Target to dress up stores with Mossimo cachet - licenses Mossimo for clothing line - Brief Article

Discount Store News, April 17, 2000 by Laura Heller

Target is raising the stakes once again in the race for instore branding. This time, the nation's third largest discount retailer is concentrating its efforts on the apparel category, where it has inked a major licensing deal with designer label Mossimo to create exclusive men's wear and women's wear lines.

Cherokee Inc., licensor and manager of the Mossimo brand, issued a statement earlier this month indicating that the brand is estimated to generate sales of $1 billion over three years, and that the contract guarantees sales royalties to Mossimo for that period, beginning Feb. 1, 2001. Clothes are expected to begin appearing in Target stores in March 2001.

Robert Margolis, chairman, president and ceo of Cherokee, was instrumental in brokering the deal. Presently, Cherokee licenses its goods to Target under the Cherokee label and provides SideOut sportswear to Mervyn's, a division of Target Corp.

"Target has sparked the next big evolution in retail, teaming powerful brands with powerful retailers," said Margolis. "Mossimo has done the same with fashion."

"It's another one of a series of things the company has done to differentiate itself" said Jeffery Edelman, an analyst with Paine Webber.

In the past two years, the retailer has forged similar relationships with well known brands and designers, including: Calphalon cookware, a brand that had previously only been available through department stores and specialty shops; Michael Graves in home and patio; Sonia Kashuk cosmetics; Stiffel and Robert Abbey lamps; and most Philippe Starck designer seating.

This marks the chain's first such agreement in apparel, which has lagged behind the home category in sales, largely due to Target's ability to claim a unique niche among discounters as a source for chic home goods at reasonable prices. A single name in fashion isn't likely to do the same for apparel, but it is one more piece in Target's puzzle of distinctive brands.

"Mossimo's distinctive designs are popular among our fashion-savvy guests," said Bob Ulrich, chairman and ceo of Target Corp., in a statement.

But Mossimo is facing a rocky financial road until proceeds from the deal begin rolling in next February. The company, which began in Giannulli Mossimo's garage in Southern California, quickly became a powerhouse brand in surferwear and active apparel. It expanded, with trying to gain entry into department stores and operating a boutique in Costa Mesa, Calif.

It licenses out parts of its business, including eyewear, men's suits and neckwear, and women's swimwear. But it apparently expanded too fast, lost its core customer and ran into financial trouble in 1997. In 1999, Mossimo reported a loss of $12.9 million on sales of $47.4 million, figures released the same day as its deal with Target was announced.

And the deal didn't help Mossimo's stock, which hit a low immediately following the announcement and, as of press time, traded in the $4 range. A promise of $1 billion in revenue over three years could certainly turn that around, but it needs cash until then just to keep it in business.

But it's not likely to come From Target in terms of a bigger investment or even a buyout, believes Edelman. "It makes sense to license a brand; it doesn't make sense to buy a brand," he said. 'They are paying for his designs. (Mossimo) will shrink the size of the company to just a few designers. Maybe that means that this is all the company becomes."

"Only visionaries take quantum leaps and that's how Target has developed a hip image," said Mossimo, in a statement. "This is a great marriage because it combines our lifestyle vision, marketing philosophy and design with Target's merchandising expertise."

If only it can get to the alter.