3151 East Washington Boulevard
Los Angeles, California 90023
Telephone: (323) 780-8250
Fax: (323) 780-0751
Incorporated: 1988 as Fashion Resource, Inc.
Sales: $347.4 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: TAGS
NAIC: 315999 Other Apparel Accessories and Other Apparel Manufacturing
Tarrant is a value-added supplier. We have an in-depth understanding of the fashion and pricing strategies of our customers, which we support with our own teams of expert designers, our sample-making capability, and our ability to assist customers in market-testing designs with quick-turnaround production of "test-order" products.
1985: Company is founded.
1988: The business is incorporated as Fashion Resource, Inc.
1995: The company is taken public as Tarrant Apparel Group.
1998: The company initiates a vertical-integration strategy.
2003: Mexican manufacturing facilities are leased to a third party.
Los Angeles-based Tarrant Apparel Group designs and manufactures private label women's jeans and other moderately prices casual apparel for women, men, and children. Major customers include such retailers as Abercrombie and Fitch, Chicos, Federated, Kohl's, The Limited, Mervyn's, JC Penney, Kmart, Sears, Target, and Wal-Mart. The publicly-traded company also helps customers to market-test new designs. In recent years, Tarrant has attempted to become a vertically integrated manufacturer. Rather than outsource manufacturing to the Far East, the company acquired a number of facilities in Mexico. The transition prove to be more difficult than anticipated, and in 2003 Tarrant elected to reverse course and return to its previous strategy of acting as a trading company offering design services. In addition to its Los Angeles offices, the company maintains a New York City showroom and customer service offices in Ohio and Arkansas. Tarrant operations are also found in Mexico and Hong Kong.
Tarrant Founder Breaks Away from Sasson in 1985
Tarrant was founded by its chairman, Gerard Guez, younger brother of Paul Guez, who was credited with launching the craze for women's designer jeans. Paul Guez emigrated to the United States from Tunisia in 1976, bringing with him a mere $51 in cash and a bag of tight-fitting, French-cut jeans. Despite his inability to speak English, Guez was able to talk Bloomingdale's into carrying his jeans bearing the label of Sasson (the name of an Israeli partner he soon bought out). Sasson experienced tremendous growth, and soon Guez licensed the Sasson name to any number of products, including watches, eyeglasses, luggage, boots, and even cassette players. In 1981, he brought Gerard and two other brothers into the business, the four of them sharing an equal portion of Sasson Jeans, L.A.--the flagship licensee, selling Sasson women's jeans and pants. It was also in 1981 that Paul Guez reportedly first tried cocaine, and within a matter of years the Sasson empire was in turmoil. According to The Wall Street Journal, by 1984 "family feuding and litigation were burdening the business, Money had stretched the bond between Mr. Guez and his brothers to the breaking point. Never meticulous in corporate bookkeeping, they had treated Sasson as a personal piggybank, sometimes withdrawing large sums as 'officer loans' to avoid income taxes; then they fell out over who owed what to whom." Guez would eventually check himself into a drug rehabilitation program and after lapsing into bankruptcy, Sasson Jeans would be dissolved and its trademark sold in 1988. Long before the end, however, Gerard left to launch his own business.
Company Incorporated in 1988
In 1985, Gerard Guez and partner Todd Kay founded what would become Tarrant Apparel Group. A year later they introduced their own brand of designer jeans--NO! Jeans. They enjoyed modest success with this brand line, sold in a variety of retailers, but when they realized that one private label line of seven-button "flip top" jeans, produced for The Limited's Express boutiques, generated most of the company's business, the partners decided to enter the women's private label denim market. In 1988, they incorporated the business as Fashion Resource, Inc. The timing proved to be fortuitous, as designer jeans began to lose favor, and less expensive, private label jeans began to pick up in sales. Embracing private label apparel made sense to retailers because the items cost less at wholesale and offered much higher margins than their brand name counterparts. According to Forbes, between 1990 and 1998 the private label share of the $18 billion U.S. jeans market grew from 3 percent to 20 percent.
Fashion Resource added customers and supplemented its product line to include casual pants, blouses, shorts, and dresses. In 1991, the company reached $80 million in annual sales, and by 1995 topped $205 million. During this period, the product mix was also diversified. Bottoms accounted for more than 80 percent of sales in 1991 but dropped to just 34 percent in 1995. It was also in 1995 that Fashion Resource changed its name to Tarrant Apparel Group and the company taken public. With Prudential Securities Inc. acting as underwriter, Tarrant raised $16.7 million. Guez continued to own a 46.2 percent stake, Kay 23.1 percent, and The Limited Inc., Tarrant's largest customer, held a 10 percent stake in the business. According to 1994 numbers, The Limited accounted for 61.1 percent of all sales, followed by Target with 14.8 percent and Kmart with 4.7 percent.
In 1996, Guez began to think about returning to the brand apparel business--four years after NO! Jeans were discontinued. The purpose was to broaden the company's distribution mix. Tarrant apparel was already well represented in mass chains and specialty stores, but Guez was eager to break into the department store tier, where brand names were still all important. In addition, designer names such as Calvin Klein, Donna Karan, and Tommy Hilfiger were also thriving during the mid-1990s, adding renewed luster to the brand label business. Moreover, adding brand names would hopefully boost the anemic performance of Tarrant's stock, which had been stagnant since it began to trade a year earlier. A further goal for Tarrant at this stage was to add young men's clothing as part of an effort to create a full casual sportswear line. In August 1997, after searching for more than a year, Tarrant appeared to have acquired a brand, agreeing to pay $23.8 million for bankrupt B.U.M. International Inc., but the deal fell through when the courts rejected the offer.
Tarrant was more successful in its efforts to broaden its product line. In February 1998, it bought assets from Marshall Gobuty International and GBI International Limited, both men's and boy's private label providers. In addition, the acquisitions achieved the goal of adding another big retail account, JC Penney Co. Later in 1998, Tarrant bolstered its men's business with the acquisition of New York-based Rocky Apparel, which manufactured both men's and women's denim wear. Rocky's added about $50 million in annual sales and was expected to greatly help Tarrant reach a target of becoming a $500 million company by the end of decade. An important component in this effort was a major change in strategy for the company, which launched a four-year plan to become a vertically integrated apparel manufacturer.
Rather than outsource to Hong Kong, Tarrant decided to establish its own manufacturing and distribution facilities in Mexico. One of the benefits was a significant increase in delivery time. Items that took 30 days to be shipped from the Far East could now be trucked from Mexico to U.S. customers in 30 hours. In addition, Tarrant could warehouse undyed jeans and hold onto them until retailers could determine which shades were selling the best before placing an order. The items could then be dyed and shipped in two weeks, a month sooner than jeans produced from scratch. Owning its own facilities would also cut Tarrant's costs, thereby improving gross margin. Furthermore, it was expected to more than double the company's revenues in just three to five years. Wall Street took notice, bidding up the price of Tarrant shares from around $8.00 to more than $48, making it one of the fastest growing stocks in the country.
To achieve its vertical integration plan, in April 1999 Tarrant paid $45.3 million in cash and stock for a denim mill located in Puebla, Mexico. Then, in August of that year, the company acquired Industrial Exportadora Famian, S.A. de C.V. and Coordinados Elite, S.A. de C.V. for a total consideration of $10 million. In the deal, Tarrant picked up seven apparel production facilities situated in the Tehuacan, Mexico, area. Subsequent investments of $6 million greatly expanded these operations. In June 2000, Tarrant procured additional manufacturing capabilities by signing an exclusive production agreement with Manufactures Cheja. A major sewing facility located in Ajalpan, Mexico, was then bought for $11 million in March 2001. Finally, in December 2002, Tarrant, through subsidiaries, added an denim and twill manufacturing plant in Tlaxacala, Mexico. As a result of these transactions, Tarrant completed its plan to vertically integrate its business. Company-owned facilities could now provide cutting, sewing, washing, finishing, packing, shipping, and distribution functions. Tarrant also had fabric production capabilities.
Major Losses in 1999
Tarrant's ambitious plan was not without risk, however. The company was saddled with a large amount of fixed costs that it had previously avoided by outsourcing to the Far East, and it now faced the necessity of keeping both equipment and personnel in use. The loss of a major customer could prove problematic, and indeed that is exactly what occurred in 1999 when the Limited turned to Taiwan and South Korean manufacturers, costing Tarrant $80 million in business. The Limited accounted for 66 percent of Tarrant's business in 1998 but now fell to about 40 percent. Even as the company doggedly pursued the implementation of its strategy of vertical integration, investors began to back off. The price of Tarrant's stock tumbled to the $5.00 range and some Wall Street analysts stopped following the company. In addition to the loss of The Limited's business, Tarrant's management also found that the process of reinvention was difficult to balance with the day-to-day running of the business. The transition cost more money than expected and assimilating the new operations was arduous and time consuming. An earthquake that hit Mexico in June 1999 caused further mischief, impacting shipments and contributing to lower-than-expected earnings.
In 1998, Tarrant posted net sales in excess of $378 million and net income of $24.7 million. While revenues improved to $395.3 million in 1999, net income declined by close to 50 percent, to $12.9 million, due in large part to write-offs involving inventory, debt, and computer upgrades. The financial picture worsened in 2000, as net sales receded slightly, to $395.2 million, and the company recorded a $2.5 million loss. A shakeup in management did not help matters. Barry Aved was appointed president in the fall of 1999 and suddenly resigned several months later, citing personal reasons. Guez and the rest of the management team attempted to stay the course, continuing to pursue its Mexican initiative, but the company lost ground on its stated goal of becoming a $500 million company. Net sales fell to $330.3 million in 2001, as the company lost another 2.8 million.
In October 2001, Guez relinquished the role of chief executive officer to Eddy Tak Yu Yuen, who had been with the company from the start and had most recently served as the president of Tarrant Mexico. However, Guez retained the chairmanship, vowing to remain "as active as ever, opening new markets for the company and finding strategic deals." Nevertheless, business did not improve in 2002. Although Tarrant rebounded on the revenue side to $347.4 million, the company's losses grew in excess of $6 million. Guez replaced Yuen as CEO, and Yuen was dispatched to his native Hong Kong to take charge of subsidiary Tarrant's Fashion Resources Inc. The reshuffling of the top ranks continued when later in the year Barry Aved was called back to once again assume the presidency.
In 2003, Tarrant faced labor problems in Mexico and was criticized by labor rights organizations for firing some 200 workers at its Pubela plant. The company, already changing its tack, elected to lease three of its Mexican manufacturing facilities to an outside party. Tarrant would now devote its resources to once again acting as a trading company, taking advantage of its strong design capabilities. It launched a number of private brand initiatives with major retailers. Newly formed Tarrant subsidiary Private Brands, Inc. acquired a 50 interest in American Rag CIE II and received a long-term exclusive license to design, manufacture, distribute, and sell apparel under the American Rag label. American Rag had something of a cult following for its vintage apparel and portfolio of labels that included Deisel, Ruth, Paper Denim & Cloth, and Marc Jacobs. American Rag also ran stores in Los Angeles and San Francisco, as well as nine franchised stores in Japan. More outlets were planned for Japan and flagship stores were targeted for such U.S. markets as New York and South Beach, Florida.
In exiting its Mexican manufacturing initiative, Tarrant was hit with restructuring costs, but Guez insisted that the company was now on the right track. His view was bolstered to some extent by the company's ability in early 2004 to raise $4 million in a secondary offering of stock.
Principal Subsidiaries: Tarrant Company Limited; Rocky Mexico, Inc.; Tag Mex, Inc.; Industrial Exportadora Famian, S.A. de C.V.; Coordinados Elite, S.A. de United Apparel Ventures.
Principal Competitors: Avondale Incorporated; Cone Mills Corporation; Kellwood Company.
- Brinsley, John, "Tarrant's Fortunes Unravel Amid Manufacturing Move," Los Angeles Business Journal, April 3, 2000, p. 35.
- Kanter, Larry, "Ooh la la ... Tarrant?," Los Angeles Business Journal, November 25, 1996, p. 14.
- Medina, Hildy, "Mutating Jeans," Forbes, August 23, 1999, p. 88.
- Moore, Brenda L., "Clothes Call: Why Analysts Are Enthusiastic Over Tarrant Apparel," Wall Street Journal, June 3, 1998, p. CA2.
- Sarkisian-Miller, Nola, "Tarrant Gets American Rag Label," WWD, April 2, 2003, p. 3.
- Sobol, Shayna, "Tarrant Apparel Group Designs Its Own Success," Apparel Industry Magazine, June 1997, p. 8.
- Wilkinson, Peter, "Storm Swirls Around Brothers Guez," Daily News Record, May 3, 1985, p. 11.
Source: International Directory of Company Histories, Vol.62. St. James Press, 2004.