Crystal Brands, Inc.

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Crystal Brands, Inc.

Crystal Brands Road
Southport, Connecticut 06490
U.S.A.
(203) 254-6200
Fax: (203) 254-6252

Public Company
Incorporated: 1970
Employees: 4,900
Sales: $589 million
Stock Exchanges: New York
SICs: 2329 Men’s and Boys’ Clothing Nee; 2339 Women’s, Misses’, and Junior’s Outerwear Nee; 5611 Men’s and Boys’ Clothing and Accessory Stores; 5621 Women’s Clothing Stores

Crystal Brands, Inc., manufactures and merchandises sportswear, costume jewelry, and accessories under some of the industry’s best-known brand names, including Gant, Izod, Evan-Picone, Monet, and Trifari. Crystal Brands started operations November 1, 1985, after having been divested from General Mills. It began its life with a handful of well-known brand names, the most recognized being Izod/Lacoste, which General Mills had acquired in 1968.

The Lacoste shirt was first marketed in the United States by David Crystal, Inc. The shirt and its distinctive “alligator” emblem (really a crocodile) was named after the French tennis player Jean Rene Lacoste, who, during the 1920s, earned the nickname “le crocodile,” connoting as much his distinctive profile as his style of play. Lacoste broke with tradition by playing in short-sleeved knit shirts instead of then-customary dress-shirts. He started to market his shirts with a crocodile emblem embroidered over the left breast, and in 1950 Lacoste entered the U.S. market by licensing his all-cotton shirts to David Crystal, Inc., a New York-based manufacturer of dresses, suits, and other apparel marketed under a variety of names, including Izod. The shirts were initially available only in white; after several years, in an attempt to broaden the shirts’ appeal beyond the tennis court, colors were introduced. Further, the company linked the Lacoste name with its own Izod brand to give it an air of class and style. (The name Izod originally belonged to a British tailor whose clients included the royal family, and who eventually sold his name and thus the right to use the phrase “By Appointment—Shirtmaker to the King” to David Crystal, Inc.) In 1968, to make the garment easier to care for and to further widen its market, the company started producing the shirt in a double-knit fabric of dacron polyester using a pique stitch. That year the company was bought by General Mills. Two years later Crystal Brands, Inc., was incorporated, its operations part of various divisions and subsidiaries of General Mills.

The Lacoste shirt surged in popularity in the late 1970s with the advent of the “preppy” look. Sales rose from 1979, and its peak year was 1982, when sales hit $450 million. Quickly, however, the shirt became the victim of its own success. General Mills, using the “commodity” approach that it used with cereal, proceeded to saturate the market with merchandise. The market was flooded with both officially licensed products and low-priced knockoffs available at street vendors’ stalls and discount outlets. The brand invariably lost its upscale cachet, and combined with the rapid waning of the “preppy” look, sales and profits began to fall precipitously. By 1984, problems with the apparel division—known as the General Mills Fashion Group—contributed to the end of General Mills 22-year run of earnings increases. The company decided to jettison the Fashion Group, which had cost the company $80 million, as well as its also-struggling toy division (which became Kenner Parker Toys, Inc.).

Shares of Crystal Brands, Inc., began trading on the New York Stock Exchange on November 1, 1985. The following week holders of General Mills stock received one share of Crystal Brands stock for every five General Mills shares they owned.

Crystal Brands was to be headed by Richard Krai, who had joined General Mills several years earlier after having served for 22 years at the well-regarded apparel manufacturer Warnaco, Inc. Krai recruited other Warnaco veterans to join him. Crystal started with several established brand names in addition to Izod/Lacoste. Monet, the jewelry company acquired by General Mills in 1968, was seen as the company’s recession-proof bright spot, making up almost half of all department store costume jewelry sales. Ship ‘n Shore apparel, a well-known name with a lackluster image, survived by providing blouses to private labels; it accounted for about a quarter of sales. Crystal also provided clothing to Sears Roebuck & Co. and J.C. Penney Co.

General Mills handed Crystal Brands not only brand-name products with strong name recognition, however. Crystal also carried over high-selling, general, and administrative expenses, which in 1986 were 30.5 percent of sales. Crystal owned and leased a series of manufacturing plants and distribution facilities, many established at the peak of Izod/Lacoste brand’s popularity, when General Mills had increased production capacity as well as support staff. Crystal also inherited a top-heavy management structure, partly created to sustain the high-growth levels of 1979-1982 and partly a legacy of General Mills’ bureaucracy, where decisions were made by committee. This system is perhaps well suited to the slow-moving food business, but it is clumsy in the fast-changing fashion market. Crystal lost $43.4 million in fiscal 1985.

Kral quickly set out to both streamline management to make Crystal more responsive to the market and to find profitability at reduced sales levels. The previously autonomous Izod/Lacoste, Monet, and Ship ‘n Shore lines were brought under tighter control. Inventory was cut and drastic cost-reduction measures were taken. Krai also tried to get a handle on administrative costs and to this end moved company headquarters from its expensive New York City offices to Southport, Connecticut, in 1986.

Turning around the fortunes of Izod/Lacoste, which accounted for about half of sales, was clearly a priority. Crystal decided to try to increase the brand’s sales by reestablishing the aura of exclusivity that was responsible for so much of its previous success (as well as the success of its chief rival, Polo by Ralph Lauren) and that had subsequently been eroded by overselling. To do this, the company trimmed its distributors list, favoring the better department stores and specialty stores, and eliminating mass merchants. To gain retail space, the product line was expanded to include jackets, trousers, and swimwear, all adorned with the alligator logo. To win and sustain the consumer’s attention, the company started to showcase the apparel at in-store “shops,” spaces set aside within a retailer that featured the Izod and Izod/Lacoste line exclusively. The shirt tried to position itself between Ralph Lauren’s Polo and private labels.

Crystal also set out to increase earnings by adding to its roster of well-established labels. In April 1988 Crystal bought the jewelry merchandiser Trifari, Krussman & Fishel, Inc., for $66 million. Trifari’s line of jewelry featured color and contemporary styling, and along with the Trifari brand came the popular Marvella line of pearl costume jewelry. These lines complemented Monet’s, which emphasized classic styling and was known for its “look of the real.” With this acquisition Crystal became the leading manufacturer and marketer of quality costume jewelry.

In December of that year Crystal acquired privately owned Palm Beach Holdings for $95 million, and with it an impressive list of names, including Evan-Picone, John Weitz, Polo by Ralph Lauren for Boys, Calvin, and Palm Beach. With this acquisition Crystal entered the tailored clothing and formal wear markets, a move analysts saw as a defensive maneuver taken to shake off a rumored takeover attempt. Palm Beach, which had sales of $404.5 million in 1987, doubled Crystal’s revenues.

Izod/Lacoste seemed to briefly revive, and the in-store shops (there were 47 by 1988) helped increase sales. The Gant brand of men’s and boys’ sportswear, using the same in-store shop concept, performed well, as did the Salty Dog label, a line of casual, relaxed sportswear developed in 1985 to appeal to a younger market. The Evan-Picone line was redefined using the same “quality over quantity” approach that appeared to be working for Izod/Lacoste.

Crystal stock, which had started trading in 1985 at around $19, hit a peak in 1989 at $37 a share. Sales reached $857.2 million and earnings achieved their high of $28.9 million in 1990, but Crystal’s good fortune proved to be short-lived. Crystal had undertaken its aggressive and costly expansion, which had been financed with debt, just as the apparel market and the economy as a whole began to weaken in 1989. By 1991 reorganization was necessary, and in July of that year Crystal announced a $49.9 million restructuring. It set about consolidating facilities, shuttering unprofitable lines (it had already divested its Ship ‘n Shore line in January of the previous year), selling or leasing office space, and cutting staff.

Along with these moves, Crystal again shifted its marketing strategy for Izod/Lacoste. Industry analysts estimated that shirt sales in 1990 were between $125 and $150 million (not including sales from its outlet stores), and, in an attempt to increase volume, Crystal decided to change the focus from prestige to value. The names Izod and Lacoste were separated, creating an alligator-less knit shirt emblazoned with the name Izod, which was to sell for about 30 percent less than the traditional version (which sold for $42.50 and was to be labeled Chemise Lacoste). These attempts at mass-merchandising made it plain that Crystal was trying to find a place in the market for its knit shirt. In retrospect it was seen that Crystal had tried to recreate Izod/Lacoste’s upscale appeal just as the wider market had indeed turned the product into a “commodity” item, with no-name varieties widely available for much less (at the time, fully 30 percent were sold through discount outlets). With the slowdown of the economy, consumers sought value and were much less impressed with designer names than they had been in the 1980s.

Crystal sought to catch up with the cost-conscious consumer by increasing quality for price points, especially in the Gant and Salty Dog labels. The company’s problems were exacerbated by a sharp downturn in jewelry sales, which historically did well in recessions as consumers increasingly looked to costume jewelry rather than their more expensive counterparts. Furthermore, the company had delivery problems that antagonized retailers. Crystal lost $71.4 million in 1991 on sales of $862.9 million.

The recession, as well as a decrease in white-collar jobs and a trend to more relaxed office wear, severely affected men’s tailored clothing sales. In April 1992 Plaid Holdings Corp. announced that it intended to buy Crystal’s Palm Beach and Calvin Clothing divisions. Crystal thus exited the men’s and boys’ tailored clothing and formal wear business less than five years after it had entered it. The company gained $55 million; $40 million was used to pay down debt and $15 million was used for working capital purposes. The agreement was signed in October.

The Palm Beach sale couldn’t stop the flow of red ink, however. Although it had been able to sign a new agreement with lenders in February, Crystal could not cover expenses. Unable to find a lender to extend its credit line, Crystal announced in July that it was selling its 50 percent interest in Lacoste Alligator S.A. to the other 50 percent owner, Sporloisirs S.A., thus ending its exclusive license to make and market alligator-labeled products in the United States, Canada, and the Caribbean as of June 1993. Sporloisirs S.A. was a unit of Chemise Lacoste, the French company that had been originally founded to market the shirts. Crystal was to gain $31.5 million in the transaction, $30 million of which was to be paid in cash. Crystal continued to own the Izod trademark, however.

The company’s financial position worsened, and in August it suspended its cash dividend. In September Crystal hired a firm that specialized in corporate turnarounds to aid in reorganization. In November Richard Krai resigned as chairman and chief executive officer. Upon news of his resignation Crystal stock closed up 12.5 cents, reaching $2.625. Wall Street was not optimistic about Crystal’s prospects.

By year’s end Crystal entered into a new credit agreement, which carried heavy terms, with virtually all the company’s assets to be used as collateral. Cost-reduction programs were implemented company wide, and new management was brought in at all levels. In April 1993 Crystal announced that it was organizing the three jewelry companies—Monet, Trifari, and Marvella—by combining them.

Final sales results for 1992 were $589 million, and losses totaled $75.3 million. The company stated that it did not have enough capital to cover expenses and that additional sell-offs of businesses or assets would perhaps be necessary to meet its credit agreements.