Swank, Inc.

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Swank, Inc.

90 Park Avenue, 13th Floor
New York, New York 10016
U.S.A.
Telephone: (212) 867-2600
Fax: (212) 370-1039
Web site: http://www.swankinc.com

Public Company
Incorporated: 1897 as the Attleboro Manufacturing Company
Employees: 292
Sales: $97.91 million (2005)
Stock Exchanges: Over the Counter (OTC)
Ticker Symbol: SNKI
NAIC: 316993 Personal Leather Goods (Except

Women's Handbag and Purse) Manufacturing; 316999 All Other Leather Goods Manufacturing; 339911 Jewelry (Except Costume) Manufacturing; 339993 Fastener, Button, Needle, and Pin Manufacturing

Swank, Inc., is one of the country's leading marketers of men's accessories and leather goods. Swank's customers are mainly major retailers such as department stores, through which the company's products are marketed under the brand names Pierre Cardin, Tommy Hilfiger, Nautica, Guess?, Geoffrey Beene, Field & Stream, and others. Most of the company's retail items are offered at various price points and in numerous styles, so as to appeal to a broad range of consumers. Swank's products are also sold internationally, and through eight factory stores in six states that distribute its excess and out-of-line merchandise.

THE EARLY YEARS

The beginnings of Swank, Inc., can be traced to the year 1897, when Samuel M. Stone and Maurice J. Baer founded the Attleboro Manufacturing Company to produce and sell jewelry for women. The two men took over a building in Attleboro, Massachusetts, that had been constructed decades earlier as a forge to turn precious metals into jewelry. Unfortunately, less than a year after Stone and Baer began production, one of the largest fires in the town's history claimed an entire block of buildings, destroying their small enterprise. Many of the company's employees helped fight the fire and were able to salvage a portion of the machinery and finished jewelry. Therefore, the Attleboro Manufacturing Company was able to resume its operations with the remaining equipment and material in another building nearby, which came to be the center of production for the next century.

Within ten years, the Attleboro Manufacturing Company was enjoying success in producing women's jewelry and began expanding into new markets. In 1908, Baer formed a new division, called Baer and Wilde, to oversee the production of men's jewelry, while Stone remained in charge of Attleboro Manufacturing. The new Baer and Wilde division operated with marginal success alongside the Attleboro Manufacturing Company until 1918, when the Kum-A-Part cuff button was designed and became an immediate success. The item became one of the company's first major products, and its sudden popularity facilitated significant growth for the company.

By the time the United States became involved in World War I, the Attleboro Manufacturing Company was large enough to handle the production of thousands of metal identification tags, better known as "dog tags," for the military. While this was the company's most notable contribution to the war effort, it also profited from the production of numerous other emblems for the U.S. government during those years. It was then that the demand for production of men's jewelry surpassed that of women's, and the women's line was terminated. The company began to focus its resources completely on the manufacture of men's collar buttons, pins, and holders, as well as tie clips, dress sets, and other men's jewelry items.

THE CORPORATION IS BORN

After production of the women's jewelry line was halted, the company focused solely on the manufacture and marketing of its men's items. Although its men's products were already in high demand, the company pushed even harder to gain more market share through the implementation of new marketing efforts and increased advertising. A new marketing plan originated by Stone in the late 1920s dictated that the Attleboro Manufacturing Company employ seven wholesale dealers in different major cities throughout the United States to handle the sale and distribution of the men's jewelry line. This action helped the company more easily distribute its products nationwide and also increased its advertising range.

The name Swank actually appeared in 1927 on a print advertisement for a men's collar holder, but it was almost another decade before it became the corporate name. By 1936, Stone's marketing plan was so successful that the company invited the seven dealers to form a new corporation, Swank Products, Inc. The merger not only gave the company a new name, but also gave it a national sales organization of its own, which already had direct contact with thousands of jewelry retailers across the country. These connections were an unusual and important asset for a newly formed corporation and aided in the ease and speed in which Swank shifted to operation on a national level.

In 1941, the company changed its name once again and became Swank, Inc., a designation which stuck for the next 50 years and beyond. Shortly after the name change, the United States' involvement in World War II caused Swank to temporarily stall the production of its regular retail items while it instead manufactured tools for the military. Also produced during the war were precision parts for automatic weapons, and the bronze stars and purple hearts that were awarded to U.S. servicemen for heroism in action. These contributions enabled Swank to maintain steady work during the years of the war, which left the company in solid financial condition at its conclusion.

During the years following World War II, Swank's product line was diversified by the addition of personal leather goods, gifts, and fragrances. The company first began producing items such as wallets, belts, and other accessories for men, a move which considerably increased Swank's annual sales. It also started producing and marketing fragrances under the Royal Copenhagen name.

BUILDING THE BELT BUSINESS

In 1966, Swank strengthened its blossoming leather products division with the acquisition of the Prince Gardner Company of St. Louis, Missouri, a manufacturer of men's and women's leather goods marketed under the Prince and Princess Gardner brand names. In 1970, Swank purchased another leather goods manufacturer, Crestline Manufacturing Company of South Norwalk, Connecticut. Crestline continued to produce wallets, belts, and accessories under the Swank, Pierre Cardin, and L'Aiglon labels, and soon achieved a strong reputation for the high quality of its products. The following year, Swank rounded out its leather division with the addition of the Alco Leather Manufacturing Corporation of San Francisco, California.

COMPANY PERSPECTIVES

Swank's unmatched lineup of licensed brands is unique in the industry. We partner with many of the most respected names in fashion to bring retailers a wide range of merchandise collections available in a variety of styles and price points. One thing that never changes however, is quality. Our merchandise is always crafted from the finest materials available. Exceptional brands, outstanding quality, unbeatable service, and great selection. We've been doing it for more than 100 years. No wonder Swank is the first choice in men's accessories.

The sudden increase in production demands due to Swank's new additions prompted the company to invest a large amount of capital into expanding and renovating its facilities in the 1970s. First came a move into a new distribution center in Taunton, Massachusetts, after Swank outgrew its original warehouse nearby. Soon after, the Crestline division operations were moved into a modern manufacturing facility, which was designed specifically to handle the immense production demands that came with being the largest belt manufacturer in the country. Finally, another new plant was constructed in 1978 to accommodate the Prince Gardner division's rapid growth.

After ensuring its ability to handle increased production, Swank entered the 1980s with intentions of broadening its product lines and initiating further growth within the company. Swank reintroduced its women's jewelry line, which had been the company's initial product 80 years earlier. Much of the new women's product was marketed under the Anne Klein brand name, as a means of gaining immediate consumer recognition and approval. Also reintroduced in the early 1980s, after an absence of nearly a decade, was a sales incentive program for Swank's salespeople. This program encouraged employees to sell from all of Swank's major product areas, rather than only from those that were easiest to sell. Available products at that point in time were jewelry, leather accessories, belts, fragrances, and gifts such as pen sets and clothing.

In 1985, Swank further expanded its men's leather accessories line with the addition of new items carrying labels by Reed St. James and Colours by Alexander Julian. A new line of women's jewelry under the brand name 90 Park was also introduced. Sales of these items, coupled with the rising success of earlier products and the sales incentive program, helped Swank reverse two years of annual declines and achieve $157.8 million in sales in 1987. This success was also attributed to a decrease in overhead spending throughout the year, and the fact that the women's jewelry division was steadily gaining popularity and generating more sales. Shortly thereafter, however, Swank began experiencing declines, which continued for almost five years. In 1989 the company sold the assets of its Prince Gardner division.

COURTING THE BUSINESS CASUAL MARKET

By 1991, annual sales had dropped by more than $30 million since the record high in 1987. The company managed to achieve increases in sales for the next two years, although 1992 marked the sale of the company's Royal Copenhagen fragrance line, as Swank struggled to lower its expenses. After paying much attention to consumer buying trends in the early 1990s, Swank decided to take advantage of the growing corporate trend toward casual dress. While still maintaining its traditional product lines, in 1994 Swank sought a license to produce and market casual products under the Guess? brand name, including men's and women's costume jewelry and leather goods. Swank also began offering many of its products at various price points and in numerous styles, so as to appeal to a broad range of consumers.

These measures were successful and aided Swank in overcoming years of declines in an extremely competitive retail environment. The company posted $143.4 million in 1994 sales, while at the same time managing to pay off over half of the largest debt in company history. The remaining debt was scheduled for repayment in 1995, signaling Swank's belief that another strong year lay ahead.

KEY DATES

1897:: Attleboro Manufacturing Co. is formed in Massachusetts to produce women's jewelry.
1908:: Baer and Wilde men's jewelry division is formed.
1936:: Attleboro's wholesalers merge and form Swank Products, Inc.
1941:: Swank Products is renamed Swank, Inc.
1966:: Swank buys the Prince Gardner Company.
1970:: Crestline Manufacturing Company is acquired.
1971:: Alco Leather Manufacturing Corporation is acquired.
1989:: Prince Gardner assets are divested.
1992:: Royal Copenhagen fragrance line is sold.
1994:: Swank gains license to produce casual products for the Guess? brand.
1999:: A manufacturing joint venture is formed in Costa Rica.
2000:: Company is in the red; production ends at the Massachusetts plant.
2001:: Production ends at the Costa Rican subsidiary; the costume jewelry business is divested.
2003:: Production ends at Swank's last remaining U.S. belt plant.

Meanwhile, Swank's new lines of Guess? products were generating increased sales in the leather accessories and jewelry divisions. Unfortunately, those two areas alone accounted for 96 percent of Swank's 1995 sales, leaving the company reliant upon a narrow base of products. Furthermore, a weakening in consumer interest in high-priced fashion jewelry initiated a shift in production toward more competitively priced career-oriented items, which eroded the year's profit potential. 1995 sales dropped by $3 million from those the previous year, prompting Swank chairperson Marshall Tulin to hand down the positions of president and chief operating officer to his son, John, after stating his belief in the 1995 chairman's message that "it was time to let younger minds handle daily operations."

Approaching the end of the century, executives at Swank committed themselves to continued efforts at rejuvenating the company. A goal was set to increase margins on the goods sold, and the company began cutting costs and making efforts to manage its assets in a manner that would maximize stockholder returns as methods to achieve that goal. In his first stockholder address as president and CEO, John Tulin stated his belief that while much work remained, the improvement seen in 1996 signaled that the company's efforts were focused in the correct direction.

Swank continued to add trendy new brand names. It began producing men's accessories under the Liz Claiborne label in 1998. Revenues reached $163 million by 1999 but profits slipped 50 percent during the year to $2.4 million. The company increased its promotional budget for the women's jewelry division, which during the year gained a license from fashion firm Donna Karan International Inc.

MANUFACTURING IS OUTSOURCED

Swank followed an industry trend by shedding its manufacturing operations in the first few years of the new millennium. Production ended at its Attleboro, Massachusetts, plant in 2000. The company lost $12 million during the year, though sales exceeded $101 million. Men's leather accessories accounted for more than two-thirds of sales.

Swank announced a joint venture with Garnier & Garnier, S.A. of Costa Rica in 1999. This was formed from the plant of one of Swank's previous suppliers. However, the company would stop manufacturing there within two years.

A bright spot for 2001 was the company's successful launch of its Tommy Hilfiger accessories line. The company's costume jewelry business was sold during the year to the K&M Associates, L.P. operation of American Biltrite Inc. The plant in Attleboro where Swank had been making the jewelry was shut down in 2002. Included in the deal were the Anne Klein and Guess? licenses. Swank continued to produce men's jewelry.

Production ended at the company's last remaining U.S. belt plant in Norwalk, Connecticut, in 2003. About 70 people were laid off when the operations moved to China. Swank lost $2.6 million on sales of $94.8 million in 2003; much of the loss was attributable to the costs of the plant closing. The company had slipped out of compliance with a minimum earnings requirement on a loan covenant, leading some to speculate it was nearing bankruptcy.

The company was soon profitable again, however, when it posted a gain of $1.6 million on sales of $93.3 million in 2004. "Over the course of almost four decades you learn how to dig out of a hole and reinvent yourself," company president John Tulin explained to the Daily News Record. In December 2004 the company moved some offices from Attleboro to Taunton, Massachusetts.

Consolidation among department stores worried some vendors. However, Swank emerged from the merger of its two largest customers, May Co. and Federated Department Stores Inc., holding contracts to supply most of Federated's private label belts. Swank also produced accessories for Kohl's, J.C. Penney, and Sears under their own labels and national brands. The company did not supply down market chains like Wal-Mart and Kmart, though it did ship to Target.

Fueled by the increasing popularity of cuff links, Swank's men's jewelry sales were up 50 percent in the first quarter of 2006. Belts and leather accessories were also strong. In the second half of the year, the company was launching new products under the Nautica, Ted Baker, and Donald Trump brands that it had just licensed. Ted Baker was Swank's first luxury brand, Tulin told the Daily News Record.

While sales outside North America accounted for just 10 percent of revenues, Tulin was expecting this to possibly double as its longtime licensing partner Guess! focused on growing in Asia and Russia.

Laura E. Whiteley

Updated, Frederick C. Ingram