Cherokee Inc.’s apparel can be found in some of the biggest retail chains across the world. Yet the company does not have an expansive network of plants, distribution centers or sales offices.
In fact, all of Cherokee’s operations are run out of a small office in Van Nuys, where fewer than 20 people work with its retailers on marketing and branding, all while earning licensing payments that are the envy of the industry.
Its lean business model has been so successful that according to Business Journal calculations in July, Cherokee has been the second most profitable company in Los Angeles County over the past three years.
“Essentially, they’re in the business of printing money,” said Jeff Van Sinderen, a retail industry analyst for West L.A. investment bank B. Riley & Co. “They license out the brands and collect checks.”
In the United States, Cherokee clothing can be found prominently displayed in Target Corp.’s more than 1,000 stores, driving sales that have helped Cherokee weather the recession.
And the company’s retail network, which includes TJMaxx and Marshalls, may be getting bigger. In the past few months, Cherokee has announced several new licensing agreements, including one with Jay Franco and Sons Inc., a global distribution firm.
Still, the company has taken its lumps like everyone else during the recession. Quarterly sales, which were as high as $11.5 million in early 2008, have hovered around $8 million recently.
Last week, the company reported a 7 percent dip in its fiscal second quarter revenue to $7.5 million. Net income was off 14 percent to $2.5 million. The company cited exchange rates and slightly lower international royalties as the culprit.
But Van Sinderen said licensing companies such as Cherokee have much less risk in downturns because they do not have to worry about many of the costs associated with apparel design, production and sales.
“It’s been a pretty good business to be in throughout this downturn,” he said. “No one’s been immune to what’s gone on in the retail environment for apparel, (but) if you have low overhead and you’re basically just collecting royalties, your company’s going to be quite a bit more insulated.”
Cherokee was founded in 1973 as a casual footwear maker. In the height of the disco era, the company expanded into bell-bottom pants and other leisure apparel. The clothing division took off, bringing in annual sales in the nine-figure range.
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