Fashion Forward

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Gerard Guez


Title:

Chairman and chief executive


Business:

Tarrant Apparel Group


Age:

45


Education:

Completed two years of high school


Career Turning Point:

Creating No! Jeans, a private-label denim line.


Most Admired Person:

Michael Weiss, president and chief executive of The Limited Inc.’s Express stores. “He has a great eye for what people want to buy before they know it.”


Hobbies:

Spending time with his children; playing backgammon, traveling


Personal:

Married; four children


Tarrant Apparel Owner Brings Big Changes to L.A.-Based Denim Maker

When Gerard Guez dropped out of high school at 15, he decided to become an entrepreneur. He would drive from his home in Lyon, France, to Paris to buy jeans, which he would then sell to retailers in the area and beyond.

At 20, Guez came to the U.S., where he joined Sasson Jeans Inc., the company started by his brother Paul. In 1985, he struck out on his own with Los Angeles-based Tarrant Apparel Group, which designs and manufactures jeans and other casual clothing for men and women.

In 1998, Tarrant began a major expansion that included buying up manufacturing facilities in the United States and purchasing two large plants in Mexico, at a cost of about $33 million. Tarrant now does most of its denim manufacturing in Mexico.

That strategy has hurt the company’s stock and revenues, but Guez says vertical integration is the company’s goal (where Tarrant is in control of all facets of its design and manufacturing process) and he is confident that will boost Tarrant in the long run.


Question:

Describe Tarrant’s operations.

Answer: We started with being an import-only company. We branched out into developing countries like Indonesia and the U.A.E. (United Arab Emirates), Egypt, Taiwan, Korea, of course, and China. Three years ago, we went into the verticalization process, where we decided to be master of our own destinies and create the first truly completely independent and vertical denim company in the world by buying cotton bales and turning them into fabric, which we in turn cut, sew, wash and finish, basically all inside of our own property. We have most recently started the second denim treater plant.

Q: How does Tarrant differ from other apparel companies in Los Angeles?

A: We own denim plants and they don’t. Everything was built in the past three years at a total cost of about $190 million, which relative to our total sales is just a very, very big investment. It was a big bet that I think we now can say we have won.

Q: How do you know you’ve won the bet?

A: Because we are now totally fully operational and we have stopped all of the construction side of it and we now can concentrate just on developing the market. What makes us different is our ability to reduce lead times, to have a total quality assurance process throughout the whole process, and to be able to deliver very modern and new washes, which would cost two and three and four times more than what we could sell them for, if they were made on the U.S. side.

Q: Despite tough times in the apparel industry, Tarrant paid $11 million in cash for a plant in Mexico earlier this year. Why?

A: We did not decide to do it now. We decided to do it (in 1998). It was actually the final piece of that whole puzzle that we put together and that is giving us the ability to own the 22 million pieces (we produce annually).

Q: In the late 1990s, Tarrant was setting revenue records and its stock was worth more than $40 a share. Since the vertical integration process began, sales have fallen (second quarter net sales were $8.3 million, down 7.9 percent from the like year-earlier period) and the stock is down to under $7 per share. Was the change in company operations worthwhile and, if so, when will it start paying off?

A: That’s a tough question. We think that 2002 is going to be the first full year where we can really show the world our full operating model. With the addition of a few selected large users, both retailers and manufacturers, we feel that all of our assets should be fully utilized and start really showing the financial model that we’ve been talking about.

Q: In December 2000 you sold off some 300,000 shares of Tarrant stock. Why?

A: It needed to be done and I’ve done it. That’s it. (He declined to comment further.)

Q: How much are the company’s employees in Mexico paid?

A: It’s probably an average, without benefits, of $400 to $500 a month. There is a market you have to respect. People are not going to come work for you for less than the market they’re in can bear. Then, you have to add benefits.

Q: How competitive is the apparel industry in Los Angeles?

A: It’s extremely competitive. It always has been. Today you need size. You need mass. You need to be extremely cost-effective and really watch the overhead so that you can continue to be competitive and offer the value that the customers are demanding today. No. 1 is lead time, the number of days that you have between the moment you receive the order and when you execute it. By having fabric on the floor, based on projections from our stores, we have been able to reduce the lead time.

Q: What are the biggest challenges facing Tarrant?

A: The No. 1 challenge is the economy. We are basically able, ready and willing. The last ingredient that we need to succeed is a recovering economy and consumer confidence.

Q: You recently said retailers are reducing inventories and delaying orders but that you expect customer purchase orders to recover. Why?

A: I had spoken to many CEOs in the early part of (August). They all turned out to have pretty much the same message that their inventories were lean, that they had not really made their big buys yet, that they were all trying to read who the winners for the season are. And it was my opinion that the stores would start promoting and sacrificing some margin for volume, which we would be very well suited for.

Q: Some analysts have said that an overload of denim in stores might lead to markdowns. Are you worried?

A: I’m concerned and I’m cautiously optimistic. It’s extremely tough, but we think the combination of all the assets we have to offer the owned and operated facilities, our design capabilities to help the stores define what the best-sellers are, our wash capabilities and pricing, added with the fashion element, the research, the development, and the reduction of lead times all that should give us a very, very strong and competitive edge.

Q: You’ve been known to take part in charitable efforts, such as donating the use of a corporate jet to help fly a sick toddler from El Salvador to the U.S. for medical treatment. Describe your charitable work.

A: My charities try to be extremely pointed to things that could make a difference. I sponsor a school (Maimonides Hebrew Academy in Los Angeles) where I take care of basically all the payroll. I like to know that the money I put out has a use that is very tangible and visible.

Q: You seem to have a lot of connections in Hollywood and have provided financial backing for some people, including Franchise Pictures Chief Elie Samaha. What’s the extent of your involvement in the entertainment industry?

A: It’s strictly a financial one. I’m not involved in the day to day. When I think I can add some value, I do it.

Q: Do you wear jeans?

A: Yes, Levis.

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