Editor's Note: This story has been changed from the print version to correct Henry Stupp's age, the 2007 annual revenue figure, and the size of a temporary retail space mentioned in the story.
When Henry Stupp became chief executive at Cherokee Inc. a year ago, the apparel industry veteran took over a company at a crossroads.
Revenue was declining because its retail clients were building their own private-label brands and cutting back on the marketing of Cherokee labels. So Stupp decided to overhaul his company’s business model.
Traditionally, the Van Nuys company licenses its label to a retailer. The retailer, such as Target Corp. and Tesco PLC, then designs, manufacturers and sells the clothing, with Cherokee’s marketing backup as well as its label on the clothing. Cherokee earns royalties from sales.
But Stupp now has Cherokee doing more design work for its customers and helps them find manufacturers.
Cherokee plans to showcase the new strategy to its U.S. and international retailers at an event called the “Cherokee Experience,” scheduled next week in Minneapolis. A temporary retail space will feature Cherokee-branded merchandise developed under the new model of the company’s stepped-up involvement.
“We needed to be a more engaged brand owner with each of our retail partners,” Stupp said. “Offer more solutions to them with respect to creative services, marketing services and various other support services.”
Canadian retailer Zellers Inc., which sells Cherokee-branded children’s clothes, is planning to feature the company’s adult clothes in its stores in the coming months as a result of the new approach.
But Cherokee is still facing declining revenue, and investors aren’t confident. Cherokee was one of last week’s biggest losers on the LABJ Stock Index, closing down 12 percent to $12.20 for the week ended Sept. 7. Last week, the company reported an 11 percent decline in its fiscal second quarter revenue to $6.7 million.
Slow sales at Tesco, one of Cherokee’s largest customers, have been a significant source of the company’s declining revenue. The U.K. retailer has been devoting more resources to its private-label clothing brand.
“Retailers are increasing penetration of their own private label,” said Howard Davidowitz, chairman at national retail consulting and investment banking firm Davidowitz & Associates Inc. in New York. “Cherokee has to go out and build up its organization.”
Cherokee was founded in 1973 as a footwear maker, and then expanded into bell-bottom pants and other casual apparel in the ensuing years. In the 1990s, the company filed for bankruptcy twice.
Cherokee then pioneered its licensing model in a 1995 partnership with Target. It started signing deals with other major retailers such as Tesco and Zellers to license the Cherokee brand, and began acquiring and licensing other brands, including Sideout and Carole Little.
In its 2007 fiscal year, revenue hit $44 million, but has dropped 30 percent since then to $31 million for the company’s 2011 fiscal year.
Longtime Chief Executive Robert Margolis stepped down in August of last year, and Stupp took the helm. Stupp, 48, co-founded NTD Apparel, a Montreal apparel supplier that licenses such brands as Hello Kitty and Barbie for clothes and works with retailers such as Wal-Mart Stores Inc. and Forever 21.
When he joined, Stupp believed that Cherokee could do a better job of interacting with retailers by handling the design and merchandising of products, selecting the proper colors, fabrics and design for young girl’s Cherokee tops, for example. To do that, the company has hired 30 product developers, a combination of full-time employees and contract workers.
Cherokee is also introducing its retailers to select manufacturers so one factory can make the same pair of young boy’s Cherokee pants, for example, for multiple retailers. This could help retailers get better prices.
Along with the full-service approach, Cherokee is expanding into clothes for infants, newborns, in addition to home décor. The revamped Cherokee lineup is set to be on display at next week’s event, which is being staged at a 7,000-square-foot loft in downtown Minneapolis – near Target’s headquarters – that’s been turned into a retail store.
So far, Cherokee’s renewed focus on its namesake brand has led to the deal for Zellers to sell the adult clothing line, which the retailer dropped two years ago.
But Tesco, which sells adult and children’s Cherokee clothing, in addition to footwear and accessories at its stores in Europe, still presents a challenge. The retailer started investing more in F&F, its private-label brand, and diverted resources from its Cherokee merchandise.
“Tesco had placed the emphasis of their in-house design department on their own brands, which meant less development time for brands they don’t own like Cherokee,” Stupp said. “We should have addressed this when the writing was on the wall a couple of years ago, but now we have, with the full-service strategy.”
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