In a deal that surpasses the sale of his successful rap record label Def Jam, which sold in 1999 for $100 million, Russell Simmons, CEO of Rush Communications (No. 14 on the BE INDUSTRIAL/SERVICE 100 list with $260 million in sales), has sold his urban clothing empire, Phat Fashions L.L.C. to Kellwood Co. for $140 million. At press time, the deal was expected to close in early February.
Under the terms of the agreement, Phat Fashions, which includes Phat Farm and Baby Phat, will become a subsidiary of Kellwood, the $2.4 billion St. Louis-based clothing marketer. The buyout follows a licensing deal that was landed late last year for Run Athletics activewear for men and DJU sportswear for young men and juniors. Simmons still wholly owns both entities.
“It’s important that we [black-owned companies] grow, and many of us are in partnerships with companies that have short-term vision and are not willing to take the chances to make your company grow and expand,” says Simmons on why he decided to sell. “[Kellwood is] successful at what they do and will work to take Phat Farm to another level.”
Hal J. Upbin, Kellwood’s chairman and chief executive officer, says they, “studied the urban lifestyle market for some time,” before reaching a decision. “The market represents purchases by consumers at retail of approximately $10 billion on an annual basis. Phat Farm and Baby Phat are highly sought-after brands, and we believe they represent the crown jewels of the urban business,” Upbin contends. Phat Fashions raked in a reported $615 million in 2003.
Beginning with the Fall 2004 season, Kellwood will produce the men’s Phat Farm collection through its own menswear organization. The company will also introduce new products, such as an intimate apparel line for Baby Phat. Simmons will remain as chief executive, handling daily operations, and will receive a share of the line’s future revenue. Simmons’s wife, Kimora Lee Simmons, will remain as a principal creative arbiter for Baby Phat.
The sale of major urban clothing companies may be a new trend. Liz Claiborne acquired the popular urban fashion line Enyce for $114 million in January. “In order to expand, it is sometimes necessary to seek funding of a larger company,” notes Gloria Hartley, president and one of the founders of the Black Retail Action Group and a professor of merchandising at New York’s Fashion Institute of Technology. “There’s nothing worse than a clothing company not being able to meet demand, for buyers to place orders and the makers not being able to fulfill them.” Cross Colours (BLACK ENTERPRISE COMPANY OF THE YEAR, 1993) went out of business and Karl Kani (BLACK ENTERPRISE COMPANY OF THE YEAR, 1996) started new lines.
Simmons is definitely still a major player and has high expectations regarding the deal. “It’s one thing to run a $700 million business versus a multibillion business. I hope this is a start of a trend where urban clothing companies sell to get the infrastructure they need. [In five years,] I see Phat Farm as