Salant Corporation - Company Profile, Information, Business Description, History, Background Information on Salant Corporation

1114 Avenue of the Americas
New York, New York 10036

Company Perspectives:

Salant Corporation markets and distributes under license agreement from Perry Ellis International, Perry Ellis Men's wear to Department and Specialty Stores in the United States. Perry Ellis products include Sportswear, Pants, Dress Shirts and Accessories, under the Perry Ellis Collection and Perry Ellis Portfolio labels. Salant also markets Tricots St. Raphael, Library and TSR Branded products under its Tricots St. Raphael division and in its Axis Division markets Axis, Paradise and A(x)ist to Better Department and Better Specialty Stores nationally. Salant also markets under license agreements Ocean Pacific Men's wear and categories of JNCO jeans to the mid-tier department stores.

History of Salant Corporation

A leading apparel company in the United States, Salant Corporation designs, manufactures, imports, and markets men's wear under several very well known brand names, including Perry Ellis, Ocean Pacific, and Axis. The company's clothing retails in upscale and mid-range department stores. Salant floundered in and out of bankruptcy court throughout the 1990s, during which time it shed its children's wear, denim, and accessories businesses to focus on Perry Ellis branded men's wear in the early years of the 21st century. Having emerged from Chapter 11 reorganization in 1999, Salant diversified within the better men's wear segment in 2002.

Established 1893

Salant Corporation, incorporated in 1987, is the successor business to Salant & Salant, Incorporated, originally a manufacturer of work shirts. Solomon Salant founded the original company as a partnership with his son, Gabriel, and a third partner in 1893. The partner soon left the company, leaving no mark on its history. Gabriel stayed and the company became a father and son operation, incorporated in 1919. Although the company first became public in 1959 when it was listed on the NASDAQ supplemental, in 1971 Salant distributed enough shares through a primary and a secondary offering to be listed on the New York Stock Exchange. The Salant family decided to offer company shares publicly to diversify the family investments and reorganize equity.

In the beginning, the company's major business was selling to wholesalers and large customers like Montgomery Ward, which maintained a long and substantial account with the company. When the Spanish-American war broke out in 1898, the company also supplied uniforms for the military. Although the army account dried up upon the war's completion, the company maintained its small customer base of wholesalers and large firms well into the 20th century.

Diversification: 1930-70

The face of the company changed as it began to diversify in the 1930s. The biggest change occurred in 1938 when the company began to manufacture utility pants made out of twill. The pants were predecessors to the khakis of World War II. Utility pants became one of Salant's principal products by the 1950s.

Although the company primarily manufactured slacks, jeans, and utility pants between the 1950s and 1970s, it diversified into many other areas, among them sportswear, with sport shirts in 1949, jackets in 1954, and casual slacks in 1955. It started selling children's wear in 1962 and jeans in 1967. Acquisitions in 1964 and 1966 brought coveralls, men's and boys' outerwear, suits and sport jackets, and a higher priced line of men's and boys' slacks to the company's product mix. In 1964, the company also became one of the first to introduce permanent press apparel, which contributed a substantial amount to company sales until the early 1970s.

As clothing styles changed, the company moved away from the production of chambray work shirts and twill pants, favoring the manufacture of popularly priced jeans and sport and western shirts. This shift in focus by the company's original and largest division allowed it to retain its profitability and position as Salant's mainstay until the demand for jeans slowed and competition, especially from overseas, grew in the mid-1970s.

Retrenchment: The 1970s

These market changes adversely affected the Salant & Salant division's profitability beginning in 1976. The business, which Donald Hamilton of Furman Selz noted in Forbes was "barely profitable when the jeans business was booming ... had to cut prices below breakeven" when the jeans maker Levi Strauss lowered its prices. At the same time, rising interest costs and customer demands strained Salant's ability to provide "mostly low-margin private label goods" to retailers like Sears, Roebuck & Co. and Kmart, according to Forbes. Between 1977 and 1980 the division's cumulative losses amounted to $4 a share or about half of Salant's reported earnings during that period. Believing the basic jeans business was no longer a growing market, the company closed the Salant & Salant division in 1981 and began to focus on men's wear, specifically its branded apparel in its large and successful Thomson division. By 1993, the company's product mix was 82 percent men's apparel and accessories, 8 percent women's apparel and accessories, and 10 percent children's apparel and accessories.

As Salant diversified its products it also added to its distribution. In the 1930s and early 1940s, the company might have had 50 customers. In the 1950s, the company continued to sell to national chains and mail-order houses, but gradually wholesalers disappeared by either going out of business or becoming retail chains. As its traditional customer base changed, Salant's management decided to increase volume by selling to smaller retailers and regional chains. By 1972, the company had widened its customer base to about 20,000 accounts, which represented about 37,000 separate stores. At that time, the company sold to most types of retailers, including national chains, mail-order houses, discount stores, regional chains, department stores, smaller independent retailers, and golf pro shops. Wholesalers had become an insignificant part of the company's business.

Although Salant began to broaden its customer base, some of its customers continued to make up significant portions of company sales. Sears, Roebuck & Co. remained one of Salant's largest customers for nearly three decades. Two of Salant's subsidiaries held agreements (one started in 1960 and the other in 1967) with Sears to buy a set amount of its requirements. In 1971 Sears was the company's biggest customer, accounting for 17 percent of sales. By 1980, Sears accounted for 34 percent of net sales, J.C. Penney Co. Inc. for 16 percent, and Kmart for 12 percent of net sales. In 1985, Sears accounted for 31 percent of sales and J.C. Penney for 18 percent. Salant's efforts to diversify its customer base had succeeded to such a point by 1993, however, that no one customer made up more than 6 percent of the company's net sales.

Financial Difficulties Continuing: The 1980s

Salant's financial difficulties, stemming from the drop in demand for jeans in the mid-1970s, continued into the 1980s. When Salant declared its first bankruptcy in 1985, it reported a net loss of $8.08 million, which compared with a net loss of $21.2 million the previous year. In an effort to return to profitability the company discontinued several of its clothing divisions, including its Salvation sportswear and Thomson women's wear product lines, terminated the operations of its United Pioneer Company outerwear division (which had made ski jackets and parkas part of the company's principal products line for about a decade), closed its retail outlet stores, and closed several production facilities. Also between 1980 and 1985, Salant had reduced the number of its employees from 9,200 to 2,700. Salant emerged from its first bankruptcy in 1987 with its debt almost halved to $4.8 million.

In 1988, Salant acquired Manhattan Industries, an apparel company with three times Salant's annual volume. Manhattan president Nicholas DiPaolo emerged as Salant's president and would be promoted to chairman and CEO in 1991. To finance the acquisition, the company raised its debt to $270 million. Two years later, the company became bankrupt a second time. The company was not alone, however, and joined about 25 other companies who between 1985 and 1994 had fallen into second bankruptcy. Although some of the other companies eventually liquidated, Salant got its balance sheet in order, reducing its debt to a manageable amount.

Salant had help deleveraging from one of the most successful corporate empire builders of the 1990s, Leon Black, and one of his companies, Apollo Apparel Partners, L.P. In 1991, Leon Black bought a significant number of defaulted Salant bonds. When Salant came out of bankruptcy in September 1993, Apollo Apparel traded its Salant bonds for company stock. The swap allowed Salant to discharge claims of $64.8 million in principal of some bonds due in 1995 and gave Apollo Apparel 43.8 percent ownership of Salant. Salant's financial position in 1994 led Financial World to use it as an example of a "potential winner," noting that Salant had more than halved its debt.

Focus on Men's Wear: The 1990s

As Salant emerged from its second bankruptcy, it concentrated on its largest business, men's wear. Salant's purchase of Manhattan Industries, which led in part to its second bankruptcy filing, had a silver lining. Manhattan Industries brought a large international sourcing business to Salant and, more important, a license agreement with Perry Ellis. The Perry Ellis business "was so strong it continued to thrive despite Salant Corp.'s bankruptcy filing," according to Crain's New York Business. The Daily News Record reported that in 1993 the Perry Ellis name was "three times as strong" as when Salant assumed control in 1988. By 1994, it accounted for 26 percent of Salant's net sales, compared with Salant's Manhattan trademark, which accounted for 12 percent, the John Henry trademark (9 percent), and the Thomson trademark (8 percent of net sales). No other of Salant's more than a dozen trademarks made up more than 5 percent of Salant's 1994 sales.

Salant's 1993 introduction of its Thomson brand wrinkle-free dress shirt also brought the first branded wrinkle-free dress shirt to market and came at a time when men's clothing was the fastest growing segment of the apparel industry. The company appeared to be back on track.

Salant's acquisition of Manhattan had significantly increased its international business. Before the 1970s, Salant owned a Canadian subsidiary that designed, manufactured, and sold slacks, jeans, utility pants, and shirts in Canada, and in 1972, Salant built its first of several production facilities in Mexico. But by the 1990s, more than half of the company's products were produced abroad. Although the company continued to operate its Mexican plants and a Canadian subsidiary (the first was sold and another purchased in the meantime), much of the company's imported products and materials came from Manhattan's extensive international sourcing business. In 1994, Salant's facilities accounted for 84 percent of its domestic-made products and 28 percent of its foreign-made products.

Diversification: The Mid-1990s

As it had after its first bankruptcy, Salant sought to improve its competitive strength by buying a better product mix. This time, however, the company kept a keener eye on its balance sheet. Although its resources were limited, Salant acquired Canadian-based JJ. Farmer Clothing Inc. in June of 1994. The acquisition was notable, however, because it left Salant's financial position almost unchanged. Salant retained its financial flexibility by making the acquisition on an earnout basis, which linked the purchase price of JJ. Farmer to its performance over a certain period of time. JJ. Farmer quickly helped boost Salant's sales, accounting for approximately one-third of Salant's $13.6 million net sales increase in the third quarter of 1994.

In addition to its acquisition, Salant added to its dress shirt business through a license agreement with Crystal Brands, Inc. in 1994. Salant agreed to produce dress shirts and furnishings under the Salty Dog and Gant trademarks. Salant President Nicholas P. DiPaolo noted the strong consumer following enjoyed by the Gant brand and remarked, "With our marketing and manufacturing expertise we will be able to build on an already solid base. The addition of the Gant and Salty Dog brands to our existing well-known labels insures our continued growth and leadership role in the dress shirt and furnishings categories."

Salant's focus on men's wear in the 1990s was on track with trends in the apparel industry. Men's clothing, which accounted for 36 percent of all apparel sales, outperformed all other apparel categories in 1992, according to Standard & Poor's Industry Surveys. The sale of men's sportswear benefited from wrinkle-resistant textiles, which followed a "trend toward more casual attire in the office." Although Salant's start-up costs for entering the wrinkle-resistant shirt business had lowered operating earnings in 1994, the company was "encouraged by sales of Perry Ellis sportswear and wrinkle resistant dress shirts and slacks," according to the Daily News Record.

Throughout its history, Salant's corporate operations remained centered in its New York headquarters. But by the 1990s the company's production had become dispersed, mainly throughout the South. In 1994, Salant owned six U.S. manufacturing facilities located in Alabama, Georgia, New York, Tennessee, and Texas, three manufacturing facilities in Mexico, and five distribution centers located in Georgia, New York, South Carolina, and Texas. The company also leased space for 57 factory outlet stores and one retail store.

Salant looked toward a solid future in 1994. Despite a declining dress shirt market, Salant had increased its sales and market share in that category "to benefit from any improvement in market conditions," according to the company. The company's Manhattan label had become the Wal-Mart chain's best-selling brand of dress shirt while both the Perry Ellis and John Henry brands enjoyed increased sales in department and specialty stores. As Salant took steps to maintain the strength of its position in men's dress wear, it also expanded into the fastest growing area of men's wear, casual apparel. In 1995, the company inked a deal with Sears to make its private-label denim shirts and pants for men and boys under the Canyon River Blues name. Supported by its Children's Apparel Group, which made sleepwear under brands including Dr. Denton, Barney, Disney characters, and Osh Kosh B'Gosh, and sales of its women's wear brands, including Vera and Made in the Shade, Salant's men's wear business seemed capable of maintaining its solid and prosperous position.

Financial Struggles: The Late 1990s

That solidity and prosperity proved fleeting when an anemic market for dress shirts combined with increased competition to negatively impact Salant's profit margins. In fact, the company chalked up a $7.9 million loss on sales of $419.3 million in 1994. After having its debt downgraded by Moody's in 1995, the company restructured twice in 1996, closing two Georgia plants and discontinuing its Liberty of London, Nino Cerruti, and Peanuts lines of dress shirts. Salant also sold off its JJ. Farmer division that year. At that time, the plan was to focus on five business areas: Perry Ellis sportswear, dress shirts, slacks, and accessories; John Henry dress shirts; Manhattan dress shirts; private-label brands like Canyon River Blues; and novelty accessories. DiPaolo told Daily News Record in March 1996, "The provision for restructuring reflects our continuing effort to focus our business on those product lines that offer our customers significant value while maintaining higher margins."

DiPaolo resigned in 1997 and was succeeded by Jerald Politzer, who served as CEO for barely a year before the company again found itself in bankruptcy court. Mired in $110 million in debt, Salant was forced to exchange a controlling ownership in the company to Magten Asset Management Corporation. Under the direction of Michael Setola, Salant retrenched to what had become its bedrock: Perry Ellis men's clothing. The company divested its John Henry, Manhattan, Dr. Denton children's wear, and Canyon River Blues jeans, leaving it with more than 80 percent of net sales from Perry Ellis licensed merchandise. Sales declined steadily throughout the late 1990s, from $347.7 million in 1997 to $248.7 million upon Salant's emergence from reorganization in 1999. The company was able to vastly improve the balance sheet, however, from a net loss of $18.1 million to $20.6 million in the period.

It was not long before Salant again began to diversify, this time maintaining a focus on the "better men's wear" category. In 2000, the company licensed the Tallia brand for sportswear and accessories, and in 2002, acquired AXIS Men's wear, maker of better quality clothing sold in pricey department stores and specialty outlets. That same year, Ocean Pacific Apparel Corporation entrusted Salant to take its heretofore youth-oriented brand to the 25 to 50 age group. Michael Setola, who had succeeded Jerald Politzer in 1998, told Daily News Record in January 2002, "The relationship with Ocean Pacific Apparel represents yet another step forward for Salant in diversifying our men's wear distribution." It remained to be seen whether the company's new direction would prove profitable in the long run. Sales continued their multiyear decline to $207.8 million in 2001, and after two consecutive years of profitablilty, the company recorded a loss of $1.9 million that year.

Principal Competitors: Haggar Corporation; Tommy Hilfiger Corporation; Phillips-Van Heusen Corporation; Oxford Industries Inc.


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