Shift in Apparel Supply Chain Snags Zipper Company Tag-It

0

The road from the runway to retailers has traditionally been about six months, but discount fashion upstarts such as H & M; Hennes & Mauritz AB have slashed that time to as little as two weeks.


And it’s at least one reason that long-suffering Tag-It Pacific Inc. may be on the brink of a comeback.


The Woodland Hills-based supplier of zippers and other trim items to clothing manufacturers recently reported a profit of $655,000 its first in two years and has seen its shares rise above the dollar mark. That’s an achievement for a company that has weathered a series of setbacks that might have been too much for some other companies to overcome.


While its Sept. 27 close of $1.01 is far below the $5 range it traded at as recently as March 2005, it looks good to a company that over the past 12 months has had to restate earnings, restructure and face a delisting notice from the American Stock Exchange.


The company, which manufactures the Talon brand zipper, recently opened operations in India, Bangladesh and Indonesia that are intended to ship zippers, buttons, labels and other trim to ready wear clothing manufacturers in a matter of days after order placement.


“The apparel supply chain is going through a dramatic shift,” said Chief Executive Stephen Forte, who was brought in to restructure the company in October 2005. “Many older American brands may have a six-month lead time but retailers like H & M; are accomplishing that same cycle in about two weeks. It means the entire supply chain gets compressed. So if the zipper delivery to the apparel manufacturing in 14 dates was OK before, the zipper needs to be there in three days now.”


The opening of the new plants marks a big bet for the company, especially since it had significant operations in Mexico during the 1990s that it had to shut last year as a tectonic shift of the fashion industry to China and other low-wage Asian countries meant that Mexico’s apparel industry was uncompetitive. The company also shut down a plant in North Carolina after just four months of operations.


“They bet on Mexico and lost,” said Elsa Metchek, director of the Los Angeles-based California Fashion Association. “At the time it seemed to be a good idea. Mexico was our number one import/export partner in the apparel business in 1998 and 1999.”



Business base


For all its problems, Tag-It has had some steady customers it has been able to rely on, even as its gross revenues sank 26 percent to $47.3 million from 2003 to 2005. Among its customers are Levi Strauss & Co., Abercrombie & Fitch Co., Polo Ralph Lauren Co. and Limited Brands Inc.’s Victoria’s Secret.


Still, it’s been a tough road back for the company, which was founded in the early 1980s by Colin Dyne and his South African father Harold, who died seven years ago. Colin Dyne still holds 3.5 percent of outstanding shares and was chief executive until last October, when the last analyst, at Joseph Gunnar & Co. LLC, dropped coverage.


(Dyne is now vice chairman, while his brother Mark, who holds 4.5 percent of outstanding shares, is chairman.)


In August 2005, the company saw its stock fall by nearly half in one day to $1.37 after reporting it expected a “significant operating loss” for the second quarter of that year. By November, the stock traded as low as 25 cents.


Then in April it announced it would restate its quarterly reports for the second and third quarter of last year due to an accounting error. The error was expected to cut revenues by $2.8 million for the six months ended June 30 and increase the period’s net loss by $1.3 million while slightly improving the following quarter’s numbers. A month later the company was hit with a delisting notice from the Amex because of its failure to meet a financial requirement.


Since then, the company has submitted a plan to Amex on how it will improve its financial performance and has been given until November 2007 to comply.


Tag-It is a small player in an industry sector dominated by Japan’s YKK Corp., which sells about $1.8 billion in zippers alone each year. However, Forte said that the small company has the wherewithal to garner an increasing share of the trim marketplace amid huge demand. “YKK is a very large, very bureaucratic, Japanese-owned company. That typically makes it very inflexible,” he said.

No posts to display