Chic by H.I.S, Inc.

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Chic by H.I.S, Inc.

1372 Broadway
New York, New York 10018
U.S.A.
(212) 302-6400
Fax: (212) 819-9172

Public Company
Founded: 1923 as Honesdale Manufacturing
Employees: 3,350
Sales: $318.8 million
Stock Exchanges: New York
SICs: 2330 Women’s, Misses, and Juniors Outerwear; 2339 Women’s, Misses, and Juniors Outerwear, Not Elsewhere Classified; 2325 Men’s and Boys’ Separate Trousers and Slacks; 6794 Patent Owners and Lessors

With a concentration on the budget segment of the denim market, Chic by H.I.S, Inc. ranks among the top producers of jeans in the United States and Europe, churning out more than half a million articles of clothing every week. The company designs and manufactures women’s and girls’ apparel—mostly jeans, denim shorts, and cotton-blend slacks—for sale under the Chic (pronounced “chick”) brand in the U.S. In the early 1990s, Chic was the fourth most widely recognized jeans trademark behind Levi’s, Lee, and Wrangler. The company also licenses its name to manufacturers of over 160 products, including sportswear, accessories, lingerie, and hosiery.

The revived h.i.s label is used to promote men’s and boys’ clothing in North America and women’s jeans in Europe. By the mid-1990s, overseas operations contributed over one-fourth of total sales and proved the company’s most profitable business segment. Chic’s sales increased from $267.8 million in 1990 to over $376 million by 1995, then declined to $318.8 million in 1996 when a noticeable slackening of the American retail clothing market left the company with excess production capacity and inventory. Costs associated with a major staff reduction and transfer of production to Mexico translated into a $25.6 million net loss for Chic in the latter year. Company insiders own over 50 percent of the apparel maker’s stock, which was offered on the public markets in 1993.

Origins in 1920s

The company was founded by Henry I. Siegel as Honesdale Manufacturing in 1923. Headquartered in New York but with production in Tennessee, the company specialized in private-label work clothes and jeans for men and boys. These articles were distributed through such department stores as J.C. Penney and Montgomery Ward and sold under the stores’ own labels. By 1940, when Henry’s brother Sam joined the business, the company had three plants in Tennessee.

Honesdale’s homefront contribution to America’s World War II effort included the manufacture of field jackets for the armed forces. When Henry died unexpectedly in 1949, his 19-year-old son, Jesse, assumed control of the firm. A recent graduate of Columbia University, Jesse Siegel brought a new emphasis on fashion to the family business, at first making slight modifications to its existing line of functional clothing. A 1966 Forbes article noted that “Siegel was the first to take khakis, an old-time favorite in work clothes, put a buckle on the back, and aim it toward the youth market.” The shift doubled sales from $9 million in 1949 to over $18 million by the mid-1950s.

Hoping to tap into the burgeoning consumer market of the postwar era, Siegel launched the company’s first brand, H.I.S (a play on his father’s initials), in 1956. The company’s line of branded casual wear targeted teen and college-aged baby boomers with denim jackets, corduroy pants, shorts, sportcoats, and suits. By the mid-1960s, Siegel ranked among the nation’s top manufacturers of sportswear for young men. Sales multiplied from $18.5 million in 1956 to $42.1 million in 1964, with the H.I.S brand contributing three-fourths of revenues by the latter year. Though the creation of a national brand allowed the company to command higher profit margins than it had generated with private-label goods, Siegel continued to concentrate on making clothes for middle-market customers.

Initial Public Offering in Early 1960s

Jesse Siegel honored his father’s memory more directly when he engineered the firm’s initial public offering as Henry I. Siegel Co. in 1962. In an effort to capitalize on the popularity of its now lowercase h.i.s brand men’s jeans—and at the urging of Jesse’s wife, Barbara—the company launched “h.i.s for Her” women’s wear in 1964. With women increasingly wearing slacks and other formerly “man-tailored” garments, it was a relatively easy and logical transition. Within just two years, the new line was selling $4 million and had achieved profitability. Company wide sales grew to $58.9 million by 1967 and nearly $76 million by 1973. Having held onto a controlling interest in the firm, Siegel took the company private again in 1976.

The Siegels’ conservative management style, which included a spartan headquarters and lean manufacturing, were a corporate hallmark that outlasted the era of direct family management. For instance, the firm utilized computerized production and inventorying as early as the mid-1960s. As Robert F. Luehrs, president of the company in the late 1980s and early 1990s, told Crain’s New York Business, ”We make a basic product, we make it good and we make it cheap.”

Rising imports hit the market for less expensive men’s and boys’ clothing especially hard in the 1970s. As a result, Jesse Siegel decided to suspend the men’s line late in the decade to concentrate on the more profitable women’s wear then being offered under the Chic label. In 1975, the company launched “proportioned to fit” jeans for women. This new sizing scheme took height as well as waist size into consideration, offering each waist size in a range of inseam lengths for a more tailored and comfortable fit. Later, Siegel added other fitting styles including relaxed fit, slim fit, and classic fit. By the mid-1980s, Chic was America’s third-largest manufacturer of women’s jeans, behind Levi Strauss and H.D. Lee.

Chief financial officer Burton M. Rosenberg, who had joined the company in 1969, spearheaded a management-led leveraged buyout in 1984. The reorganization piled on hundreds of millions in debt, making profitable cash flow an even greater imperative than ever before in the years to come. At the same time heavy competition surfaced, especially from rival Gitano, which was lowering its prices to gain market share. Rosenberg, who succeeded Jesse Siegel as chairman and chief executive officer in 1986, reduced retail prices to just under $20 in order to meet the competitive challenge and retain market share. The company also reintroduced its h.i.s men’s line to the budget jeans market during this period. By 1988, the Henry I. Siegel Co.’s sales totaled $233 million.

1990s Range from Dynamic to Difficult

Rosenberg’s fiscal control helped increase Chic’s sales from $233 million in 1989 to $304 million in 1993, by which time the brand surpassed now-bankrupt Gitano to become the top brand of women’s jeans sold in mass merchandising chains. With orders increasing and profits rising to nearly $5 million in the latter year, Rosenberg made an uncharacteristically bold move, raising $69 million in a public stock offering that February. The proceeds were used to reduce the renamed Chic by H.I.S, Inc.’s $114 million debt remaining from the 1984 LBO and to boost capacity by one-fourth in anticipation of continued growth. It was no small hazard, for as Phyllis Furman of Crain ’s New York Business pointed out in a July 1994 article, the company risked extending itself beyond the selling capacity of its customers.

Unbeknownst to Rosenberg, the expansion came just as the retail clothing industry was entering a marked downturn. Heavy dependence on debt-ridden mass marketer KMart, which contributed over one-fourth of sales in the early 1990s, proved particularly troublesome. Several of Chic’s retail customers went out of business, in part because of pressure from mass discounters like Wal-Mart, to whom Chic refused to sell because of its reputation for squeezing the profit margins of its suppliers. With domestic plants operating at less than 40 percent of capacity late in 1995, Chic’s officers quickly ran out of options.

Chairman and CEO Burton M. Rosenberg warned attendees at the company’s March 1996 annual meeting that “it’s going to be a very, very difficult year ... the type of year where you hunker down and strengthen your balance sheet in order to be there when the turn comes. If you have a good brand, it will eventually pay off.” Rosenberg’s “hunker down” strategy included the closure of several factories in Tennessee and Kentucky and the elimination of over one-fifth of Chic’s workforce. And in a striking departure from its longstanding devotion to domestic manufacturing, the company took a $30 million charge to move production to Mexico. Chic hoped to return its North American operations to profitability in 1997 by expanding its foothold in the men’s and boys’ segment and by launching distribution into Canada.

Company Perspectives:

As we enter the challenges of the 21st century, we at Chic by H.I.S recognize our responsibilities to our customers, our employees, our communities, and our stockholders. In an effort to fulfill these responsibilities “we commit ourselves to: Creatively maintaining our goal of being a leading domestic and international supplier of fashionable family apparel. Having a corporate sense of responsibility to our customers, our communities, and our environment. Insuring a long-term growth of profits through a commitment to customer satisfaction. Continually seeking to improve our products, in quality, in service, and in value. Honoring an atmosphere of honesty, integrity, and trust in our fellow workers, which encourages a spirit of shared responsibility and commitment. Individual recognition of each person’s creative ability to perform successfully and with merit. Setting standards of ethical responsibility to enhance the culture of our company, the prosperity of our people, and the continual pursuit of excellence.

Chic’s European operations remained a particularly bright spot, generating operating profits of $10.4 million on sales of $106.7 million in 1996, up from $2.4 million and $51.8 million, respectively, in 1992. The company’s h.i.s brand was positioned as a designer label there, earning profit margins of over 40 percent, compared to the domestic mass market brands’ less than 15 percent gross margin. The label ranked second only to Levi’s among adult jeans brands in Germany, Switzerland, Austria, the Czech Republic, and Slovakia by the mid-1990s. The parent company hoped to raise additional funds to help it weather its mid-decade difficulties by selling a minority stake in its German subsidiary to the public in 1997.