Duck Head Apparel Company, Inc.

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Duck Head Apparel Company, Inc.

1020 Barrow Industrial Parkway
P.O. Box 688
Winder, Georgia 30680
U.S.A.
Telephone: (770) 867-3111
Toll Free: (800) 933-0680
Fax: (770) 307-1800
Web site: http://www.duckhead.com

Wholly Owned Subsidiary of Tropical Sportswear Int’l
Corporation
Incorporated: 2000
Employees: 550
Sales: $53.3 million (2000)
NAIC: 315211 Men’s and Boys’ Cut and Sew Apparel

Duck Head Apparel Company, Inc. is a very young company with a very old label that dates back to the 1800s. After a dozen years of operating as a subsidiary of textile firm Delta Woodside, Duck Head began flying solo, the result of a 2000 spinoff, but in 2001 was again purchased by a larger corporation. The company has very strong name recognition in the South, where Duck Heads are all but synonymous with khaki pants. Recent efforts, however, to spread the Duck Head name to the rest of the country, as well as forays overseas, have met with limited success. Duck Head products, which expanded greatly in the 1990s through licensing deals, are sold in special shops located within select department stores, as well as company-owned retail and factory outlet stores that specialize in discontinued and imperfect items. The company’s headquarters are located in Winder, Georgia, but most manufacturing is now done overseas.

Duck Pants in the Post-Civil War Era

The Duck Head name can be traced back to 1865 and two brothers in Nashville, Tennessee. George and Joe O’Bryan, according to lore, bought surplus Army tents made out of a heavy, canvas-like material known as duck. Although it was not intended as a clothing material, duck proved to make durable work pants and overalls. These early khakis also made a success of the O’Bryan Brothers Manufacturing Company and created a Southern clothing staple. In 1892 the brothers tried to trademark the name “duck,” but were turned down by the Trademark and Registration Office in Washington because the term was in general usage. Told that “duck head” was available, the O’Bryan brothers registered the term, which naturally led to the head of a mallard duck becoming the lasting symbol of their products.

Duck Heads continued to be manufactured in the 20th century by O’Bryan Brothers, although during World War II the business turned its exclusive attention to making military uniforms. Following the war the company latched onto the popularity of country music, a natural connection given its Nashville location, and with such stars as Hank Williams sporting Duck Heads, the product line gained even greater regional appeal. During the 1980s, Duck Heads were all but the official uniform of the Southern college fraternity brother. By 1989 Delta Wood-side decided to buy the Duck Head brand and attempt to roll it out on a national basis.

Delta Woodside was created by two Southern businessmen, Bettis Rainsford and Erwin Maddrey. Rainsford grew up on a South Carolina dairy farm before earning an undergraduate degree from Harvard University. After law school at the University of South Carolina, he then tried his hand at a number of businesses: operating a nursing home, running a newspaper, and setting up an alternative energy project in New Hampshire. He drifted into the textile business in 1982 when he decided to buy Edgefield Cotton Yarns, a troubled mill in his hometown of Edgefield, South Carolina. Knowing nothing about the industry, he turned to Erwin Maddrey, whom he had learned about from a Wall Street Journal article. It was reported that Maddrey had resigned as president of a South Carolina textile company because he wanted to strike out on his own. Rainsford telephoned Maddrey, and the two met and agreed to become partners. After buying Edgefield Cotton in 1983, they formed a corporation called Alchem Capital Corp., the name alluding to the medieval science of alchemy, which espoused that base metals could be transformed into gold.

Purchase of Duck Head Label by Delta Woodside: 1989

The base metals for Alchem Capital were distressed U.S. mills that could be bought cheaply due to increasingly stiff competition with foreign mills, which had the advantage of extremely cheap labor. The company changed its name to Delta Woodside, a combination of the names of two major acquisitions, and went public in 1987. By 1988 Delta Woodside operated 37 plants, generating revenues of $488 million and earning a profit of $28 million. Not only was Delta Woodside producing fabrics, it was also interested in making apparel and began to buy up businesses to bolster that segment. In 1989 it acquired O’Bryan Brothers and its Duck Head brand for approximately $14.1 million. It then created Duck Head Apparel Company by merging O’Bryan Brothers with Carwood Manufacturing Co., which was already doing some contract work for Duck Head products, along with the knitting operations of Royal Manufacturing, Standard Knitting, and Maiden Knitting Mills. The result was a manufacturing subsidiary that employed more than 3,100 people in both the United States and Costa Rica, working in four knit plants, five woven manufacturing plants, a textile facility, plus three distribution centers.

Duck Head grew rapidly, especially after a national expansion program that was launched in the summer of 1990 and supported by advertising that targeted 20- to 40-year-old men. The company also made efforts to sell its products overseas, conducting market research to learn the connotations of “duck” in other countries. It concluded that there was a European niche for mid-priced khakis, as well as the company’s knit products. Overall the company was quite hopeful about the growth of European sales. In the fall of 1991 the company introduced two new businesses to create an activewear division to be run out of Scottsdale, Arizona: the Duck Head Sport Line—comprised of the Athletic Club, Mountain Club, and Country Club individual lines—and Delta Gold. The company also created Baby Duck Head, which emphasized cloth baby diapers, designed with velcro tabs and elastic in the legs and waists, and marketed to appeal to contemporary parents sensitive to environmental issue. As a result of all these efforts, Duck Head grew revenues from $20 million in fiscal 1989 to $130.4 million in 1992.

Duck Head encountered some problems in 1991 when it switched from independent sales reps, who earned a 5 percent commission, to inhouse reps, who were paid just 0.5 percent plus salary. Three independents were given a chance to join the staff and declined. They then sued Duck Head when a large number of their contracts were cancelled, representing $1 million in commissions. Customers informed them that the orders had simply been rewritten by staff salespeople. The matter would finally be aired in a 1993 trial, in which the jury awarded the reps $29 million, including $7 million for mental anguish. The judge would subsequently reduce the award to $22.9 million, an amount that the company still called unjust and unsupported by the facts.

Duck Head management predicted that revenues would reach $180 million for fiscal 1992. Instead, the company generated just $137.3 million, a number that would turn out to be a high water mark for the decade. Duck Head hired a New York advertising firm and bumped its ad budget from $1 million to $5 million. Again, the goal was to expand Duck Head beyond its core Southern market, which accounted for 70 percent of sales. The company appeared ready to take a step to a new level, eschewing such discounters as Kmart and Wal-Mart in favor of more upscale department stores. The company also looked to extend its reach by establishing a women’s division. Nevertheless, the results that management anticipated simply did not materialize, and 1994 saw the company take a few steps backwards. Even before the final numbers came in, a sharp drop to $95.4 million in sales and a net loss of $17 million for fiscal 1994, the company’s president, Phil Brader, resigned. He was replaced on an interim basis by Maddrey, who continued to serve as CEO of Delta Woodside. Maddrey predicted that the company would rebound, portraying Duck Head as a victim of its own success and blaming much of the sales shortfall on a poor distribution system that resulted in extremely slow delivery times and cancelled orders.

Aside from improving the company’s infrastructure and regaining the trust of its customers, Maddrey continued an aggressive effort to grow Duck Head, especially through licensing deals for apparel and accessories. It licensed Pine State Knitwear to produce a line of sweaters; Mayo Knitting Mills for hosiery; ROLFS for leather goods and belts for both men and women; International Travel Brands for small luggage, backpacks, and duffle bags; IMA Fashions for women’s handbags; Lifeguard Apparel for men’s and boys’ underwear; Quinmax for young men’s and boys’swimwear; Liberty Childrenswear for children’s sportswear; McGee Eye Fashion for men’s and women’s prescription eyewear; Water’s Edge for outerwear and rainwear; and Schertz Umbrellas for Duck Head umbrellas. Duck Head became a licensee of the NASCAR stock car racing association, authorized to produce garments using NASCAR graphics. In the fall of 1994, the company also opened its first regular-price retail store, augmenting the 37 outlet stores the company already operated. Duck Head hoped to eventually open a flagship store in Manhattan.

Company Perspectives:

Today, Duck Head is still America’s brand. The 100 year tradition lives. “Khakis” still mean Duck Head. Relaxed times still mean Duck Head. Value still means Duck Head .

After a year-and-a-half search for a new president, Duck Head named Paul A. Robb to the post in November 1995. Robb had considerable experience in the women’s apparel business, working at Haggar, Levi Strauss, and Nygard International. He quickly closed down Duck Head’s women’s apparel business, opting to rely on licensing the label to others in order to focus on Duck Head’s core menswear business. He also closed the company’s Monroc, Georgia, clothing factory, shifting production to less expensive plants in Turkey, Pakistan, and Costa Rica. Nevertheless, revenues continued to fall, dipping to $81 million in 1995 and $79 million in 1996. The company then appeared to be on the road to recovery in 1997. Licensing sales increased significantly, and Robb reestablished the women’s business. In April 1997 Duck Head opened its first Duck Head Shops, totaling some 200 menswear shops and 175 boys’shops located in such department stores as Parisian, Dillard’s, and J.C. Penney.

Major Ad Campaign: 1998

For fiscal 1997 Duck Head posted a $2 million profit on sales of $90 million, and the company’s prospects appeared promising, especially in light of the sudden popularity of khakis. In 1998 Duck Head launched a nine month, $10 million regional marketing campaign, its first consumer-based effort in six years. Management was also optimistic about realizing its long cherished goal of becoming a nationally recognized brand, hopefully building its Duck Head Shops as a moderately priced alternative to Hilfiger, Nautica, and Polo in department stores across the country. Once again, however, Duck Head fell short of its hype. Sales for fiscal 1998 grew to $92 million, just $2 million over the previous year. At the same time, parent company Delta Woodside was reporting disastrous results: revenues dropped from $651.8 million in 1997 to $535.5 million in 1998. Moreover, the company posted a net loss of $43.8 million. Textile manufacturing and the apparel business were simply not providing the synergistic opportunities that Rainsford and Maddrey had banked on in the 1980s.

In October 1998 Maddrey announced that Duck Head was up for sale, prompting rumors of a number of suitors ready to bid for the company. Maddrey insisted that Delta Woodside was not in need of cash, but that Duck Head was ideally positioned to be sold and that a bigger apparel company would have a better chance of making Duck Head a national brand. Robb was part of a management buyout effort, but when that failed he was fired in January 1999. Although he quickly surfaced as president and CEO of Block Sportswear, taking several Duck Head executives with him, Robb sued Delta Woodside, claiming he had been denied stock options and other benefits. Again Maddrey stepped in to run Duck Head on an interim basis, vowing to keep the business going until he found a suitable buyer, but within weeks he announced that Delta Woodside would spin off Duck Head and the Delta Apparel divisions into two separate companies. Delta Woodside shareholders would receive stock in the new businesses. Rainsford, on the other hand, was not in favor of the spinoff strategy and resigned as Delta Woodside’s chief financial officer, indicating that he planned to make an offer to buy the company himself. That effort failed and the spinoffs went forward, with a new Duck Head CEO and president hired to prepare for a separate corporate existence. The former president of Levi Strauss North America, Rob Rockey, was hired in March 1999. In early 2000 registration papers were filed with the Securities and Exchange Commission and in June the spinoff was completed, resulting in the creation of Duck Head Apparel Company, Inc.

While Rockey made efforts to grow Duck Head by cutting costs, the company was far from free of its parent corporation, the founders of which were still at odds over the fate of Duck Head. Both Maddrey, who retired, and Rainsford, who also left the company, remained major shareholders of the parent company and spinoffs. The Duck Head board instituted a “poison pill” shareholders rights plan to make it difficult for a party to acquire a majority interest in the company. Rainsford believed the plan was designed to thwart his efforts to take over the company. In the fall of 2000 he announced plans to nominate his own slate of directors in order to force a sale to Knight Textile Corp. One of his nominees was Talmadge Knight, owner of Knight Textile. Rainsford dropped his hostile takeover bid when the Duck Head board agreed to rescind the shareholders rights plan and hire an investment banking firm to consider a possible merger or sale. When Rockey warned of poor second quarter results in December 2000, Rainsford was quick to call for the immediate sale of the company.

In 2001 Duck Head looked at ways to generate cash, including the sell-off of its headquarters and distribution center in Winder. William Roberti, a former Brooks Brothers executive who had been brought in several months earlier as president and chief operating officer, now took over as CEO. Rockey became chairman of the board, but within a few weeks he retired and Roberti assumed that role as well. Aside from the distinct possibility of a change in ownership, Duck Head faced an uncertain future. No doubt it retained a high degree of name recognition, as well as consumer loyalty, in Southern states, but dreams of national popularity seemed unlikely. Management decided to focus on younger males, with the hope that older males would follow them. The likelihood of that strategy working was also open to debate. As a November 2000 Forbes article analyzed the situation: “Youngsters’ fashion trends today often start with an inner-city crowd and end up on affluent college kids. That doesn’t describe Duck Head at all.” In June 2001 the company was sold to Tropical Sportswear Int’l Corporation, makers of Savane and Farah pants, in a stock and assumed debt transaction worth almost $21 million. Duck Head’s new corporate parent expressed hope that the business would become profitable as early as fiscal 2002.

Principal Competitors

Abercrombie & Fitch Co.; The Gap, Inc.; Levi Strauss & Co.

Key Dates:

1865:: O’Bryan Brothers Manufacturing Company is formed; company uses duck, a cloth similar to canvas but lighter in weight, to make work clothes.
1892:: Duck Head is trademarked.
1983:: Bettis Rainsford and Erwin Maddrey form Alchem Capital Corp.
1986:: Alchem Capital becomes Delta Woodside Industries, Inc.
1989:: O’Bryan Brothers is acquired by Delta Woodside, which creates Duck Head Apparel Company.
1995:: Paul Robb is named president of Duck Head.
2000:: Delta Woodside spins off Duck Head as a separate corporation.