For new chief executive Colin Dyne, driving the promising L.A. denim company People’s Liberation Inc. into profitability represents more than a business opportunity.

It is a chance for redemption.

Dyne co-founded zipper manufacturer Tag-it Pacific Inc. in the early 1980s and under his guidance the company posted $64 million in revenues for 2003. But overextension and a losing bet on Mexican manufacturing had landed the company heavily in debt by the time he stepped aside in 2005.

“Unfortunately Mexico didn’t work out for us, like it didn’t work out for a lot of people and we really got hurt down there,” Dyne said. “Do I have some regrets about it? Sure.”

Dyne’s work is cut out for him at People’s.

Revenues have been growing fast but the company’s quarterly losses continue to widen. First quarter net sales were up 28 percent to $3.8 million, but operating expenses increased even more, 56 percent to $2.7 million.

Add that all up and it amounted to a net loss for the quarter of about $1 million, up sharply from $293,000. People’s stock now trades on the Over the Counter Bulletin Board at about 45 cents. The company was founded in late 2004 and went public only a little more than a year later.

“In many respects you can argue People’s Liberation is too new to be public,” said Eric Beder, a retail analyst for Brean Murray Carret & Co. “It does have a following, the denim is nice, but it’s too small to be effectively served by the public markets.”

Lessons learned

Dyne said that the time in Mexico, where about 80 percent of the denim sold in the U.S. was once made, taught him a lot. Tag-it was doing a lot of business with denim companies in Mexico when rising costs there and China’s emergence as an even-cheaper labor source caused the collapse of the Mexican apparel industry.

“I saw the biggest and the best, the good guys and the bad guys and the guys who knew what they were doing and the guys who didn’t know what they were doing making denim down there,” he recalled. “And I learned a lot from that.”

Dyne, who is now vice chairman of Tag-it, said he’s pleased with the company’s growth under new Chief Executive Stephen Forte’s leadership and that he “keeps a close eye on” the company.

After leaving Tag-it, Dyne began consulting for People’s in 2004, looking at the company from what he called “a 20,000-foot perspective.” The firm was founded and initially run by designer Danny Guez.

Dyne has had a long-standing relationship with Guez and his family, L.A.’s first family of denim. Danny’s father Paul runs Blue Holdings Inc., and his uncle Gerard runs Tarrant Apparel Group. Both are local, public companies specializing in denim, and trading on the Nasdaq for less than $2.

“The company needed some leadership,” said Dyne, “and with my understanding of the industry over the past few years, I felt this was an opportunity for me and for the company to take advantage of my situation.”

Dyne is hoping to reverse the trend at People’s through cost cutting and a dual-brand marketing campaign.

The company makes jeans and other clothing under the house brand, People’s Liberation, and the William Rast brand, a partnership venture with Justin Timberlake and Trace Ayala. Company filings additionally indicate that all company losses will be absorbed by People’s, but the two companies will share profits.

Dyne’s first order of business was to tackle internal costs. He’s outsourced distribution and slashed 10 percent of the payroll, leaving People’s with about 50 employees.

“The budget savings with the management team and the internal changes that we made were quite significant, probably just over 10 percent of our total (selling, general and administrative) expenses,” Dyne said.

Denim blues

Another problem for People’s is the overall decline in the high-end denim business. While the men’s side continues to grow, by about 40 percent in 2006, sales of women’s jeans fell nearly 5 percent, according to the NPD Group.

Prices are also falling. The explosion of $100 premium denim in 2000 kept prices growing annually, until some brands were retailing at $300 to $500 in late 2005. Momentum slowed in 2006, however, with more brands bringing prices below $250, and many premium brands are selling for less than $200 in 2007.

The popularity of dresses and the delay in finding the next big jeans trend has taken its toll on a number of companies, too.

“Honestly, the two brands on top of everyone’s list right now are Seven for All Mankind and Adriano Goldschmied’s GoldSign,” said Ilse Metcheck, director of the California Fashion Association. She said even established brands are scratching and clawing for floor space. And any up-and-coming brands will have to nudge out a big player for floor space. The biggest problem for the denim business as a whole, Metchek said, is that the next craze has been a long time coming.

“They’re still trying to find the next fashion mark, high-waist, pencil, dark, colored. They haven’t found the hot button so all the fashionistas have to buy a new pair of jeans,” she said.

Metchek said that in this market, it’s important for People’s to establish itself as a lifestyle brand, much in the way that Liz Claiborne Inc.’s Lucky Brand has done. That means tops, handbags, shoes and other accessories.

People’s two denim brands are currently sold in 100 department stores and 300 specialty stores. Dyne said he sees the specialty stores as a particularly important opportunity for Peoples, where the company could eventually sell in as many as 700 stores.

“It’s just about the delicacy of how you go after all of them,” Dyne said. “You’ve got to build out your 300, have them be true partners with you. You’ve got to have the brand get a good footing and you can slowly expand distribution from there.”

The company’s strategy is to differentiate between the two brands, hoping to avoid cannibalization in an already saturated market. The biggest difference will be bringing the cost of People’s house brand jeans below the $200 mark, while leaving the William Rast brand in the $200 to $250 range.

Dyne’s efforts will get their first true test after the company kicks off a marketing blitz for its People’s brand in July.

“It’s going to give People’s Lib a real identity,” Dyne said. “It’s been a home-grown brand that was successful based on the product and the consumer’s response to it, but now we’re going to give it a real identification behind it.