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Tag-It
Pacific’s new management team has restructured the company, leading to profitability
in 2006 while maintaining its position as the leading innovator delivering zippers and
trim items to manufacturers of fashion apparel, specialty retailers and mass merchandisers
worldwide
Consumer Goods
Textile – Apparel Clothing
(TAG-AMEX)
Tag-It Pacific, Inc.
21900 Burbank Boulevard, Suite 270
Woodland Hills, CA 91367
Phone: 818-444-4100
Stephen Forte
Chief Executive Officer
Interview conducted by:
Lynn Fosse, Senior Editor
Published May 11, 2007
BIO:
Stephen Forte is renowned for conceiving and executing innovative business strategies and
transforming businesses into highly profitable operations. He demonstrates excellence and
extraordinary success in areas of innovation, financial performance and personal
commitment to business. Stephen is established as a seasoned entrepreneur by continuously
providing the capabilities and processes to create innovative products and services.
Stephen is chief executive officer of Tag-it Pacific Inc., and president, of Tag-It’s
subsidiary, Talon. Stephen joined Tag-it, a publicly traded company in the apparel market,
in October of 2005 to craft and lead a turnaround strategy for the Company’s
shareholders. Since joining Tag-it, Stephen has grown its sales and market share, and
reduced the Company’s expenses by over $10 million annually.
Prior to joining Tag-it, Stephen
founded Ascendent Telecommunications Inc., a leading provider of enterprise voice mobility
solutions, in 1999. As the company’s visionary and sales leader, Stephen’s
expertise was instrumental in developing Ascendent’s flagship PowerConnect products.
In addition, he also established and developed Ascendent’s strategic partnerships
with Nextel, Telus, Cingular, Toshiba and Sprint.
Before launching Ascendent in 1999, he
established Travelers Telecom, a leading cellular rental provider and wireless carrier for
short term users and government. Prior to Travelers Telecom, Stephen co-founded VinylChem
International, Inc. where he invented the original water soluble graffiti removal product,
Graffiti Out, the first alternative product available without special handling and
disposal requirements.
While earning his MBA at George
Washington University, Stephen worked in the investment banking field, developing several
software programs for calculating capital budgeting and sovereign risk analysis for Third
World capital budgeting and financing programs at the Overseas Private Investment
Corporation. His work ultimately led to the funding of more than $500 million worth of
foreign investment projects and foreign loan guaranties.
Stephen holds bachelor’s degree from the University of Southern California and a
master’s degree in business administration from George Washington University. He is a
frequent lecturer on entrepreneurship, innovation and business strategy, and currently
serves on the Board for the School of Business at George Washington University.
Company Profile:
About Tag-It Pacific
Tag-It Pacific, Inc., (AMEX:TAG) is an apparel company that distributes a range of apparel
zippers and trim items to manufacturers of fashion apparel, specialty retailers, and mass
merchandisers. The company sells its products through the company’s sales force in
the United States, Asia, Mexico, the Dominican Republic, and Central and South America.
Tag-it Pacific was founded in 1980 and is headquartered in Woodland Hills, California.
About Talon®
Having invented the zipper in 1893, Talon® is the original American zipper company.
Talon® is a wholly-owned subsidiary of Tag-It Pacific, Inc. and designs, engineers,
manufactures, tests, and distributes zippers under its trademark to apparel brands and
manufacturers. It offers formed wire metal zippers for the jeans industry, and all other
zipper types to the apparel and other industries. Talon® became part of the Tag-It
Pacific family in 2001.
CEOCFO: Mr. Forte, tell us what your vision was
when you became CEO of Tag-It Pacific and where you are today?
Mr. Forte:
“Our vision was first to fix the company, because it was somewhat broken and needed
restructuring. The second part of our vision was to take the company on a trajectory of
where we thought it could be. For a new executive management team to get involved in any
restructuring, they have to see some sort of diamond in the rough, and we certainly have
in all of our business segments.”
CEOCFO: How have you progressed in the
restructuring?
Mr. Forte:
“The first process was the fixing portion. When we first came in, we had the chance
to really analyze what the company was doing, what was successful in the market, what was
not successful, what products were profitable, and what products and services were not
profitable. We rebuilt the company on paper initially from the ground up. By doing an
analysis on all three of our business units and taking a good look at where we really
added value to the customer, and what projects were simply opportunistic, we were able to
really determine where we felt the future of the business was. Then we carved off all of
those components that were not opportunistic or unprofitable and non strategic and really
put a laser of focus on the components where we felt we added the most value to our
customers and where we are frankly the most profitable with the most significant
opportunity to growth.”
CEOCFO: Would you
tell us about your various business segments and what is happening currently in each?
Mr. Forte:
“We have three general business units all within the apparel space. Our job is being
the experts in all components of apparel, other than the clothing itself. We effectively
touch all of the trim components, fasteners, buttons, hang tags – essentially
everything but the fabric and the thread. Our expertise is in that entire genre, which we
have spread into three business units. Our first business unit is our trim division and in
this division we focus entirely on hang tags, pocket fasteners, buttons, snaps – all
of the components that go into that garment that we effectively custom manufacture for our
clients. Any of our clients from BCBG to Abercrombie & Fitch (NYSE: ANF) to Polo Ralph
Lauren (NYSE: RL), will sit with our designers and outline what their vision is for a
particular garment, brand or segment that they are launching, and we will work with them
in designing the appropriate hang tags. When you think of hang tags, they are really
point-of-sale marketing. We also work with them on what sort of buttons, snaps, woven
labels or other components would need to go in that garment. After we go through this
design process we then source and assemble them for the brands. We give them many
alternatives in the manufacturing process. At that point, they generally select one and
award us as the sole supplier for that particular program. When they send their packages
out to all of their factories over the world, their factories then call on us to produce
all of those trim components for the garments when they are manufactured, and that is
where we make our money, is in the margin having done all that work up-front. We then
continually monitor the quality of the capacity of the timing and everything that we send
out to their supply chain. That is our first division; the trim division.
Our second business products group is the interlinings group. In this group, we have
license to a very interesting waistband technology called Tekfit, so we produce what is
called a rigid stressed waistband. We have made about 50 million pair of pants for Dockers
in the Levi Strauss & Co. program, and as of November 1, 2006, we are no longer
exclusive under Levi. We are actively sampling about a dozen brands right now and shipping
two brands as of this Quarter. This is effectively a process of taking simply a 36-inch
waistband, running it through a compaction and fusing process to where we turn that
standard fabric of that waistband, be it cotton or twill, into a 34-inch waistband. We
essentially fuse-in that extra two inches as stretched. Therefore, we give a standard
fabric waistband the ability to stretch and recover without having to add Lycra, elastic,
or any other sort of elasticity to the component. When you add Lycra or any other
component, you really cannot control the stretch – you cannot make it stretch just an
inch instead of a inch-and-a-half or two inches. Our waistband has no buckling, no
gathering and it really has the aesthetic of a standard waistband. It is a popular product
used in many categories and now we kind of have free reign to sell.
Our third product group is our fasteners division that is led by our Talon brand. If you
recall, Talon was the inventor of the zipper in 1893, so we have operations worldwide on
supporting the garment business with zippers. The zipper is an interesting space because
it relies on brand nominations. The market has been around for a long time yet there are
only a handful of players worldwide. We focus on providing a quick turn on quality
zippers, custom zipper components worldwide to all of our branded customers.”
CEOCFO: Sounds like a lot of logistics with some many
customers, and locations; how do you manage it all?
Mr. Forte:
“There is quite a bit of synergy between all three. For example, we have opened
several offices throughout Asia recently and we have always had a large center in Hong
Kong. We recently opened two more offices in China, with many more to go. We have also
opened Chakarta, and two additional offices in India. However, all of these offices offer
a great deal of synergy between the products so when we are working with one brand for
their trim, it makes sense for us to call in our own zipper brand or specify our own
zipper brand. In addition, many of the customers we operate within differ, in fact we can
turn over and cross sell in trim because we are part of their supply chain. It is much
different producing a product for a supply chain than it is for an end-user, because
should the product be wrong, flawed or late, we can certainly cause a great deal of pain
to our customers in terms of shutting down a line. It takes a great deal of logistics and
people. Therefore, we have a large office in Hong Kong that manages most of our Asian
operations in terms of our sourcing supply chain, and manages our factory. It takes a
somewhat disciplined and organized approach to a rather messy business.”
CEOCFO: Does it run project-by-project with
your contacts or do you tend to work for a company on an ongoing basis?
Mr. Forte:
“It is different per business unit. For the trim side you can see that the sales
cycle is quite a bit longer because we might go through two weeks to six months of
development with a particular brand. For example, if we are working with a particular
brand such as Juicy Couture, who is one of our customers, it might take us several months
to get particular trim components, belt buckles, or other pieces exactly right. At that
point, we then supply their manufacturers when the garments are made. It really is a much
deeper relationship in terms of spending a great deal of time with both their designers
and their supply people and takes many months to play out. The waistband business is very
similar. Once we are approved and the sampling is complete and the wash tests are
successful and the merchandisers are happy, then effectively we are plugged-in. We are
then part of the manufacturing process and it becomes somewhat of a recurring or annuity
order in that sense. The zipper side is a little bit different simply because it is highly
competitive and typically, brands will nominate a couple of different zipper
manufacturers. It tends to be a little more of a per order or per program basis although
we have many customers who in order to get the right supply chain support and the best
pricing, might offer us five, ten, fifteen or twenty million unit programs that we can
deliver over a period of months. They then don’t have to essentially shop it every
time they need a new selection of zippers for a new program.”
CEOCFO: Do customers come to you or do you
need to go out and find new business?
Mr. Forte:
“We always need to go out to sign new business and certainly we would never get into
a position to where they just come to us, but certainly, we get many referrals. Many folks
we serve in one brand tend to move to another brand and bring us along with them, so we
have a high referral rate, which is great. However, you always need to drum up new
business and one of our big goals this year is getting more feet in the street for Talon.
You can imagine that from a zipper perspective, if we are approved to go into a Wal-Mart
Stores, Inc. (NYSE: WMT) or Tommy Hilfiger, the factory might get the order. They can
select from two or three different zipper manufacturers and if they are in Tsing Tao, China,
and they look around and they do not see a Talon representative, but they do see another
brand’s representative, they generally order from the other brand. Therefore, part of
our strategy this year is to get enough feet on the street and as many apparel
manufacturing regions and cities as we can, so that when these factories do receive these
orders from the apparel brand, they have an opportunity to see what we can do and give us
a shot at the business. We certainly have proven that with our first office opening in
ShenZhen in southern China to where we have a staff of about 15 or 16, people and that
office broke even within 90 days. I would love to say that is because we are able to
educate the market within 90 days, of who we are and how much better we are than the
competition, but a lot of it had to do with just being there.”
CEOCFO: What sets you apart from your
competitors?
Mr. Forte:
“It has to do with service. One of the keys in this business that people tend to
forget is that we really are part of a supply chain, which means price isn’t the most
important. You could have the best price but if you deliver a poor quality product where
the product comes in three days late, that is a problem and the price no longer matters.
We really try to deliver with a sense of urgency to where we can handle many orders our
competition cannot. We deliver in a much faster time frame, using custom colors for the
zipper, which is very important for many to have the tape, which is the fabric on the side
of the zippers, actually perfectly matching in color to fabric that you are sewing into
rather than having been chosen off the color card. We do most of our zipper manufacturing
as custom colors, so the match is perfect. Moreover, when the match is perfect there is
less chance of a chargeback or a return to the garment manufacturer from the brand. It
gives a sense of insurance and a sense of security and the quality is there. It has to do
with being responsive, having quick delivery and being able to handle custom orders of all
sizes for our customers around the world.”
CEOCFO: What do you see two or three years
down the line for the company?
Mr. Forte: “I
certainly see all three of our business divisions growing substantially. The trend in the
market is turning that direction. If you look at the apparel market itself, there is a
significant supply chain trend going on; it is changing and shifting. If you look at
apparel retailers such as H&M and Zara, they are able to take garments now from design
to store shelves in about two weeks, where Levi and several others are taking order basics
in over about six months. What that means is that you are starting to see a significant
shift in the supply chain that is demanding a much faster turnaround. Although that sounds
sexy to have those garments out on the shelves in about two weeks that makes a massive
change to all of the components that it took to make that garment. Therefore, you are
going to start to see the markets being more proximity specific, so you will see more
people manufacturing closer to their retail markets, we are seeing that now in Europe with
the rise of Istanbul and areas of Romania, Indonesia and Morocco. Yes, it is more
expensive to manufacture in many of those places than it is China, but you are only
manufacturing what you need and these retailers are starting to shift to a real-time
manufacturing method. What we see for us in the future is being able to support the kind
of new paradigm of apparel manufacturing and be able to support these more regional and
local manufacturing facilities with custom product quickly turned at a competitive price.
This is a different model than it had been in the past; much of our competitors have very
large facilities in central locations and are somewhat unable to distributed regional
apparel manufacturing model along with the fast delivery times.”
CEOCFO: What is the financial picture for
Tag-It Pacific?
Mr. Forte:
“The financial picture has certainly improved for us. If you notice in our public
filings, we lost roughly $30 million in 2005 and we were able to make a significant swing
to take that to profitability here in 2006. We have aggressive plans for both revenue
growth and profitability for 2007 and beyond and we are excited about where we are
heading. We have very strong gross margins and we believe our market is going to continue
to support that and apparel is not going away. I think the beauty of being where we are in
the supply chain position is no matter who wins, whether the denim guys are hot today or
the corduroy guys tomorrow, or skirts are back in; they generally all need fasteners and
trim. From that standpoint we are somewhat insulated from the ebbs and flows of fashion
and get to focus on the larger macroeconomic issues of rising population and the
westernization of clothing, predominantly in Asia and eastern Asia, so that we have more
customers everyday.”
CEOCFO: Why should potential investors be
interested and what does not jump off the page about Tag-It Pacific that people should
know?
Mr. Forte:
“There are many things, and one is that although at face value, it may appear to be
less than a sexy business and this is coming from someone who has been 10 years in
high-tech. There really is a lot of sex appeal in this business and there is a lot of
innovation that has yet to be done. Predominantly the industry, especially in zipper, has
been controlled by a large monopoly that is somewhat a very sleepy competitor and frankly
has not had a necessity to innovate in the market. However, we have proven that we are
capable of such things, if you have noticed our KidZip, which is our invention of another
new kid-safe zipper. Anyone can do that if you make the zipper large enough, but we were
able to make a small sized zipper that fits all the kids apparel that has a significantly
higher safety rate meaning that a child cannot just twist of the slider or yank off the
puller and choke accidentally. We set a new standard in the industry and in doing so, we
are significant suppliers to Babies“R”Us and to Gerber, and to others now who
recognize that this is an innovation in the market. We have several additional innovations
coming down the pipe, both in our manufacturing method and in our products. That is not
always readily apparent to the investor market, as well as how tightly and aggressively we
are running this business.
We still have a significant overhang of expenses and cash flow challenges from the
restructuring, so the fact that we can be where we are now from a profitability standpoint
is rather amazing. Furthermore, especially as many of these older legacy expenses from the
restructuring will be going away over the coming year and all that will be dropping to the
bottom line. I think those are two main components. The third piece is and maybe
unfortunately for some investors is that we have to be somewhat stealthy about what we do.
We are the only public company in our space. Therefore, as much as we would love to go
open Kimonos, and share with our investors at large, all of the amazing things we have in
our strategic plan and how we are really going to take over this market, well that would
also obviously signal our competitors who are not public on how to compete with us. In
addition, maybe head us off at the pass with many of the new techniques and new expansions
we plan to do. Part of my challenge is walking that fine line of being able to tell enough
stories that our investors have an idea of where we are going and what we are doing and
how interesting it is. They should know what a unique opportunity we have in the market
today because of our supply chain ship and our new strategy. However, it is also about
being coy enough not to necessarily show an entire open door to our competitors so that
they can come in and do us some damage.”
CEOCFO: In closing, what should people
remember about Tag-It Pacific?
Mr. Forte:
“I think we are going to be a very interesting company to watch. We have many
interesting things yet to do. It is a very dynamic space and people probably do not think
of zippers as being dynamic but they really are. It is quite interesting and quite dynamic
in terms of these supply chain shifts that are happening. We are all excited to be here
and I think Tag-It Pacific will become much more recognized in the months and years as we
start to achieve a dominant position in this marketplace.”
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