Jalate Inc. History

Company Perspectives:

Jalate Inc. designs, develops and markets children's, misses and junior knit sportswear and dresses at moderate prices for the fashion-conscious young woman who desires to continually update her wardrobe. The company develops basic styles that are fashionable and easy to produce, enabling the company to respond more quickly to fashion trends, reduce delivery time to the retailer and facilitate a consistently high-quality product.

Company History:

Jalate Inc. is a well-known designer, developer, manufacturer, and marketer of moderately priced women's knit sportswear, dresses, woven sportswear, and other apparel, primarily in junior sizes, under the "Jalate" label; dresses under the "Zanoni" label; and children's apparel under the "Jalate Kids" label. Other labels have included "Lajate," "Pottery," and "Missy." The company also manufactures women's apparel for certain retailers under their own private labels. The company's line consists of baby T-shirts, button-down blouses, halters, vests, trendy cut dresses for all seasons, and hip, high-fashioned jackets in various colors and patterns.

The company's products have been seen on popular television shows such as Moesha, Grace Under Fire, Baywatch, Sweet Valley High, Saved by the Bell, 7th Heaven, MTV's Austin Stories and Singled Out, and movies such as Scream 2: The Sequel and Primary Colors. Other top women's apparel firms the company has competed against have included Marisa Christina Inc., Norton McNaughton Inc., and The Sirena Apparel Group Inc.

The Beginning of Jalate, 1987

Jalate Ltd. was founded in 1987 by Larry Brahim, Theodore B. Cooper, and Jan Grossman. Beginning in 1992 and continuing on through the end of the 20th century, the women's apparel industry experienced a decline in consumer demand and a continuing trend in consumer preference for value-priced products. The result of such changes was a consolidation among apparel retailers, with a concurrent increase in competition, as well as consolidation in the retail market as department store chains began eating each other up. Total revenue for the following year, 1993, reached $38.3 million, with net income of $1.6 million.

The company had a good year in 1994, with aggressive sales in all product lines (knits, sportswear, and dresses, as well as in its private label segment), and the company moving to utilize more local contractors for manufacturing, allowing better service than overseas production and also holding down costs that would be entailed in building a larger production force. That year, the company also commenced foreign manufacturing of products as a direct response to increased competition by importers for budget-priced products; created a new woven sportswear division called "Pottery"; reduced its reliance upon apparel specialty stores for sales; and expanded its management information systems (MIS) and computerized marketing and grading equipment.

The company became public in March 1994 through the sale of 900,000 shares of stock in an initial public offering, changing its name to Jalate Inc. in the process. First quarter sales grew 59.3 percent to $14.3 million from $9 million. The Jalate knit division accounted for 44 percent of the volume; "Zanoni," the dress line, contributed 37 percent; and the new "Pottery" division accounted for 19 percent.

In November 1994, the company began the development of a manufacturing joint venture in California as equal limited partners with Linroz Manufacturing Company L.P., an affiliate of the company's largest sewing contractor, Lebr Associates Inc., in order to improve efficiency, quality, and cost of its products. Over the next year, the company purchased sewing machines and other ancillary equipment for the joint venture, and operations commenced in May 1995.

Total revenue for 1994 jumped to $63.9 million, with net income of $1.9 million as the Jalate brand knit and kid's sportswear division accounted for 50 percent of sales, with the Zanoni dress division at 33 percent, and private label at 17 percent.

Early in 1995, the company began replacing its "Lajate" brand of sportswear and "Zanoni" brand of dresses with the "Jalate" name. Products began to be manufactured by the company itself in a new 90,000-square-foot cutting and sewing facility, bringing in-house products that, for the most part, had been manufactured in independent cutting and sewing contractors in the Los Angeles area, lowering the company's total operating expenses. The "Zanoni" dress division began importing more and getting better margins, and ended up accounting for some 27 percent of the company's annual sales that year, as compared to the "Lajate" brand name, which brought in nearly 50 percent. Additionally, the company took steps to improve its administrative production, distribution, financial reporting, human resources, and MIS capabilities, and expanded its product development division, which was responsible for designing, developing, and manufacturing under private labels.

But, despite all of the positive steps it took, by September, after poor second quarter results (a loss of $651,000), the company downsized in order to focus on its core "Jalate" and "Zanoni" junior sportswear and dress brands, and changed its manufacturing strategy. The "Pottery" and "Missy" divisions were cut back, and the company cut nearly a third of its full-time work force.

The year would continue to be brutal as the junior market became sluggish and retail conditions weakened, leading to lower gross margins and higher operating expenses throughout the industry. Additionally, since the women's apparel business is driven by season, historically, sales by apparel manufacturers to retailers have been lower in the fourth calendar quarter than in the other three quarters, as a result of reduced purchases by retailers for delivery in the month of December.

All of this, combined with continued consolidation in the retail industry, reflected in the numbers for Jalate, as the company, forced to mark down prices to rouse some competition, took a fourth quarter loss despite a 28 percent sales surge, ending the year losing $2.9 million, as sales for the entire year advanced 14 percent to $78.5 million.

Despite the rough retail environment, three of the company's competitors--Marisa Christina Inc., Norton McNaughton Inc., and The Sirena Apparel Group Inc.--performed well, attributing their success to strong demand for their brand names and good relationships with their retail customers. Norton McNaughton, a manufacturer of moderate-priced career apparel--saw its sales reach nearly $220 million, up from $168.6 million in 1994. Sirena Apparel Group--with its "Anne Klein," "Kathy Ireland," "Sirena," and other brand names of swimwear and other apparel--had sales reach $49.2 million, up more than 26 percent over 1994.

Plagued by the hard year and quarterly losses, the company needed a change, which it soon received. In December of that year, Vinton W. Bacon (who had been serving the company as a consultant since July of that year, and previously was a principal of The Sonoma Group, a management consulting firm specializing in corporate turnarounds, and chairman and CEO of Safeguard Business Systems), took the helm of the wandering company, being named CEO and president, succeeding Brahim, who remained chairman and became executive vice-president of sales for the company's Zanoni dress division. Additionally, COO Cooper became executive vice-president of sales for the Jalate knit sportswear division.

In 1996, the company started a children's clothing line called "Jalate Kids" which took the retail market by storm. The line of tops, bottoms, and coordinates for ages seven to 14, as well as toddlers, had an initial order of nearly a half million dollars. By the end of the year, orders and backlog would reach nearly $3 million and were available in more than 2,800 outlets representing 12 accounts, such as Penney's, Dillard's, Nordstrom, Macy's, and Bloomingdales.

Also that year, the company implemented improved shipping procedures and managed markdowns; improved gross profit margins; began increasing its total import program; and hired a sweater designer early in 1997 to work on both the sportswear and the dress divisions. The "Pottery" and "Missy" divisions were discontinued as the company attempted to focus on its core product lines. Nevertheless, total revenue for 1996 slipped to $54 million, with a net income of $27,000.

By 1997, the retail market further consolidated, consumer demand dropped, and clothing manufacturers were forced to repeatedly lower their prices to remain competitive. That year, the company continued to develop the "Kids" line of clothing, which ended the year with some $3.9 million in gross sales. Additionally, the company began the installation of an integrated production, shipping, and financial information system. However, troubles continued as the company was forced to close its "Missy" division, as profits in that realm continued to slip, and cofounder, Executive Vice-President, and Director Theodore Cooper resigned in November.

Also in November of that year, Jalate acquired a 40 percent equity interest in the New York-based junior women's apparel design and marketing firm Airshop Ltd., which sold apparel and accessory products through an Internet web site (air-shop.com), and mail-order catalogs. The company also received 100 percent of Airshop's convertible preferred stock.

Jalate invested nearly half a million dollars over the following 18 months for the rights to market the exclusive Airshop private label, including product development, and outside contracting for shipping and telemarketing, all of which had been done in-house by the latter; in addition, the company began the marketing of its own products via the web site and catalogs.

Airshop was incorporated in July 1996, began operations in early 1997, and immediately became the number one site at the virtual mall, fashionmall.com, producing 75 percent of all sales at the mall, receiving nearly 1,500 requests for catalogs per week, with a total of over 1.5 million hits on its web site per month. As requests for print catalogs became overwhelming, Airshop expanded into the direct mail-order catalog business, sending out 50,000 catalogs of its first issue in September 1997 and over 150,000 holiday catalogs in November. With that kind of distribution, Airshop's "Dollhouse Voyage" dresses were being marketed as far away as Moscow, and its "Hula Shaker" tee shirts were finding their way to Bangkok. But, still in its start-up phase, the subsidiary nevertheless posted a loss of $296,000 on the year, with total revenue for Jalate in 1997 slipping again to $51.2 million, with a net loss of $4.5 million.

February 1998 saw another cofounder and director, Vice-President Jan Grossman, resign. Several months later, in April, the company signed a letter of intent to merge with Los Angeles-based competitor Chorus Line Corp., a privately held $150 million manufacturer of women's dresses, in a transaction which would have created a firm with combined annual sales of approximately $225 million, bringing Chorus Line labels "Jazz Sport," "All That Jazz," "Molly Malloy," "More Jazz," and "Jazz Kids" together with the "Jalate," "Zanoni," and "Jalate Kids" names. "Tickets," Chorus Line's denim dress division, was closed at the end of 1996. By June, however, the agreement was terminated, with both sides declining comment as to why the merger fell apart.

By May, the company's Airshop web site was receiving 25,000 requests for catalogs per week, but the company still posted a $398,000 non-operating loss on the subsidiary. First-quarter net sales dropped to $12.2 million (compared to $13.9 the previous year), with a net loss of $119,000.

As the company moved through the end of the 20th century and into the 21st, it continued to seek additional financing from outside sources to fund future operations.

Principal Subsidiaries: Airshop Ltd. (40%).

Further Reading:

• Brady, Jennifer L., and Thomas J. Ryan, "3 Makers Bucking the Tide," WWD, September 18, 1995, p. 30.
• "Chorus Line, Jalate Scrap Merger Plan," WWD, June 2, 1998, p. 2.
• "Correction," WWD, April 16, 1998, p. 2.
• Ellis, Kristi, "Jalate Names New President, CEO," WWD, December 7, 1995, p. 14.
• Ellis, Kristi, and Thomas J. Ryan, "Jalate Signs Agreement to Acquire Chorus Line," WWD, April 15, 1998, p. 12.
• "Jalate Invests in Airshop," WWD, November 13, 1997, p. 15.
• "Jalate Ltd.," Wall Street Journal, May 18, 1998, p. C14(W)/B2(E).
• "Jalate Ltd.," WWD, March 4, 1996, p. 23.
• "Jalate Net, Sales Rise Sharply in First Quarter," WWD, May 18, 1994, p. 27.
• "Jalate: Net Up, Outlook Uncertain," WWD, May 18, 1995, p. 8.
• "Jalate Notes Quarter Loss, Downsizing Strategies," WWD, August 17, 1995, p. 13.

Source: International Directory of Company Histories, Vol. 25. St. James Press, 1999.