Holly Fashion

Topics: Trigraph, Financial ratio Pages: 16 (2692 words) Published: November 25, 2012
cASE 6


Billion-dollal a pparel c ompanies s uch a s C alvin K lein a nd L iz C laiborne a re unusual i n t he g arment i ndustry, w hich c onsists p rimarily o f m uch s malier apparel m akers. O ne s uch f irm i s H olly F ashions ( HF), l ocated i n C herry F lill, New J eriey. H F w as s tarted 1 4 y ears a go b y W illiam H amilton a nd J ohn W hite, who b etween t hem h ad o ver 2 5:yearso f e xperiencew ith a m ajor g arment m anufacturer. A nd t he p artnership i nitially b lended v ery w ell. H amilton, r eserved and i ntrospective, i s e xtremely c reative w ith a r eal f lair f or m erchandising a nd trend s potting. M ainly a s a r esult o f h is g enius, t he H F l abel i s s ynonymous with q uality a nd " tn" f ashions.'\ h ite, o Utgoing a nd f orceful, h as c ontributed important m erchandising a nd m arketing i deas, b ut h as m ainly a ssumed t he duties o f t he f irm's c hief o perating o fficer.

Hamilton h as h ad l ittle i nterest i n t he f inancial a spectso f t he c ompany, m uch preferring t o w ork o n d esigning n ew f ashions a nd t he d evelopment o f m arketing s trategies. A f ew m onths a go, h owever', h e d ecided t hat h e h ad b etter' become m ore i nvolved w ith t hd c ompany's f inancials.

His m otivation i s t wofold. F irst, h e i s c onsidering t he s ale o f h is 5 0 p ercent interest i n H F. T hough h e m joys t he c reative s ide o f t he b usiness,h e i s t ired o f the c ash c runches t hat t he f irm h as e xperiencedi n r ecent y ears. P eriodically, t he retailers H F d eals w ith h ave e ncountered f inancial p loblems a nd h ave s tlung out t heir p ayments, w hich o ften c aused a m ad s cramble f or c ash a t H F A nd i f Hamilton d ecides t o s ell, h e k nows t hat h e i s l ikely t o b e i nvolved i n s ome stressful n egotiations s urrounding t he c ompany's v a1ue.T hough h e w ould h ire a c onsultant t o a id h im i n a ny,negotiations,h e d ecides i t i s a g ood i dea t o e ducate h imself a bout H F's f inancials. Another r eason t hat H amilton i s i nterested i n t he f irm's f inancials i s s o h e can b etter j udge t he m anagerial c ompetence o f l Alhite. \ Ahen I IF w as s mall Hamilton t hought W hite d id a f ine j ob, b ut n ow h e w onders w hether \ / hite i s capable o f r unning a f irm a s l arge a s H F. A ctually, i f H amilton w ere c onvinced that W hite i s a c ompetent m anager, h e w ould n ot c onsider s elling o ut s ince h e


genuinely e ntoys b eing a n o wner o f a n a pparel f irm. B ut h e t hinks t he a pparel industry w ill f ace e ven t ougher t imes i n t he n ext f ew y ears, a nd w onders i f \ltrhite i s t alented e nough t o s uccessfullym eet t hese c hallenges.

\A4rite's p ersonality i s s uch t hat h e m akes v irtually a ll m ajor o perating a nd financial d ecisions. A n i mportant e xample o f t his w as h is d ecision t hree y ears ago t o r etire a ll l ong-term d ebt/ a m ove t riggered b y W hite's f ear t hat H F's b usiness r isk w as i ncreasing. H e c ited t he d ifficulties o f s eemingly r ock-solid r etailers l ike B loomingdale's a nd C ampeau t o s upport h is c laim. I M-Lite i s a lso concerned t hat f irms t he s ize o f H F h ave h ad d ifficulty m aintaining s table b ank relationships. D ue t o i ncreasingly s trict f ederal r egulations, s ome b anks h ave called i n l oans a t t he s lightest t echnicality, a nd m ost a re s crutinizing n ew b usiness l oans v ery c arefully. C onsequently W hite v iews b ank d ebt f inancing a s "unreliable" a nd t hinks t hat l oan o fficers a re c apable o f " chewing u p m y t ime." Harnilton isn't sure what to make of these arguments, but he is concerned that this debt avoidance has significantly reduced FIF's financial flexibility because it means that all protects will have to be equity financed. In fact, over the past five years t here h ave b een n...
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