Innovo Group Inc

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Innovo Group Inc.

5901 South Eastern Avenue
Commerce, California 90040
Telephone: (323) 837-3700
Fax: (323) 201-3846
Web site:

Public Company
Employees: 124
Sales: $108.6 million (2005)
Stock Exchanges: NASDAQ Small Cap
Ticker Symbol: INNO
NAIC: 315299 Other Apparel Accessories and Other Apparel Manufacturing

Once known for its canvas and nylon tote bags and similar products, Innovo Group Inc. is the parent company of Joe's Jeans, Inc. Named for its fashion designer, Joe Dahan, Joe's Jeans designs and markets upscale women's and men's denim apparel. The company also offers basic and "luxe" sportswear, such as T-shirts, tank tops, cashmere sweaters, and velour corduroy pants. Joe's and Joe's Jeans brand products can be found in better department stores and specialty boutiques throughout the United States, Canada, Europe, Latin America, the Caribbean, Asia, and the Middle East. Third party marketers display the company's products at showrooms in Los Angeles, New York City, and certain cities abroad.


Before founding Elorac Corporation in 1987, Patricia D. Anderson worked as the national sales director for an importer of housewares and gifts. This professional background prompted Anderson to start a U.S.-based kitchenware soft goods company, in Sugarland, Texas, near Houston. Anderson began with aprons and pot holders. Initially, college students created the designs which Anderson silkscreened onto fabric. She sewed the final products and packaged them for sale through gift stores. Anderson expanded the product line with utility and craft aprons and tote bags made of nylon and canvas. These she sold to craft stores and specialty retailers. Sales lagged until a buyer suggested that Anderson redesign a children's craft apron into a smock and package it with a paint set. The smock and paint set combination proved successful, as mass merchandisers, including Wal-Mart and Target, purchased the product. Sales escalated rapidly, reaching about $7.2 million in 1989.

In 1990, Elorac prepared for growth by acquiring other companies and by becoming a public company. That year, Elorac merged with Innovo, Inc., a similar company trading on the NASDAQ, forming Innovo Group Inc. In 1991, Innovo acquired NASCO, Inc., a sports apparel company which held licensing agreements with every professional sports team in the United States, as well as 156 colleges. The acquisition of NASCO enabled Innovo to gain new channels of distribution by adding sports logos to its tote bags, backpacks, and sports bags, as well as to two new products, waistpacks and lunch bags. Also, NASCO manufactured school sports jackets and gym clothing for distribution through schools nationwide, and it coordinated candy and magazine sales for fund-raising projects that supported school sports. Based in Springfield, Tennessee, NASCO was actually larger than Innovo, with $29 million in revenues. Innovo purchased the retail and sporting goods division from NASCO in June 1991; the company paid $1.5 million and issued 750,000 shares of stock to NASCO's owners. A tax-free stock exchange completed the merger the following September. Innovo changed NASCO's name to Spirco and sold the fund-raising component of the business in 1993.

The acquisition of NASCO led Innovo to focus its expansion efforts on the acquisition of new licensing agreements. In 1991, Innovo obtained a two-year, exclusive contract with DIC Animation City, to reproduce the "Prostars" cartoon characters on Innovo products. In 1994, Innovo signed two significant licensing agreements, with NASCAR and Major League Baseball. The latter allowed Innovo to market products carrying the images of 30 Major League Baseball players, including Tony Gwynn, Joe Carter, Andre Dawson, Ozzie Smith, and Dave Winfield. Another significant licensing agreement involved use of the Louisville Slugger logo and graphics, based on the famous line of baseball bats. The new product line included shoe bags, laundry bags, wallets, seat cushions, as well as the usual tote bags, backpacks, sports bags, waistpacks, and lunch bags.

In 1995 Innovo signed a licensing agreement with the U.S. Olympic Committee for the 1996 Summer Games in Atlanta. The agreement allowed for the production of clothing, sports bags, and other merchandise with the five-ring Olympic logo, and these products would be sold to event attendees, as well as to the U.S. Olympic Teams. New products included seat cushions for use in sports arenas. A cross-licensing agreement with Warner Brothers and the U.S. Olympic Committee involved combining the five-ring logo with images of Looney Tunes characters, such as Bugs Bunny and Daffy Duck. The idea followed from previous success with combining Looney Tunes characters with professional sports team logos. In July 1995 Innovo began its distribution of Olympic products to several mass merchandisers, including Wal-Mart, Kmart, Target, Kohl's Department Stores, Venture Stores, and Sports Authority. New distribution channels included Home Depot, J.C. Penney, and American Tourister Retail Stores. The momentum of Olympic goods merchandising continued with a licensing agreement for the 2002 Winter Olympics in Salt Lake City.


Despite the high profile of the products that Innovo manufactured and distributed, financial success did not follow. Among the company's problems, the Spirco subsidiary emerged financially insolvent. Innovo filed for Chapter 11 bankruptcy and reorganization for Spirco, as well as for a suit against Spirco's outside accounting firm, previous to the 1991 acquisition, for misrepresentation of the financial status of then-NASCO. Positive results from the reorganization plan involved elimination of $3.8 million in debt and an extraordinary gain of $2 million before taxes, though it was offset by $16 million in tax loss carried forward. Also, Innovo gained title to the Spirco manufacturing facility in Springfield, Tennessee. Innovo ended fiscal 1994 with $8 million in revenue and a net loss of $7.9 million. By 1995, the company had recovered somewhat, but low retail sales hurt overall revenues. Innovo reported a net loss of just under $1 million on $5.3 million in revenues; the company reduced its debt by $5.6 million, however.

Retail sales rebounded in 1996. In February, Innovo reported $1.47 million in orders for shipment over the next three months, a record for the company and a dramatic increase compared to $300,000 in orders at the same time in 1995. In addition, Wal-Mart chose Innovo as its major supplier of tote bags and craft aprons and committed permanent shelf space for Innovo's craft products. The higher quality of Innovo canvas and nylon products and the timeliness of delivery prompted Wal-Mart to switch from its import manufacturer to Innovo. The company expected the product's sales to reach $5 million in the near-term.


Innovo Group Inc. is a sales and marketing organization offering high quality apparel products to retailers worldwide.

Innovo expanded its product line and its production capacity through the March 1996 acquisition of Thimble Square, Inc., a Georgia-based manufacturer of private label, ladies sleep and loungewear distributed through retail stores and mail-order catalog. Through an existing manufacturing agreement between Innovo and Thimble Square, Thimble Square owned a stake in Innovo already. The acquisition itself involved payment of $1.1 million in stock and debt reduction, plus purchase of the Pembroke, Georgia, plant for $500,000. Anderson expected Innovo's acquisition of Thimble Square to open new channels of distribution for both companies. The Pembroke facility would provide flexibility in production.

Innovo obtained several significant new licensing agreements in 1996, which expanded the company's international market. An agreement with Anheuser-Busch Companies, Inc., allowed Innovo to reproduce more than 70 trademarks, plus future taglines and symbols. Images available included the Budweiser Frogs and the Bud Light "I love you man" tagline. In addition to displaying the images and taglines on a variety of tote bags, Innovo introduced new products, such as barbeque and cooking aprons and insulated cooler totes. Marketing distribution rights extended beyond the United States, to Europe, Central America, and Asia. Innovo obtained a license to manufacture and distribute products with the Walt Disney characters and Warner Bros. Looney Tunes characters in Europe, as well. The agreement included bags to promote the movie Space Jam, starring Michael Jordan, superstar of the Chicago Bulls, and other NBA players.

As new business opportunities spurred growth, Innovo confronted labor shortages which hindered production. As a result, Innovo had to place limits on orders until it could gain the production capacity needed to meet demand. In the fall of 1996, Innovo obtained a low-cost, three-year lease for a manufacturing facility in Red Boiling Springs, Tennessee, which doubled the company's sewing capacity. Significantly, the location provided an existing pool of unemployed labor.

Despite positive developments, Innovo continued to struggle financially. Sales of 2002 Olympic sports products did not meet expectations, production limits forced the company to turn down about $1 million in sales, Thimble Square generated a loss, and pursuit of the Warner Bros. and Walt Disney licensing agreements were costly endeavors. Nevertheless, the value and potential of the company's licensing agreements attracted investment. An investment group acquired 7.5 percent of Innovo's outstanding shares, bringing $1.8 million in capital into operations. Moreover, the investment group infused the board of directors and the executive office with business development talent. New management included L. E. Smith, the leader of the investment group, as chief executive officer and chairman of the board, Dan Page as chief operating officer, and Eric Hendrickson as vice-president and treasurer. Anderson retained the position of president, but focused her attention on domestic and international sales and marketing.

New funds and new management stimulated major changes at Innovo. The first involved the consolidation of facilities in Knoxville, Tennessee. In 1998 the company transferred its corporate headquarters, distribution, and manufacturing operations from Springfield, as well as the manufacturing operations at Red Boiling Springs, to a former Levi Strauss facility. The 78,000-square-foot facility increased efficiency by providing ample space and a better organized work environment. Also, former employees of Levi Strauss comprised a local pool of skilled labor. Innovo offered the Springfield plant for sale and the Red Boiling Springs facility for sublease. The company discontinued Thimble Square operations and sold the Pembroke, Georgia, facility.

A number of financial steps contributed to the solvency of the company, but the reorganization put the company's status on the NASDAQ Small Cap Market in jeopardy. To retain its NASDAQ listing, Innovo had to meet certain criteria for market capitalization. The exchange required Innovo to achieve a minimum net tangible asset level of $4 million by August 11, 2000, and a minimum of $5 million by October 31, 2000. New investment from the Furrow Group, Commerce Investment Group LLC (CIG), and other outside investors brought Innovo up to the $4 million minimum. For the balance, CIG invested $1.5 million in cash in exchange for 1.36 million shares of common stock at $1.10 per share, and Innovo used the funds to purchase finished goods and services from CIG affiliates. Innovo sought further investment in early 2001 through a private placement of common stock valued at $3.3 million.


Innovo obtains sports logo licensing and distribution for all professional teams.
Olympic Committee grants Innovo product license for 1996 Summer Olympics and 2002 Winter Olympics.
Investment group contributes funding and management talent to Innovo's future.
Innovo enters the apparel market through licensing agreement for Joe's Jeans.
Innovo launches Shago and Fetish celebrity brands.
Continuing financial difficulties and product failures lead Innovo to reduce business operations to Joe's Jeans.


Sam Furrow, the principle of the Furrow Group who replaced Smith as chairman and chief executive officer, guided Innovo in new directions. As part of a long-term strategy of diversification, the company entered the apparel market, designing, manufacturing, and distributing upscale fashion merchandise with a high profit margin. Toward that end, in 2001, Innovo announced it had entered into a licensing agreement with Joe Dahan, a well-known apparel designer. Dahan's product line included fashion-forward women's denim jeans, knit shirts, and bags and other accessories. The goods sold under the Joe's Jeans brand-name through high-end retailers and clothing boutiques, such as Saks Fifth Avenue, Intermix, and Fred Segals. Innovo formed a subsidiary, Joe's Jeans, Inc., to handle the production, marketing, and distribution of the products. Azteca Production, a private label apparel manufacturer and an Innovo investor, handled the manufacturing of Joe's Jeans. In actuality, Azteca "spun off" the line to Innovo in order to gain the marketing budget and expertise that could cultivate the Joe's brand effectively. The change in ownership structure allowed Dahan to concentrate on his name-brand designs, rather than produce designs for Azteca's private labels.

Innovo expanded its presence in the apparel industry by acquiring other Azteca operations. In late 2001, the company acquired Azteca's Knit Apparel Division, which designed, manufactured, and marketed apparel for several private label and retail customers. These included Tommy Hilfiger, Calvin Klein, Express, Bongo, American Eagle Outfitters, Target's Mossimo line, and Sears clothing brands. Through the July 2003 acquisition of the Blue Concepts Division of Azteca Productions, Innovo obtained the denim jeans operations for American Eagle Outfitters, a $75 million business. Innovo funded both acquisitions through exchanges of stock and a seven-year promissory note. Innovo acquired the inventory of Azteca's Knit Apparel Division for approximately $3 million in cash. Innovo consolidated the Azteca operations as Innovo Azteca Apparel, Inc. and relocated company headquarters from Knoxville to Los Angeles. Jay Furrow became chief executive officer in 2002. Innovo retained the Tennessee facilities for the company's original canvas and nylon tote bag operations, and Anderson oversaw operations there.

Innovo pursued several opportunities in high-end, brand-name apparel which appealed to teens and young adult consumers. In April 2001, Innovo signed a licensing agreement with Candie's, another high profile fashion company. Innovo obtained the right to design, manufacture, and market accessories for Candie's Bongo label, including purses and bags, belts, and small leather goods for junior women. Success with the line led to another four-year licensing agreement, signed in late 2002. In September 2002 Innovo signed a marketing agreement with the management of 14-year-old rap sensation Lil' Bow Wow. The agreement allowed Innovo to market Lil' Bow Wow's Shago brand apparel and accessories for boys and girls through all available channels of distribution. Innovo introduced the product line at the MAGIC Trade Show in February 2003 and began distribution to 150 department stores and specialty shops the following June. Innovo obtained a license to produce and distribute a line of fashions and accessories designed by Eve, another young rap artist. Marketed under the brand-name Fetish, the trendy, urban style products included handbags, wallets, belts, hats, gloves, and scarves made primarily in suede, leather, and vinyl cloth. Rhinestones, crystals, chain links, and large metallic nameplates comprised Eve's "signature elements." Handbags would be lined in pink satin, and hat styles included newsboy looks and suede fedoras, in stylish colors, such as fuchsia. Evening wear would feature silver or gold mesh fabric. Innovo planned to market the Fetish brand in 100 upscale department stores. Innovo launched the brand at the summer MAGIC Trade Show in September 2003, where Teen People recognized the brand as a Trendspotter Hot Pick.

Despite its promising innovations, Innovo operated at a loss due to start-up costs and excess inventory. Though sales of the Fetish and Shago brands played a significant role in a dramatic increase in revenues, the sale of excess inventory at below wholesale price required the company to write down $4.3 million. While 2003 sales reached $83.2 million, compared to $29.6 million in 2002, Innovo reported a net loss of $8.3 million, compared to net earnings of slightly over $500,000 the previous year. Moreover, disappointment with Innovo's designs and its limited manufacturing capability led Eve to seek a new licensing deal with another company.

A February 2004 licensing agreement with renowned women's fashion designer Betsey Johnson suffered a similar fate. Under the four-year contract, Innovo obtained the rights to design, market, and distribute women's jeans and denim products under the Betsey Johnson brand name. Innovo's distribution included upscale department stores and specialty stores, as well as Betsey Johnson boutiques, in the United States and Canada. Yet while other Betsey Johnson licensees exceeded sales expectations, Innovo failed to muster adequate sales, leading the company to terminate its relationship with Betsey Johnson in August 2005.

Dissatisfaction with the outcome of its new private label businesses led Innovo to focus exclusively on its successful denim and denim-related operations. The company terminated agreements to produce accessories for the Bongo and Shago brands. Innovo sold the craft accessory operations in May 2005. (Anderson had resigned in September 2004.)


While the company's private label ventures failed, Joe's Jeans continued to succeed and to evolve. Innovo introduced Joe's Jeans for men in February 2002. The Japanese market for the brand developed rapidly, prompting Innovo to open a subsidiary office in Japan in late 2002. To promote the Joe's Jeans brand, Innovo signed marketing agreements with other companies, such as Sophistowear, for distribution in Canada. In January 2003, Innovo signed an agreement with Showroom 903 in order to increase market penetration in the western United States. In 2004, Joe's Jeans outsourced international distribution to Canada, Australia, Europe, Japan, and Korea to Beyond Blue, Inc., a representative of several well-known brands including Ralph Lauren and Guess. That year, the company launched a luxury denim product line, called Joe's Premium. Available only in select stores, the line featured couture detailing, such as hand-finished embroidery, crystal appliqués, saddle stitching, and vintage aging.

In June 2004, Innovo launched a new line of women's denim clothing under the Indie brand. Joe's Jeans designers created the stylish denim line, which included jeans, skirts, tops, and jackets. The products incorporated European fabrics, but were fashioned in a classic American style. Innovo set the brand at a higher price point than Joe's Jeans, at up to $88. Innovo hired Beyond Blue to distribute Indie clothing to international markets. However, continuing financial difficulties prompted Innovo to discontinue the line in 2006.

Unexpected changes in corporate management occurred after an influential board director resigned in January 2006. Citing the company's poor financial performance and a 90 percent decline in the stock price over the last six months of 2005, the remaining directors forced Furrow to resign. Crossman became interim CEO. Then, in order to restore profitability, the company sold Innovo Azteca Apparel, its private-label operation, for $10.4 million in April 2006. The discontinuation of the Indie line left Innovo with its most valuable asset, the Joe's Jeans business. However, by June 30, the company's stock price valuation, steadily below the $1 per share minimum price, prompted the NASDAQ to notify Innovo that it might be delisted if the share price did not meet the minimum for ten days within 180 days.

Mary Tradii


Joe's Jeans, Inc.


Jones Apparel Group, Inc.; Kellwood Company; Liz Claiborne, Inc.; Tommy Hilfiger Corporation.


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