California Apparel News

Beyonceacute;’s House of Dereacute;on is company’s latest celebrity-driven venture

Tarrant Apparel Group, one of Los Angeles’ largest apparel firms, is hoping to stem the company’s five-year-long run of multimillion-dollar losses with a licensed deal it struck early this year with singer Beyonce Knowles.

The line, called House of Dereacute;on and designed by the singer’s mother, Tina Knowles, is scheduled for November delivery to better specialty stores and department stores around the country, including Marshall Field’s and Macy’s. Tarrant is coordinating the design, manufacturing and distribution of the young women’s contemporary line.

Marketing is playing a major role in distinguishing the line from other celebrity apparel ventures, which run the gamut from Jennifer Lopez’s JLo label to Sean “Diddy” Combs’ Sean Jean line.

Sources close to the apparel line said that the 24-year-old lead singer of the group Destiny’s Child is under consideration to be on the “Oprah Winfrey” show in early November to talk about her new line.

An appearance on Winfrey’s show is a lucrative endorsement that immediately rings cash registers at retailers around the country. When the talk show host declared Ugg Boots “adorable,” sales jumped 400 percent. When she mentioned the Build-a-Bear Workshop, the company went public a few months later.

Chico’s FAS Inc. saw its catalog sales skyrocket one Holiday season after its Chico’s watch was listed on “Oprah’s Favorite Things” show, an annual event just before the Holiday shopping season.

And when Winfrey talked up C & C California T-shirts in 2003, when the Los Angeles apparel firm was scarcely a year old, it put merchandise from the new venture on the must-have map of fashionistas.

“She has the Midas touch,” said Claire Stansfield, who started C & C with partner Cheyann Benedict. “It really helped our business immensely. It was a domino effect.”

By fiscal 2004, sales at C & C California jumped to $21 million. In early 2005, Liz Claiborne Inc. acquired C & C for more than $28 million plus payments in fiscal 2007, 2008 and 2009.

Selling the sizzle

But House of Dereacute;on is not relying solely on Winfrey to sell its line of ready-to-wear, sportswear and denim.

Other plans are in the works, starting Nov. 1. Byl Thompson, director of marketing for House of Dereacute;on, said the company would be placing ads with consumer magazines and launching a grassroots efforts to reach young consumers. “We’ll be sending out street teams to pass out flyers,” Thompson said. “They will be going to colleges, universities, beauty salons and barber shops, where a lot of the trends start.”

There will be some co-op newspaper ads with department stores and ads on bus shelters and bus tails, as well as wild postings— such as posters plastered on places like construction site plywood and college bulletin boards.

But the biggest media bang undoubtedly would be on Winfrey’s show, which involves luck, timing and marketing persistence.

Details about the selection process are as hush-hush as the show’s upcoming guest list. No one at Harpo Productions, Winfrey’s production company, would confirm that Knowles would be on the show in November. And Thompson would only acknowledge that the apparel company has been talking with Winfrey about a guest spot. “Oprah is really sensitive to things leaking out regarding upcoming stories,” he said. “We are talking about an opportunity, but I cannot confirm nor deny the story.”

Yet a source close to Tarrant Apparel, who did not want to be identified, noted that Knowles was scheduled to appear on the show before mid-November.

Turning Tarrant around

A successful launch of the House of Dereacute;on would help lighten the financial load carried by Tarrant Apparel, which hasn’t turned a profit since 1999.

Last year, the publicly traded company had a net loss of $104.7 million on $155.5 million in revenues.

In 2003, it had a net loss of $35.9 million on $320.4 million. In 2002, it had a net loss of $6.1 million on $347.4 million.

Tarrant’s poor performance started after Gerard Guez, who founded the company in the mid-1980s and is now the company’s chairman, decided in 1999 to start producing more of his private-label jeans in Mexico. Soon he bought several factories and two fabric mills to create a more vertical operation in his effort to supply customers such as The Limited, Lane Bryant and J.C. Penney. But the factories never operated at full capacity and drained millions of dollars from the company’s bottom line. Then, in 2003, laid-off workers at one of the company’s Ajalpan factories in Mexico tried to form a new labor union, organizing walk-outs and demonstrations. The labor dispute was well publicized by workers’ rights groups. The result was that major clients, including Lane Bryant, started canceling orders, which resulted in a $75 million revenue decline in 2004.

By 2004, Guez had all but left Mexico, selling his plants and fabric mills to Kamel Nacif, a Tarrant shareholder. The sale resulted in a $78 million charge for the company.

Tarrant then shifted the bulk of its sourcing operations to factories in China and Hong Kong, where Tarrant used to produce as much as 60 percent of its merchandise.

Around the same time, Guez decided to alter his business model and expand into branded merchandise and away from private label, which he felt was risky because retailers can’t be relied upon for long-term business.

So he created a subsidiary, called Private Brands Inc., to launch his own labels. One of the subsidiary’s first ventures was to acquire a 45 percent equity interest in American Rag CIE, a trendy retailer with a Los Angeles flagship store on La Brea Avenue and another store in San Francisco. Tarrant has a license to produce clothing under the American Rag label, which sells exclusively right now to Federated Department Stores. The deal was for $1.4 million with a guarantee to pay minimum royalties of $10.4 million over the course of the initial 10-year term of the agreement.

Other new labels manufactured by Tarrant include Alain Weiz, large-size apparel for women sold at Dillard’s, and Gear 7, men’s hip-hop–inspired clothing sold at Kmart.

Tapping into star power

Early this year, Tarrant entered the Hollywood arena. First the company announced in early January that it signed a licensing deal with singer/actress Jessica Simpson to make several labels with her name. The Jessica Simpson Collection is sold at Charming Shoppes Inc. outlets. Charming Shoppes has three retail chains: Lane Bryant, Fashion Bug and Catherines Plus Sizes. JS by Jessica Simpson and Princy are sold at department stores such as Macy’s and Dilliard’s. The first shipments of the JS line were shipped in June to a thousand doors. Princy is now in more than 500 stores. Tarrant executives said the lines have been well received.

Pairing up with Hollywood notables has become increasingly popular in the last few years. Sometimes it is successful and sometimes it’s not.

Gerard Guez’s brother, Paul Guez, a major shareholder with Innovo Group, a Los Angeles–based blue jeans and contemporary clothing manufacturer, signed two licensing deals a few years ago with teen stars that never panned out. One was with Eve, a rapper and TV star, whose Fetish by Eve line tanked. The other was with Bow Wow, whose Shago by Bow Wow line for 12- to 18-year-olds proved to be too expensive for many parents, who balked at paying more than $80 for teen jeans. Innovo gave up the licenses.

But there is a potential to earn big bucks when pairing celebrities with clothes. Stars, who get a lot of free face time on television and in magazines, are walking advertisements for the labels. Industry observers site the success of the Sean Jean line. Twin acting stars Mary-Kate and Ashley Olsen have a lifestyle collection that is now a billion-dollar brand for Wal- Mart Stores Inc.

Star power among young people seems to be growing. “Celebrity brands can be successful depending on the category and market segment. They are very attractive to millennial girls who think celebrities are great,” said Cheryl Swanson, president of Toniq LLC, a brand strategy consultancy in New York. “With Jessica Simpson and Beyonceacute;, both women are fashion forward and have credibility in respect to apparel.”

Barry Aved, president of Tarrant Apparel, hopes that the celebrity lines are just the ticket to turn the company around. “Each of these brands, continuing great product and the association with widely recognized and highly regarded celebrities, is expected to play an important role in rapidly increasing sales and profitability of our Private Brands division,” he said.