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With Losses Mounting, Mossimo Turns to Target

Apparel: The licensing pact with the discount chain is a sharp strategy shift. The Irvine firm also plans job cuts.


Clothes designer Mossimo Giannulli, who wooed well-heeled patrons with stylish beach and urban wear, announced Tuesday he will begin selling his clothes in discount Target stores next year.

The move, part of the Irvine apparel company's effort to shore up its flagging operations, stunned some industry experts, who saw it as a marked departure from the high-profile owner's earlier strategy.

"He envisioned himself as the next Ralph Lauren--he talked about the 'Moss lifestyle,' " said Steven Martin, who has followed the company since it went public four years ago. "I don't think Mossimo ever envisioned himself making public appearances at Target stores."

His company, Mossimo Inc., announced that Chief Executive Edwin Lewis has resigned and that it will dismiss "a significant number" of employees as part of a restructuring. The company has about 100 workers.

The company also said its losses more than doubled in the fourth quarter and that it is trying to arrange interim financing to continue its operations until the licensing deal with Target begins to generate revenue next year. Without such financing, Mossimo's accountants question whether it will be able to continue as a going concern, the company said.

The bombshell came on the heels of what had seemed to be a turnaround for Mossimo, which had struggled in recent years after attempting to move too quickly to fashion-oriented apparel from its more casual beachwear roots. Last October, the company reported its first quarterly profit in two years.

Giannulli, 36, has been in the front seat of a wild roller coaster ride since he took his company public in 1996 and the stock shot to $50 a share from $18 in just a few months. Within a couple of years, the stock had plunged to the single digits as industry experts chided the designer for making a major misstep by switching gears too quickly.

In a bold move to right the company, Giannulli in late 1998 gave up half his share in the business to hire Lewis, former chief executive of Tommy Hilfiger Inc., for the top job at Mossimo. Industry experts hailed the move and the stock quickly moved upward.

The stock closed Tuesday at $6.50 a share, down 6 cents, on the New York Stock Exchange. The restructuring was announced after the close of regular trading.

Industry experts were divided Tuesday about what the latest about-face means for the company, or for the high-profile designer who gave it his name.

Some said that teaming with Target could be a wise strategy, assuming that Mossimo can get critical interim financing.

"Target is today the most modern, coolest big box retailer in America," said Dick Baker, chief executive of surf wear maker Ocean Pacific Apparel Corp. in Irvine.

Others said the licensing deal probably won't be particularly lucrative and questioned whether Mossimo will be able to obtain the needed financing.

"If this was such a good deal, somebody would have lent the money up front," said Martin, president of Slater Asset Management.

In any case, the move from department stores such as Bloomingdale's and Macy's to a discount chain is a comedown for Giannulli, Martin said.

Mossimo officials could not be reached for comment.

The company, in a prepared statement, said it decided on the new strategy after hiring consultants to consider its options. With the company departing from its traditional method of operation, Lewis opted to resign as president and CEO. He will continue to advise the company, Mossimo said.

Under the deal with Target, Mossimo said, Giannulli will contribute "design services" and license his company's trademark to the retailer, which will sell men's and women's apparel bearing the Mossimo brand in all 923 Target stores nationwide.

Target may expand its Mossimo line to include other products, such as housewares, accessories and fragrances, Mossimo said.

Mossimo said the agreement includes a three-year sales guarantee totaling $1 billion, beginning next February. Mossimo will receive a royalty based on the sales.

"By joining forces with what we believe to be one of the leading retailers in the market today, we can further leverage the strength of the Mossimo brand and significantly expand our reach," Giannulli said in a statement. "I truly believe this represents the next big evolution in retailing--dominant retailers working together with marquee brands toward a common goal."

In an attempt to drum up more business, mass merchandisers have tapped name-brand designers to turn out shirts, towels, tea kettles and the like for them. Wal-Mart, Target and Kmart have lassoed a stable of big-name designers in their ongoing attempt to transform themselves from low-budget to bargain chic.

Kmart sells Martha Stewart bedding, towels, napkin rings and scores of other items at its stores, helping burnish Kmart's once dowdy image.

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