Perry Ellis International, Inc. Business Information, Profile, and History

Company Perspectives:

Our excellent track record over the past decade--especially since going public in 1993--has enabled us to be positioned among the leaders in menswear in the United States. The strengths and strategies that produced this excellent growth will continue to drive our progress as we go forward.

History of Perry Ellis International, Inc.

Originally founded by the acclaimed fashion designer Perry Ellis to manage the licensing of his name, Perry Ellis International, Inc. is now the assumed name of the licensing and marketing group of Miami, Florida-based Supreme International, which purchased Perry Ellis in 1999. In addition to a number of Perry Ellis trademark lines of clothing, the new Perry Ellis also markets Supreme International's other labels, including Crossings, Natural Issue, Munsingwear, Andrew Fezza, Ping, John Henry, Manhattan Shirts, and Grand Slam. After dropping out of the womenswear market in the early 1990s, Perry Ellis relaunched the line in 2000 after reaching a licensing agreement with Kellwood Company. Supreme International is a family-run business, established by immigrant George Feldenkreis. His son Oscar has played a major role in expanding the company beyond the import business to now designing its own products. The assumption of the Perry Ellis name has elevated Supreme International from the middle ranks of apparel makers to major worldwide brand status.

Origins as a Fashion Merchandiser in the 1960s

Perry Ellis never intended to become a designer. He was born in 1940 to a wealthy family in Portsmouth, Virginia, and after majoring in business at the College of William and Mary he earned a master's degree at New York University's School of Retailing. In 1963 he became a management trainee at the upscale Richmond, Virginia, department store of Miller & Rhodes, where he quickly proved to be a brilliant fashion merchandiser. Ellis would become one of the top customers of John Meyer of Norwich, Connecticut, a women's sportswear company, which would hire him away in 1967. For Meyer it was a chance to revitalize a slipping line; for Ellis it was a chance to work in the fashion industry of New York. At John Meyer, Ellis learned about the production and manufacture of clothes, as well as the publicity and marketing side of the business. Although he did not design, he became involved in the styling of the John Meyer lines. When owner John Meyer, diagnosed with cancer, was forced to sell the company, Ellis, in 1974, went to work for The Vera Companies as vice-president and merchandise manager of its sportswear division.

As he had done with John Meyer, Ellis provided a great deal of input on fabrics, colors, and styles at Vera Sportswear. When a new executive, Frank Rockman, took over the division, it became apparent to him that Ellis was providing more ideas than the designer, who, in any case, was about to retire. Rockman asked Ellis if he would design the line. Although he refused at first, Ellis finally accepted the position, taking over in January 1975. Within a year, Rockman was approaching the executives at Vera's parent corporation, Manhattan Industries, pressing them to allow him to start a contemporary fashion line of womenswear designed by Ellis. The result would be the Portfolio collection in the fall of 1976 and Ellis's quick ascent as a premier fashion designer. He lacked the technical skills to be considered a designer in the traditional sense, but he supplied the ideas that his assistants were then able to render as a sketch or construct into a prototype from which a pattern could be made.

Negotiations with Manhattan Industries for a contract began in 1977 and lasted until August 1978 when Ellis became president and designer of Perry Ellis Sportswear, Inc., at a salary of $150,000 a year. As part of the agreement, Ellis retained control over his own name and would be able to license it to other companies in any category of apparel outside of women's sportswear that did not directly compete with Manhattan Industries. Perry Ellis International was subsequently created to manage these license deals, the first of which was with Alixandre, a fur company. Ellis was 38 years old.

As he became a celebrity designer, Ellis ran Perry Ellis International in an offhand manner, albeit with the help of his assistants. In 1981 he asked his companion, Laughlin Barker, to take over as president and legal counsel. After resigning from the New York law firm of Patterson, Belknap, Webb, and Tyler, Barker assumed his new role at the end of June 1982. At this point, Perry Ellis had nine licensees that generated some $60 million at wholesale prices and paid a 7.5 percent designer fee. Manhattan Industries received 25 percent of the company's net earnings. In 1982 Perry Ellis signed another seven licensing deals. Among other products that Barker would license were Perry Ellis fragrances and cosmetics, Japanese menswear, and a footwear line. All of the apparel was designed in Ellis's Manhattan studio.

Perry Ellis Dies in 1986

Perry Ellis was at the peak of his career when AIDS had a tragic effect on Perry Ellis International and the fashion industry in general. In January 1986 Barker died of an unspecified illness, then on May 30 Ellis died, reportedly from viral encephalitis, commonly known as sleeping sickness. Although no one would confirm that either man died from complications caused by AIDS, some newspaper accounts reported rumors that Ellis had contracted AIDS, or the stories were written in a manner to suggest that Ellis was a victim of the disease. At the time, the fashion industry was engaged in a complex form of denial. A large number of single men between the ages of 25 and 45 who worked on Seventh Avenue were dying from an assortment of ailments that were either rare or not generally considered life-threatening, yet any suggestion that AIDS might be involved was expressed only in whispers or innuendo. The issue was further complicated by the public's general fear and misunderstanding about the nature of the disease. The Daily News Record, a menswear trade publication, reported that talk of Ellis's AIDS diagnosis had hurt sales because some consumers were afraid they might contract the disease by simply touching Perry Ellis clothing.

Perry Ellis left Perry Ellis International to his heirs, primarily a daughter, Tyler Alexandra Gallagher Ellis, and her mother Barbara Gallagher. Ellis and Gallagher, a screenwriter and producer, had been friends for a number of years. By 1984 he was probably aware of his precarious health, while she was nearing 40 and feared that she would soon be beyond childbearing years. Both expressed a desire to have children and, according to friends, they agreed at a dinner party to conceive a child. When Ellis died Tyler was 18 months old. Ellis had previously asked another former companion, Robert McDonald, to serve as executor and trustee of his estate and to take over as president of Perry Ellis International.

Although McDonald was a former film producer with no background in the fashion industry, he agreed to Ellis's request and kept the company functioning despite the pall cast over the studio by the untimely death of its founder. Licensees in 1986 would generate more than $300 million wholesale, resulting in approximately $22.5 million for Perry Ellis International. In terms of retail volume, the company was generating some $750 million a year. The clear challenge was to keep Perry Ellis International alive despite the loss of Perry Ellis himself. In many respects a fashion designer's name had simply become a brand that actually represented the efforts of many: from design and marketing teams to the licensees themselves. Quoted in the New York Times shortly after Ellis's death, Jack Hyde, chairman of the Menswear Department at the Fashion Institute of Technology, said, 'Let's face it, Christian Dior has been dead for a number of years, Chanel is dead, Anne Klein is dead. Business can go on. ... There are people who think that Christian Dior is still alive because they see his label.'

Longtime Ellis assistants took over the design responsibilities for the menswear and womenswear lines, but business soon began to fall off. To complicate matters, Manhattan Industries had been bought out by more profit-conscious Salant Corporation. A young designer named Marc Jacobs was then hired to oversee womenswear, and another designer, Roger Forsythe, was hired to oversee menswear. In addition, in 1988 McDonald hired Claudia Thomas, another longtime friend of Perry Ellis, who had experience as a marketer of home furnishings. In effect, he was grooming her to take over the company, because in March 1990 he too died from an AIDS-related illness, and she became president. The company was further diminished in October 1991 when Forsythe died from HIV-related causes (at the time of death his immune system was not depressed enough to be diagnosed as AIDS). The designer had gone public about his illness in a way that stood as a stark departure from the shame and secrecy that surrounded the subject of AIDS in the fashion industry of the mid-1980s. He wrote an open letter to the Perry Ellis staff as well as granting a candid interview with the Daily News Record to discuss his health.

To many in the fashion industry Perry Ellis International lacked focus at this stage. Even after Forsythe's death, the mass market, high-volume menswear business was doing well, but the company's signature womenswear collection, normally regarded as a loss leader, failed to provide synergy with the more mundane licensed products, where the major profits were actually realized. Although Jacobs garnered a certain amount of critical acclaim for his extreme fashion, in particular a notorious 'grunge' collection, Thomas decided in 1993 to discontinue manufacturing a womenswear line. In reality, she was answering to the trustees of the estate of Tyler Ellis. Her mandate was to retain value rather than bankroll an idiosyncratic artistic vision. Perry Ellis, in effect, became just a design and licensing operation, leaving others to assume the manufacturing and distribution risks.

Thomas decided to leave Perry Ellis when her contract expired in 1994. She was replaced by Max J. Garelick, who had been the chief executive officer of a North American subsidiary of Rodier Paris. Perry Ellis did fairly well under Garelick, ranking number four among menswear brands, trailing only Polo, Tommy Hilfiger, and Nautica. Its only business in womenswear was a coat license. The company expanded into licensing such areas as watches, luggage, and home fashions. By the end of 1998 Perry Ellis brands generated an estimated $900 million a year in retail sales across 39 categories in 60 countries, but Salant, holders of one of its most important licenses, was forced to file for Chapter 11 bankruptcy protection. In January 1999 the trustees of the Perry Ellis estate decided to sell the company to Supreme International for $75 million in an all-cash transaction. For the trustees, given the situation with Salant, it was simply their fiduciary responsibility to protect the value of the estate by realizing $75 million, which could then be invested in a diversified portfolio for the heir of Perry Ellis. For Supreme International it was a deal that George Feldenkreis hoped would elevate his company to a new level.

Feldenkreis' family were Russian Jews who had fled to Cuba after World War II to escape communism. While his father made a living by importing electric equipment into Cuba, Feldenkreis became a lawyer. After Fidel Castro assumed power in 1959, and Cuba also became a communist country, Feldenkreis in 1961 fled to Miami with his pregnant wife, one-year-old son, Oscar, and only $700. Unable to practice law in his new country, Feldenkreis used his father's overseas contacts to start importing such diverse products as automotive parts from Asia and window glass for doors from Portugal. He also began to import guayaberas, the popular Caribbean straight-bottom men's shirt with four pockets. In 1967 he and his brother created Supreme International for their burgeoning clothing business. In addition to importing on a commission basis, Feldenkreis wanted to manufacture his own goods.

Supreme International was still quite small in 1980, with sales of $5 million and profits around $50,000, when Oscar turned 20, joined the company, and set about establishing Supreme's own brands. For several years he had limited success, but learned valuable lessons about merchandising. In 1989 he and his designers coined the Natural Issue brand. It was a simple but powerful concept that captured a prevailing desire to use environmentally friendly materials for casual clothing.

Natural Issue proved so successful for Supreme International that the company made an initial offering of stock in May 1993, raising almost $14 million, to fund expansion. It invested $500,000 in computer design equipment to quickly produce new styles. By August 1993, Supreme International acquired two companies: Alexander Martin for $460,000 and Publix Brands for $425,000. Martin brought with it the King Size Catalog, Eagelson, and the Daube clothing lines, while Publix added Albert Nipon, Adolfo, Monte Carlo, Career Club, C.C. Sport, and the Cotton Mill labels. After assimilating the new brands into its operations, Supreme International saw its annual sales reach $50 million in 1994.

Supreme International was now involved in a full range of apparel activities. It still imported guayaberas, but now designed and manufactured clothing as well as licensing its labels to others. In 1996 the company cast its net wider when for approximately $3.7 million it purchased Jolem and its labels aimed at Hispanic and African American men, including Tipo's, Cross Gear, Monte Fino, and New Step. Later in the year Supreme International made its most important acquisition to that point when it purchased Munsingwear and related brands for some $18 million. A year later the company added sweater manufacturer Crossings. Sales reached $90.6 million in 1995, $121.1 million in 1996, $155.7 million in 1997, and $190.7 million in 1998.

Late 1990s: Supreme International Assumes the Perry Ellis Name

The 1999 acquisition of Perry Ellis International for $75 million was a major move for Supreme International. It elevated the Miami company to major status in the international fashion industry. (At the same time, Supreme International also bought the Manhattan and John Henry clothing lines for $35 million from troubled Salant.) To take full advantage of the Perry Ellis deal, Supreme International decided to change its name to Perry Ellis International. Although the company's stock would trade under the new name, the Supreme International name was retained for the operating division. The Perry Ellis International Division would handle the licensing and marketing for all of the corporation's labels.

George and Oscar Feldenkreis then set about raising the profile of Perry Ellis that, although still alive in the minds of many consumers, had clearly slipped in the 15 years since the death of the designer. The company returned to womenswear, signing a licensing agreement with Kellwood to produce a high-end line. Overall, the goal was to make Perry Ellis into a lifestyle brand to compete with the likes of Ralph Lauren and Calvin Klein, from producing children's clothing to housewares. Perry Ellis took a page from Calvin Klein in early 2000 when, as a part of a $10 million marketing plan, it launched a controversial outdoor advertising campaign that featured images of nude and seminude models. When one outdoor company decided the ads were not appropriate for posting in Times Square, Perry Ellis received a bonanza of free advertising--and the kind of cachet coveted by a clothing line trying to establish itself as trendy.

The aggressive pattern of acquisitions continued for Supreme International under the Perry Ellis name. In July 2000 it paid $1.3 million for the Pro-Player, Artex, Fun Gear, and Salem Sportswear labels. In November 2000 it paid $1.75 million for the Mondo trademarks. Sales approached $230 million in 2000 and exceeded $287 million in 2001. George and Oscar Feldenkreis had clearly made tremendous strides in the previous decade. Whether they could successfully assume the mantle of Perry Ellis and build a mega-business remained to be seen.

Principal Operating Units: Perry Ellis; Munsingwear; Andrew Fezza; Ping Collection; John Henry; Crossings; Romani; Pro Player; Penguin Sport; Natural Issue; Havana Shirt Co.; Grand Slam; Manhattan; Cubavera.

Principal Competitors: Liz Claiborne, Inc.; Nautica Enterprises Inc.; Polo Ralph Lauren Corporation; Tommy Hilfiger Corporation.

Chronology

• Key Dates:

• 1967: Supreme International is founded.
• 1978: Perry Ellis International is founded.
• 1986: Perry Ellis dies.
• 1989: Supreme International establishes Natural Issue label.
• 1993: Supreme International goes public.
• 1999: Supreme International acquires Perry Ellis and assumes the Perry Ellis International name.