Leather & Sheep-Lined Clothing; 5136 Men’s & Boys’ Clothing & Furnishings; 5137 Women’s, Children’s & Infants’ Clothing & Accessories; 5699 Miscellaneous Apparel & Accessory Stores
G-III Apparel Group, Ltd. designs, manufactures, imports, and markets an extensive range of leather and non-leather apparel, including coats, jackets, pants, skirts, and other sportswear items for both men and women. Moderately priced women’s leather apparel represented about one-third of its sales in 1996. The company had about 2,300 customers, including nationwide chains of department and specialty retail stores, price clubs, and individual specialty boutiques. Virtually all of its products were being manufactured by independent contractors in the Far East and India.
Private Company, 1956-89
Aron Goldfarb was running a leather apparel business, opened in 1956 in New York City’s garment district, that specialized in men’s bomber jackets when his 22-year-old son Morris joined the company in 1972. Morris Goldfarb augmented the business (which was reorganized in 1974 as G-III Leather Fashions, Inc.) with overseas production facilities, selling moderately priced women’s leather coats and jackets under the G-III label. The company expanded its product lines and began selling higher priced, more fashion-oriented women’s leather apparel under the Siena label in 1981. The Siena line remained a minor segment of the company’s overall business, however.
By 1988 G-III was among the largest, if not the largest, independent importer and wholesaler of leather apparel in the United States. The company had net income of $727,000 on net sales of $30.3 million in fiscal 1987 (the year ended July 31, 1987) and net income of $2.7 million on net sales of $50 million in fiscal 1988. G-III was growing rapidly, but like most leather-wear companies, it was undercapitalized. The firm attracted the interest of Lyle Berman, a Minnesota-based entrepreneur who had organized Ante Corp. as a venture capital firm and knew the Goldfarbs personally. Like them, Berman had operated a family-owned leather apparel business, although on a retail level.
Berman was not shy about what he could offer the Goldfarbs, in addition to $1.5 million in capital. “The biggest thing is that they were getting Lyle Berman,” he told a reporter in 1990. “In the retail leather industry, I’m considered to be a driving force. After all, my company became the biggest retailer of leather apparel in the United States. I ran it from one store to 200. ... I can look at Morris and say, ’Morris, without Lyle Berman you could have gone public, but I know in my heart you wouldn’t have. You would have procrastinated.” Berman added that G-III’s expertise was primarily in women’s wear, while his was in men’s wear, an area in which G-III wanted a larger presence.
An agreement was reached in August 1989 by which Ante acquired G-III in an exchange of stock. Ante shareholders received 15 percent of the outstanding common stock in the merged entity, which took the name G-III Apparel Group, Ltd. The Goldfarbs remained in charge of management, and Berman became a director. G-III earned an impressive $9.5 million on net sales of $98.8 million in fiscal 1989. In December 1989, G-III, now publicly held because of the merger, collected about $18 million, and Aron Goldfarb another $6 million, in a secondary offering that marketed nearly one-third of the outstanding common stock at $13 a share. Following the offering, some 39 percent of the stock was owned by Morris Goldfarb and 18 percent by Aron Goldfarb.
Broadening Its Base, 1990-94
G-III began marketing higher priced women’s leather apparel under the Cayenne as well as Siena label in 1988 and introduced a line of men’s leather apparel, primarily consisting of jackets and coats sold under the G-III label, in the same year. In 1990 it formed a textile division to design, import, and market a moderately priced line of women’s textile outerwear and sportswear under the J.L. Colebrook label. The company replaced the Cayenne label with the Siena Studio label for its midpriced line of women’s leather apparel during 1991 and introduced a men’s textile apparel line in the fall of 1992. To a lesser extent it also sold leather apparel under private retail labels.
G-III’s moderately priced apparel for women typically retailed in 1990 at from $40 for sportswear items to $300 for coats. The men’s wear line consisted of coats and jackets in the $150-to-$500 range. Moderately priced apparel for women accounted for more than 85 percent of net sales in fiscal 1989, while men’s wear accounted for only five percent. G-III’s goods were being sold mainly to department and specialty stores in the United States, but sales were being made also to cable television shopping networks and direct mail catalogue companies. The number of customers to whom goods were shipped increased from about 1,000 in fiscal 1989 to about 2,000 in fiscal 1990, when revenues reached $161.9 million and net income was $9.6 million. Units of The Limited accounted for 32 percent of G-III’s sales in that year.
G-III opened a 13-person branch office in Seoul, South Korea at this time to act as an intermediary between the company and various Korean and Hong Kong manufacturers. Its activities did not sit well with David Winn, president of Winlet Fashions, a competitor. Winn told Grain’s New York Business, “Morris has literally walked into my factory in Korea and taken our designs. ... I think he has illusions of grandeur. He really wants to take over the whole market, and he’s so headstrong he just might do it, whatever the cost.” G-III also opened a showroom in Los Angeles and a retail store in Secaucus, New Jersey in 1990.
Leather was being touted in this period as representing “sex and status for everyone from the punk rocker to the secretary to Ivana Trump,” according to a trade newspaper executive. In the 1970s the industry had been turning out unwieldy, boxlike coats and jackets in dull colors, but the product offered in 1990 was being made from animal skins that had been treated to be more supple and colorful. It could be embossed and silk-screened to achieve many looks.
During fiscal 1991 G-III’s revenues fell to $142 million and its net income fell to $1.3 million. Although revenues recovered in 1992, earnings, at $3.3 million, remained well below the 1990 peak. Of $175.5 million in sales during fiscal 1992, leather accounted for 90 percent. Analysts said the company controlled about 12 percent of the women’s leather market and three percent of the men’s market. The G-III label accounted for 70 percent of sales in that year, private-label merchandise for 20 percent, and the fast-growing Colebrook textile division, which featured coats and jackets in a variety of fabrics that included wools, cottons, and synthetic blends, for ten percent.
Global Apparel Sourcing Ltd. was established by G-III in 1993 to act as the sourcing arm for retailers who wanted production of any type of apparel merchandising. G-III had expanded its own sourcing efforts; when the company went public in 1989, almost all of its merchandise was being produced in South Korea, but by early 1993 Korea was accounting for only half, with the balance spread to other areas, including Hong Kong and Indonesia. About 20 percent of the company’s goods were being produced in the United States by independent contractors.
G-III signed a licensing agreement with NFL Properties, Inc. in 1993 for a line of leather outerwear developed as a joint venture between G-III and Washington Redskins linebacker Carl Banks. The agreement provided for the production of Team NFL licensed leather and leather/fabric-combination outerwear for Big & Tall Men. In addition, the agreement provided for the production of Team NFL licensed leather outerwear for NFL Spirit for Women and NFL Kids sizes small to extra large. All jackets were emblazoned with NFL teams and colors. A 1995 licensing agreement with Kenneth Cole Production called for G-III to produce and market three outerwear labels bearing the Kenneth Cole name in leather, high-tech nylons, rubberized fabrics, and moss microfiber. This line debuted in 1996, the year G-III also entered into an agreement with the National Hockey League to market a line of outerwear apparel with the NHL team logos.
By early 1994 G-III had opened six retail factory-outlet stores to sell in-season merchandise and overstock. It opened a new 30,000-square-foot corporate showroom on Seventh Avenue in Manhattan’s garment district that year and a new women’s wool coat division called Billy coat. Men’s outerwear was being offered in G-III leather and J.L. Colebrook fabric lines. Leather was accounting for about two-thirds of overall company sales volume.
Also in 1994, G-III signed an agreement with the Chinese government to jointly own a leather apparel factory in northern China and market the products in that country. G-III would own 39 percent of the factory, with the Chinese government holding the remainder. The pact was expected ultimately to lead to the opening of jointly owned retail stores in China, the company said.
Declining Revenues, 1995-97
During fiscal 1994 (the year ended January 31, 1994) G-III had net income of $1.3 million on peak sales of $208.9 million. The following year was a disastrous one, with the company losing $11.7 million on net sales of $171.4 million. A share of company stock fell as low as $1.25. With many retail outlets shutting down and heavy competition from big fashion designers, G-III was suffering from a lack of brand identity or resources to establish one. Sales fell still further in fiscal 1996, to $121.7 million, but the company lost only $397,000 by reducing costs through tighter control of inventory levels and improved product sourcing.
Revenues fell still further, to $117.7 million, in fiscal 1997, but the company had net income of $3.1 million, mainly because of further economy measures, such as consolidating merchandise divisions, reducing inventory, decreasing borrowing levels, and subleasing one of its warehouses. G-III also closed three of its seven retail stores. The company’s long-term debt was only $919,000 in July 1996. Morris Goldfarb held 34 percent of the common stock, Aron Goldfarb held 19 percent, and Berman held 4.8 percent.
In 1996 the company merged its G-III leather and J.L. Colebrook cloth outerwear divisions. The merger appeared to be an economy measure allowing the company to close one of its Seventh Avenue showrooms and field a single customer service team for both labels, although Morris Goldfarb said he expected no layoffs as a result of the consolidation because of the addition of Kenneth Cole and Polar Bear, a European outerwear line G-III had agreed in 1995 to distribute.
G-III formed a joint venture in 1997 with BET Holdings to produce a BET line of outerwear, sportswear, and accessories aimed at African-American and urban shoppers. BET Holdings’ core business was Black Entertainment Television, a cable network offering music video shows and syndicated programs to 47 million households. Also in 1997, Goldfarb rewarded Jeanette Nostra-Katz, a veteran company executive, by vacating the presidency and promoting her to the office, although he remained chief executive officer. An industry analyst said she was impressed by Nostra-Katz’s efforts to enhance product development and reduce G-III’s seasonal dependence on fall and winter apparel.
In fiscal 1997 G-III had about 2,300 customers, ranging from specialty retail and department stores to smaller specialty stores, price clubs, and individual specialty boutiques. The Sam’s Club and Wal-Mart divisions of Wal-Mart Stores accounted for 12.8 percent of the company’s sales. Sales of moderately priced women’s leather apparel accounted for about 34 percent of G-IH’s net sales. The G-III line of this apparel typically was selling from $30 for sportswear to $400 for coats. The higher priced Siena collection typically retailed from $300 for sportswear items to $1,000 for coats. Siena Studios, the intermediate line, ranged in price between $100 for skirts and $600 for outerwear.
Men’s leather outerwear, sold under the G-III label, typically retailed between $40 and $400. Moderately priced women’s textile outerwear and sportswear, sold under the Cole-brook & Co. label, was retailing for between $50 and $130. Men’s textile apparel, consisted of moderately priced outerwear, was retailing from $25 to $175. Women’s moderately priced woolen coats and raincoats sold under the Vision label were retailing in the range of $100 to $200. The company’s private-label business was described in Grain’s New York Business as its “bread and butter” and “stronger than ever.”
Substantially all of G-III’s products were being manufactured by foreign independent contractors, located principally in South Korea, China, Indonesia, and, to a lesser extent, India, the Philippines, and Hong Kong. Certain products were being manufactured at a company-owned factory in Indonesia and its partially owned factory in China. A select number of garments were being manufactured for the company by independent contractors in the metropolitan New York City area. G-III was leasing a five-story building and showrooms in New York City and a warehouse and distribution facility in Secaucus, New Jersey. It also was leasing a showroom in Los Angeles and four retail outlet stores. In addition, the company maintained branch offices in Hong Kong and Seoul, South Korea.
G-III Apparel Manufacturing, Inc.; G-III Hong Kong Ltd. (Hong Kong); G-III Leather Fashions, Inc.; G-III Retail Outlets, Inc.; Global Apparel Sourcing, Ltd.; Global International Trading Company (South Korea); Indawa Holding Corp.; P.T. Bali-hides (Indonesia); P.T. Tatabuana Raya (Indonesia); Siena Leather, Ltd.; Wee-Beez International Trading Co. (Hong Kong).
“Coat Tales,” Women’s Wear Daily, July 30, 1996, p. 9.
Feller, Alan, “G-III Apparel Group Ltd. Signs Leather Outerwear Agreement with NFL Properties,” Business Wire, September 21, 1993.
Fiedler, Terry, “Blind Faith: Investors Who Anted Up for Leather Expert Lyle Berman’s Blind Pool Won Big,” Corporate Report Minnesota, March 1990, p. 39 and continuation.
“Firm Signs Pact with China for Joint Venture There,” Wall Street Journal, March 7, 1994, p. A6.
Friedman, Arthur, “G-III’s United Front,” Women’s Wear Daily, February 15, 1994, p. 28.
Gault, Ylonda, “Stretching Leather,” Grain’s New York Business, January 29, 1990, p. 3.
_____, “Surviving a Clothes Call,” Grain’s New York Business, April 28, 1997, p. 13.
“Kenneth Cole Licenses G-III for Leather, Cloth Outerwear,”Women’s Wear Daily, December 12, 1995, p. 11.
Macintosh, Jeane, “G-III Branching Out with New Line and Stores,”Women’s Wear Daily, March 23, 1993, p. 17.
“Market Basket,” Women’s Wear Daily, February 11, 1997, p. 10.