MONTREAL — If you looked at the financial results of Algo Group Inc. over the last few years, you wouldn’t rush out to buy the company’s stock. There’s nothing but red ink on the books, which probably will continue this year.
But the company has been around since 1942 and has made some major changes, including the appointment of a new president and chief executive officer in July 2005.
One of the first things Marc Kakon did after he took over was get out of local fashion apparel manufacturing, effective last January, to cut costs and become more competitive. Fashion apparel now is being imported. It accounted for roughly 16 percent of Algo’s sales of $45 million last year, down from $55 million in 2004, which were down from $65 million in 2003. About half of all sales are done outside Canada, mostly in the U.S. All figures have been converted from Canadian dollars.
At its peak in the Eighties, Algo had annual sales of more than $300 million, with most manufacturing done locally. Back then, there was very little competition and very few imports.
“Like everyone else, we couldn’t be competitive producing locally,” said Kakon.
With declining sales came mounting losses of $6.1 million last year compared with $4.3 million in 2004 and $3.4 million in 2003.
The bleeding continued into the first half of this year, with a net loss of $3.2 million for the first six months ended June 30, compared with a net loss of $720,000 for the previous year. Sales were $20.8 million compared with $25.8 million for the same period in 2005, a decrease of $5 million.
So how will Kakon stop the bleeding? In addition to exiting fashion apparel manufacturing, the company has shed its children’s outerwear division and recently picked up two major licensing agreements for North America (Rodier women’s wear and men’s wear and Ted Lapidus men’s wear) to complement its stable of recognizable labels in women’s wear, men’s wear, children’s wear and home furnishings.
“When I took over a year ago, there were money and cash flow problems and union problems,” explained Kakon, who came from a real estate background building retail stores in the apparel trade along with experience in mergers and acquisitions. “The company was also focused on dresses. The diversity of products wasn’t there. Now it is. We had to get brands because Wal-Mart and better department stores want brands, so we’re creating a strong portfolio of flagship brands.”
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Another move he made was to bring all the different divisions under one roof to generate some synergy and avoid paying outside rent.
Although Algo has a good reputation in the U.S. for dresses and sportswear, it wasn’t enough to drive the company, said Kakon, who opened a men’s wear division because he believes “if you do something, do it fully.”
He brought in Dean Brown, formerly head of Gruppo GFT Canada, licensee for Giorgio Armani, Valentino, Ungaro and Calvin Klein, among others, as vice president of sales for Algo Group. He also hired Jacques Lacombe of Ballin, one of the top manufacturers and importers of men’s dress pants in North America, and appointed him director of men’s wear.
In addition to Rodier and Ted Lapidus, Lacombe will be responsible for Algo M, a moderately priced line of suits, jackets and trousers, and Seven7, a line of denim sportswear for young men.
On the women’s side, in addition to Rodier knitwear, Kakon brought in Votre Nom, a well-known French label of designer sportswear with more than 500 accounts in the U.S., which Algo took over for both the U.S. and Canada.
Rodier and Votre Nom will complement the existing labels of Algo Collection (midpriced dresses and coordinates), Algo Sportswear, Lori Ann (special occasion dressing) and Victor & Delano (high-end evening dresses).
Children’s wear is sold under the Green Jeans division, which consists of Seven7 Kids, Plugg Jeans and London Blues jeans.
With virtually the entire family covered, Algo created a home furnishings division called Algo Home, targeting the U.S. market. It comprised Algo Home bedding and Melissa Ann Design, a large variety of home furnishings.
Then in early August, it signed a licensing deal with Levi Strauss & Co. to manufacture and sell home furnishings, including bedding, comforters, duvet covers, sheets and accessories, along with window treatments and throw rugs under the Levi’s brand in the U.S. The line, which made its debut at the New York Home Textile Market Week last month, will be designed in Algo’s New York office and manufactured in China for a holiday launch.
“Consumers have an incredible bond with the Levi’s brand and our jeanswear, so it makes sense to extend that relationship into product categories like home furnishings,” said Robert Hanson, Levi’s brand president.
“It will bring a new lifestyle appeal to teenagers or it will be a good product if you’re renting an apartment for one of your kids,” said Kakon.
With all of these additions, including a private label program for Wal-Mart Canada through its Green Jeans division, Kakon estimates sales next year should hit $70 million and Algo should generate some positive cash flow for the first time in several years.
He’s also got some good business partners to lean on. Kakon, along with Max Azria of BCBG and Dan Elituv, former president and ceo of Algo and current chairman, control more than 70 percent of Algo’s issued and outstanding common shares. In addition, Ben Malka, an officer of BCBG, is acting as a sales consultant for the company in the U.S.
“Algo doesn’t have the luxury to move slowly, because it was losing too much money,” said Kakon. “We want to become a shopping center of brands. We’ll digest the new licensees then move onto something else.”