Frederick’s of Hollywood and Movie Star Inc. are merging, bringing together one of the lingerie industry’s most flamboyant marketers with one of its strongest manufacturers.
The strategic partnership, announced Tuesday, will give 60-year-old Frederick’s an opportunity to expand its intimate apparel empire of brick-and-mortar stores and its e-commerce and catalogue businesses into a major power in the lingerie arena, industry executives said.
“This really is a great strategy and a unique opportunity to combine our strengths and for Frederick’s to access the capital market,” Linda LoRe, chief executive officer of Frederick’s, said in an interview. “That will be the biggest opportunity for us: access to the capital market and a publicly traded company. It will give us the resources to enable us to open 50 additional stores in the next 24 to 36 months.”
At Frederick’s, based in Los Angeles, core products include the Hollywood Kiss Bra, which “hoists the breasts up until they kiss,” and the liquid-filed H2O Bra. The company operates 130 stores nationwide.
“It’s also a great strategy for our direct business; new factories, new technology to rebuild our Web site and entire direct catalogue division,” LoRe said.
The firms have assets close to $190 million. Frederick’s had $139 million in sales at retail in the fiscal year ended July 29, and Movie Star’s wholesale had revenues of about $51 million in the fiscal year ended June 30. The combined businesses will be Frederick’s of Hollywood Group Inc.
Under the definitive agreement approved by the boards of both firms, Frederick’s shareholders will receive around 23.7 million shares of new Movie Star stock. Movie Star will issue its shareholders non-transferable rights to buy an aggregate of $20 million of new shares of Movie Star.
LoRe said that if Movie Star shareholders did not purchase their pro rata percentage of Movie Star common stock in the rights offering, Frederick’s owners would purchase, on an equal basis, any shortfall. The Frederick’s owners include TTG Apparel LLC and its affiliates, as well as Tokarz Investments LLC and funds associated with Fursa Alternative Strategies LLC.
Frederick’s and Movie Star will operate as separate divisions of the holding company; design and merchandising of the FOH brand will continue to be directed in Los Angeles. Movie Star’s design and merchandising group will continue to base its operations in New York.
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Commenting on store expansion, LoRe said, “This strategy allows us to partner with landlords at shopping malls and open up stores we’ve had our eye on for a while.”
The two newest FOH stores are in Kings Plaza shopping mall in Brooklyn, N.Y., opened two weeks ago, and a unit in the Westfield San Francisco Centre that opened Friday.
“We feel Frederick’s is a very strong brand, and this [is] a great opportunity for our shareholders,” said Mel Knigin, ceo of Movie Star. “It’s a very exciting time, and they have a very diverse number of suppliers and vendors, and we hope as they grow, we will grow with them. I think the stronger and more diverse the Frederick’s supply chain becomes, it will make them a much stronger business and will lead them to have a stronger design perspective.”
Both Frederick’s and Movie Star have been conducting retailer-vendor business since 1996. The bond between the companies was solidified by TTG Apparel, which owns 22.4 percent of Movie Star’s outstanding common stock and is its largest shareholder.
This merger comes as the innerwear industry has been leveled by consolidation at retail and in manufacturing. This has made it tough not only to satisfy financial goals, but to keep alive the innovative and creative initiatives that have kept the marketplace afloat since turn-of-the-century corsetry was among the hottest apparel categories.
Another element making the alliance unusual is the melding of two worlds that many have regarded as separate, where executives traditionally have bickered over everything from late deliveries and markdown money to the price of European lace, marabou trim and the cost of a pricy lunch.
Victoria’s Secret broke the mold when it created and worked in tandem with Mast Industries, the manufacturing arm of parent Limited Brands. Nearly every major retailer now has its own manufacturing ventures for private label merchandise.
Considering the retail reaction, Knigin said, “I don’t think it will be a problem. There’s a design unit that does Movie Star and Cinema Etoile, and we’ll continue to sell them separately. I’m at Wal-Mart as we speak, and they don’t think it will be an issue.”