WorldCity Business Magazine

Clothes made the man

by Doreen Hemlock

The CEO of Perry Ellis International sits at the helm of a company that has stayed ahead of the competition through savvy acquisitions, an early foray into Asia and, most of all, a respect for the power of branding.

George Feldenkreis is seated in his office between a bold Latin American painting and an austere Asian gong. He glances at his watch. He has only until 5 p.m. to decide whether to ship an order of clothes from China to the United States by air the most expensive option or by sea. At the core of the dilemma is a deadline.

“If we send it by air, it’s like a $2 million waste,” said the CEO of Miami-based apparel marketer Perry Ellis International. But if the sea freight arrives too late to clear U.S. Customs in time for the fashion season “you lose 50 percent of the value of the shipment,” he adds.

Feldenkreis faced the hard choice because, following a surge in Asian textile imports, Washington recently slapped limits on certain kinds of clothes entering the United States from China. He had reckoned that the annual ceilings would be reached about July 30 provided other importers didn’t send more cargo by air, bringing in clothes faster and moving up the date for the cap.

If Feldenkreis miscalculated while making his decision in late July, Customs would hold up his goods until next year while he footed the storage bill.

“You have to make a bet,” said the white-haired entrepreneur, showing the ease and confidence of a veteran poker player. “It’s like you go to Vegas and make a bet.”

Top of the game

The Perry Ellis chief executive has been betting well for decades now, building a small company that imported four-pocket guayabera shirts into an international powerhouse in men’s apparel with sales this year likely to reach $900 million, about triple the amount sold only three years ago.

It’s a remarkable feat for any entrepreneur, but especially for a Cuban who fled to

Miami in 1961, with a wife and infant son in tow. He arrived in the United States with limited English skills and just $700 in his pocket. Today, he is one of South Florida’s top business and community leaders.

Analysts, associates and friends credit Feldenkreis with a savvy strategy, a knack for finance, skill at negotiating plus a prodigious memory. Familiarity with Asia from a young age also has proven a strong edge, allowing him to develop a top-notch network of contractors to produce clothes in China, South Korea, Taiwan, Hong Kong and Vietnam. Many rivals face higher costs producing in the United States or in the nearby Caribbean Basin using U.S. fabric and U.S. components.

“I was born sourcing in Asia,” he joked, recalling how his father used to represent Japanese companies in Cuba and how teacups and saucers the family imported in the late 1940s bore the stamp “Occupied Japan.”

The real secret to building Perry Ellis, however, has been early recognition of the importance of branding. Through the 1980s, Feldenkreis and associates at his Miami-based Supreme International helped produce clothes overseas for clients who put their own brand or label on menswear, from shirts to trousers. But Feldenkreis’ fashion-savvy son Oscar, now president and chief operating officer, pushed the company to develop its own brands, prompting the 1988 launch of the Natural Issue line.

Going public

After listing Supreme on the Nasdaq in 1993, and using some of the proceeds to license such names as Adolfo from a bankrupt shirt company, Feldenkreis realized he was onto something big with brand names generating greater consumer buzz and higher profit margins.

By 1996, the Supreme team completed its first major acquisition, buying Munsingwear, the label known for its penguin logo. That deal proved the beginning of strategy of buying distressed companies with known brands and then revitalizing them.

Since then, acquisitions have come at a quickening pace: Sweatermaker Crossings in 1997 then Ping golf clothing and Andrew Fezza clothes in 1998. But the breakthrough came in 1999 when the company bought Perry Ellis International, named for designer Perry Ellis. Supreme then changed its name to Perry Ellis International and its stock symbol to PERY.

Today company has a stable of brands so large that sales for the fiscal year ended Jan. 31, 2005 jumped to $656.6 million a 30 percent increase from a year earlier. Net income rose almost twice as fast, up 59 percent to $21 million for the year, financial reports show.

“They’ve done the best job of finding what you might call washed-out’ brands for an inexpensive price and making a good business out of it,” said Erin Moloney, an analyst in Portland, Ore., with San Francisco-based Merriman Curhan Ford and Co.

How did Feldenkreis squeeze extra value from companies and brands when others couldn’t? With the time ticking away on his China shipment decision, the calm exec replies with trademark succinctness. “By cutting expenses, revamping the product line to make it more attractive to the customers and improving sourcing to lower the price,” he said. “If a company is in decline, it’s usually because of management.”

Feldenkreis said his team starts by trimming the fat “that all companies build up through the years.” It gains, too, by merging office functions, such as legal departments and corporate boards, with the existing departments in Perry Ellis International. After buying Tampa-based Tropical Sportswear this year, for instance, it axed the outlays Tropical had earmarked to insure directors and officers. “I probably saved $1 million in insurance alone,” he explained.

Ahead of the pack

When it comes to revamping products, Feldenkreis said design is the key. “Look at iPod. It’s a great invention, but it really comes down to design,” he said, decrying the limited number of “imaginative” fashion designers in Miami when compared to New York, Los Angeles and international apparel centers.

Yet it is mastery of sourcing in Asia that sets Perry Ellis apart from the herd, analysts agreed.

Today, the company contracts about 80 percent of its production in low-cost Asia, more than many rivals and up from about 70 percent only three years ago. It now operates four offices in mainland China, plus three more in Hong Kong, Taiwan and Vietnam just to coordinate its massive orders bound largely for North America.

Feldenkreis was bullish on China, today’s undisputed leader for garment making, long before the Communist giant became popular. He first visited the country for a couple of days in 1975, just after Richard Nixon re-established diplomatic relations and years before the Chinese government welcomed foreign investment. Four years later, just months after China showed the first signs of opening up, he was back scouting for business.

Indeed, Supreme set up its Beijing office at an unusual time shortly after the 1989 massacre of Chinese student protesters in Tiananmen Square. “All the guys in New York told me I was crazy, because China was finished. No American would buy from China,” Feldenkreis recalled. “But 15 years later, [the United States] has a $162 billion trade deficit with China.”

Associates also credit Feldenkreis with a gift for finance and negotiation, skills that have allowed him to snare companies and brands at a discount. To calculate value, Feldenkreis said he’s “very empirical and relatively subjective.” He spends more time looking at what a new purchase can bring to his portfolio than he does crunching numbers for cash flow or earnings.

For example, if he finds a brand that sells at a top department store where he has no distribution, he looks at potential gains of getting his other brands into that retail chain. Plus, he looks at what products he might be able to add to his portfolio with the new brand. Then he negotiates firmly to get the price he wants.

Banker Adrienne Arsht, now chair of Miami-based Total Bank, attests to Feldenkreis’ tough-as-nails bargaining abilities. She bought his small community bank, Miami-based Universal National Bank, about eight years ago when Feldenkreis divested certain holdings to focus on acquisitions and growth with Perry Ellis.

Arsht recalled intense negotiations and even snarls, with Feldenkreis remaining principled, meticulous on details and steadfast on price. “Everyone in town knows George is the toughest negotiator,” she said. “Later, I bought another bank, and I must say I got my negotiating skill from George.”

How long can Perry Ellis keep up its acquisition push and double-digit growth?

Feldenkreis intends to keep buying as long as debt and equity markets will fund him and he can turn around the acquisitions. In the increasingly global and competitive garment industry, he said, size does matter. “Small companies are not going to survive in apparel. The day is already here when consolidation would come,” he explained.

“I’ve tried to build a bigger company which is more meaningful to the retailer,” he added.

Win some, lose some

That’s because retailers keep merging and seeking larger vendors to meet their needs for high volumes, consistent quality, on-time delivery and sophisticated electronic links. Some of the top buyers for Perry Ellis’ brands include behemoths Wal-Mart, J.C. Penney, Mervyn’s, Kohl’s and Sears.

To be sure, not every undertaking has been a winner. In 2002, Perry Ellis bought Jantzen and started marketing women’s female swimwear under the Jantzen and Southpoint labels while promoting Tommy Hilfiger and Nike bathing suits for women, too.

But women’s swimwear has proved rough waters for a company specialized in the less volatile business of men’s clothes. “Jantzen has been a drag on earnings,” said analyst Moloney, who now is neutral on Perry Ellis stock.

To adjust in female swimwear, the company has been shedding weak product lines, switching all sourcing to Asia. Perry Ellis recently ended the Tommy Hilfiger licensing deal, instead introducing its own swimwear brands such as Penguin.

Growing pains

Still, these less-than-stellar investments haven’t squashed the widespread respect for Feldenkreis’ vision. “They do have an outstanding portfolio at Perry Ellis,” says analyst Moloney. “And they’ve done very good work catering to Hispanics. No one else is really targeting that fast-growing community.”

Apparel veterans are especially impressed that Feldenkreis keeps expanding. His workforce is now roughly 600 in Miami and 2,200 worldwide. Many of his rivals, by comparison, have folded.

“Only a few companies are left in the Miami area like them. I’ve seen many, many go away,” says Norman E. Gelber, president of Miami-based Customs and Trade Services Inc., which specializes in apparel.

Yet staying on top requires attention to detail. Feldenkreis relies on his Blackberry hand-held computer to stay linked to his office. And he recently took time during a Cancn vacation to the dismay of some fellow travelers to check on his brands at a Mexican department store.

The stakes are high, even when mulling one afternoon whether to send a big batch of clothes from China by plane or ship. He ultimately decided on air freight. “At this level, executives like to play it safe,” he explains.