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Management Shift at Cherokee

Executives at brand manager Cherokee Inc. are hoping that three major management changes in the past five months at the Van Nuys-based company and others expected in the near future will lead to a better focused company able to make greater forays into the international arena. In August, manufacturing industry veteran Henry Stupp became Cherokee’s new CEO, replacing former CEO and Chairman Robert Margolis, who remained with the company as executive chairman. In December, Stupp brought a new chief financial officer, Mark DiSiena, on board. And on Jan. 28, Margolis completely broke off his leadership ties with Cherokee, stepping down as executive chairman and being replaced by Jess Ravich. Ravich is a long-time member of the company’s board of directors. Upon leaving Cherokee, Margolis called Ravich an expert in financial matters and said he has “a deep knowledge of Cherokee and the retail industry.” He also departed with encouraging words about the company’s new CEO. “Henry Stupp has my utmost confidence as CEO,” said Margolis, who is credited with pioneering the “retail direct” licensing model and transforming Cherokee into a leading global brand management company over the past 20 years. “I am excited to witness the next dynamic phase of Cherokee’s growth and spend much deserved time with my family and grandchildren.” New vision Stupp, co-founder of fashion apparel supplier NTD Apparel, was planning on leaving the industry and had his eye on Cherokee. As someone who had always been a fan of the company, he had ideas for how to make it better. Stupp said he approached Margolis, asked him where he was with the company, shared his own ideas and asked Margolis if he would consider stepping down as CEO. The leadership transfer followed. Nearly five months after officially taking over the role, Stupp is now in the process of rolling out a new vision plan for the company. The company is currently presenting the “global brand vision” for its owned and managed brands to its retail partners, such as Target, Tesco in the UK and Zellers in Canada. Cherokee markets and licenses brand names and trademarks for apparel, footwear and accessories. It owns various trademarks, including Cherokee, Sideout, Sideout Sport, Carole Little, CLII, Saint Tropez-West, Chorus Line, All That Jazz, and Molly Malloy. The company’s new plan consists of four main components to be executed over the next two years, Stupp said. The first is a creative component, which focuses on defining exactly what the Cherokee brand is and on offering retailers creative inspiration for aligning with the brand’s message. The second component focuses on revamped marketing initiatives, such as better use of social and digital media and the implementation of three new Cherokee brand labels. The third component focuses on service and support, with a plan for implementing technology for retail analytics to better track shopping trends. The fourth component has yet to be released. Stupp said that while Cherokee has been a strong and unique brand with a loyal following and dedicated retail partners, there was a need for more definition to refresh and reinvigorate the band. “I think you get comfortable and you’re not introducing new technology, you’re not introducing new methods,” Stupp said. “I think that’s why companies go through management changes, and they bring in outside people to take a good look at the business and (bring) different skill sets. That’s where we were.” Growth mode Stupp said the company is already in growth mode internationally, and he wants to expand it even further. He said growth has also gained traction since the company launched its Cherokee brand in China and Japan last year. “What’s happened in China and Asia has led to a lot of interest from other Asian countries like Korea, and it’s extending all the way out to the Pacific as far as Australia,” he said. “So we’re currently reviewing multiple retailers from multiple countries all throughout the south Pacific. We’re also going to close in the loop on any areas that are not currently covered in Western Europe.” In its latest deal, the company last week announced a multi-year license agreement for its Cherokee brand in Russia with CJSC Tander for its Magnit stores. International partnerships have served as a good outlet for Cherokee in its efforts to expand to new categories, Stupp said. The company has already expanded to footwear and home and room décor. It is in the process of launching products in the infant bed and bath, fragrance and health and beauty categories, and it is looking into food products. He said he also wants the company to do more brand acquisitions in the future. Business model David Trainer, CEO of equity research firm New Constructs LLC, said that even before the leadership change, Cherokee was an attractive business. “It’s our top rating,” Trainer said. “Part of that is because it is inexpensive, and part of it is because it’s a very profitable business. It’s a great business model to essentially be a brand licensor and not actually have to be in the business of building things and manufacturing them and doing all that when you can just brand it and sell it.” He said Margolis made an intelligent business decision by switching to that focus from apparel manufacturing. Trainer said another thing that sets the company apart is its 117 percent return on invested capital – for every dollar spent, the company has profit of $1.17. “That’s a terrific business model,” he added, adding that only a handful of companies in the United States reach more than 100 percent for their returns on invested capital. Meanwhile, the company had lower earnings and royalty revenues for the first three quarters of 2010. The lower royalty revenues were attributed to less favorable exchange rates and reductions in prices by retailers. Cherokee has not yet released its revenue or earnings for its fourth quarter or for the full year of 2010. Its revenues in 2009 were $32.5 million, down from $36.2 million in 2008. The brands that Cherokee owns and represents generate more than $4 billion in annual retail sales worldwide.

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