http://www.nypost.com/business/47138.htm
May 25, 2005 -- Outwardly, Marc Ecko Enterprises appears to be riding high on the cultural boom that is hip-hop. Behind the scenes, though, the company is suffering from a series of management missteps that threaten to undermine its credibility.
A deal with rap artist Eve to sell clothes under the Fetish name has quietly unraveled, as has a joint venture with Target to market a line called Physical Science.
And plans to develop the newly acquired Femme Arsenal brand have been indefinitely shelved.
The company has been shedding employees — roughly 100, or 15 percent of the total — over the past six months, sparking talk of financial difficulties.
And Tommy Hilfiger, which had been in negotiations to buy the company last spring, abruptly walked away at the 11th hour, quashing an exit strategy for the founders just as the urban apparel market appears to be cooling.
Seth Gerszberg, the president of Marc Ecko Enterprises and one of its three founders, admits that the rapid growth of recent years has led to mistakes, but said the company, with projected sales of $421 million this year, is on stronger footing today than at anytime during its history.
John Daly, president of CIT Commercial Services, which has extended a $100 million credit facility to Ecko, said the company "is a client in good standing."
But interviews with a dozen former and current employees paint a picture of a company that bought into its own hype and relied more on smoke and mirrors than on sound business judgement.
Ecko is by no means alone in its struggles. The entire urban market, including names like Sean John, Rocawear and Phat Fashions, is undergoing a shakeout as the rapid growth of the past decade came abruptly to a halt last year.
Marc Ecko, a pharmacy-school dropout from Lakewood, N.J., and occasional graffiti artist, got his start in the early 1990s airbrushing T-shirts while a student at Rutgers University. He hooked up with Gerszberg, and the two, along with Marc's twin sister Marci Tapper, began making clothes, choosing the image of a rhinoceros as their trademark.
By 1998, the company was $6 million in debt, but a bailout by Gerszberg's cousin allowed the founders to retain control.
Three years later, a debt-free Ecko began branching out. The company founded Complex magazine in 2001; opened outlet stores in a joint venture with Casual Male in 2002; and launched new lines, including G-Unit with the rapper 50 Cent in 2003.
A Marc Ecko video game from Atari due in September holds the promise of turning Ecko into the cultural czar he has always aspired to be.
So confident was Ecko of its ability to keep diversifying that it paid Eve a $1 million advance in May 2004 to re-launch her Fetish line, after a deal with a previous licensee went sour.
By August, a team of designers was in place preparing for a fall 2005 launch, but they were fired in February, after the two sides came to loggerheads over the brand's image. Ecko is trying to retrieve a portion of its advance.
Troy Carter, Eve's manager, did not return several phone calls.
Meanwhile, the industry-wide slowdown in urban apparel was starting to take its toll on Ecko Unlimited, the company's bread-and-butter line. Gerszberg said he is planning for flat sales this year, with an expectation of a return to growth in 2006.
Despite those hiccups, the company continued to spend lavishly. It paid $8 million to buy out Casual Male from the outlet partnership, signed a multi-million dollar lease for a 275,000 square foot headquarters on 23rd Street on the Ladies' Mile and another one for a flagship retail store in Time Square.
All of that real estate helped to frighten away suitor Tommy Hilfiger, which broke off talks to acquire Ecko a year ago.
"Tommy didn't want or believe in the 23rd Street and 42nd Street spaces," Gerszberg admitted, though he contends the deal fell apart over price.
A Tommy Hilfiger spokeswoman didn't return a phone call seeking comment.
Gerszberg admits that it looks odd to be spending so much money at a time when rivals are scaling back or selling out to large conglomerates as Phat Fashions did with Kellwood.
"Either we're crazy," he said, with a shrug, "or we're geniuses."
