Cherokee Group Is a Rags-to-Riches Story : One-Time Cobbler Put Best Foot Forward to Build Apparel Company

Talk about rags to riches. In 1968 a Greek immigrant named James P. Argyropoulos opened a shoe repair shop in West Los Angeles. Today, at 41, the former cobbler has stock worth about $14 million at current prices, riches he made by turning his fast-growing shoe concern into a women’s apparel business and taking it public.

Argyropoulos is chairman of The Cherokee Group, where shoes have taken a back seat while the company established itself in the highly competitive garment business. Based in North Hollywood, Cherokee has grown like some of its teen-age customers by selling youthful sportswear that is just trendy enough for middle-class, middle-American suburbanites, Cherokee’s primary customers.

“Their strength appears to be the ability to design goods that are in very strong demand but not avant-garde ,” said Thomas Caraisco, an analyst with PaineWebber in San Francisco.

“I’m not merchandising to downtown Manhattan,” acknowledged Gloria Teague, Cherokee’s marketing vice president.

Sales Up 242%

Cherokee’s apparel sales grew by a whopping 242% during the last fiscal year, and Argyropoulos and company President Robert Margolis have big plans for further growth. They said Cherokee will spend roughly $3.5 million on advertising this year--its bus shelter posters are all over Los Angeles--and intends to launch a series of nationwide retail stores by selling franchises, starting next spring.

Right now the company is doing fine selling mostly through department stores and chains. Although it hasn’t done well at its own retail stores outside Southern California, it plans a big franchising program to expand nationwide.

During the last fiscal year, Cherokee’s earnings were up 83% on a 50% overall sales increase, despite a management blunder that contributed to a 42% slash in shoe sales.

For the 12 months ended Dec. 1, Cherokee earned $3.1 million on sales of $72.4 million. For the six months ended June 1, earnings rose 39%, to $1.8 million, while sales were up 26%, to $41.7 million.

‘Finger on the Pulse’

“They’ve got their finger on the pulse,” said Roger Kase, president of the retailing division of Esprit, a privately held, $300-million company considered a pacesetter in young women’s sportswear.

Cherokee has succeeded in the tough rag trade, even though it makes all its products in the United States. That’s not so common in the garment industry, where the trend is toward production overseas. Half of all the clothing sold in this country is imported, the American Apparel Manufacturers Assn. says, and that percentage is growing. Esprit, for example, makes 95% of its clothing overseas, Kase said.

But Cherokee is part of another trend: clothing companies using outside contractors instead of their own factories. Cherokee’s Los Angeles location lets it take advantage of a large, contract apparel-making industry staffed by non-union, often immigrant labor working for $4.00 to $5.00 an hour.

Cherokee, in fact, has about 650 employees, almost all in Southern California, but no garment factories. It generally won’t make anything unless it has been specifically ordered by a wholesale customer. Domestic production costs more, but enables Cherokee to fill those orders fast, company officials say, and also enables the company to pounce on fashion trends without the lengthy lead times involved in Far East production.

Kase said another reason for Cherokee to manufacture here is that is doesn’t yet have the financial muscle to deal effectively with big overseas contract apparel makers.

Trouble in Brazil

Cherokee makes its shoes in America, too. In fact, the company ran into real trouble last year when it tried manufacturing shoes in Brazil.

Brazil has a cost advantage of “at least 30% to 40%,” said John Lovely, Cherokee’s vice president for shoe sales. But quality wasn’t up to snuff, deliveries were late and, as a result, production had to be brought back to the company’s factory in Gardena, which was left underutilized when the company resorted to overseas production.

Analysts say the shoe division has since been restructured, and shoes are expected to contribute strongly to earnings this year.

Shoes are where Cherokee started. Argyropoulos, the son of a Greek cobbler, came to this country at the age of 14 and eventually moved from Chicago, where the family landed, to Los Angeles. Running a shoe repair shop in West L.A., he occasionally made shoes for his customers. In 1972, a retailer took a shine to them and ordered 60 pairs.

Argyropoulos, who now holds about a third of Cherokee’s stock, made the 60 pairs, one at a time, by hand.

He didn’t do it that way for long. Orders started pouring in, and, in the summer of 1973, he incorporated the Cherokee Shoe Co. His twin brother, Arthur P. Argyris, who now holds about 11% of Cherokee’s stock, joined him in 1975.

The real growth for Cherokee came when the shoe company added clothing. That was in 1980, when Argyropoulos went skiing with Margolis, who started and later sold a menswear company called A. Smile Inc. The two men hit it off and, in February of 1981, they launched their joint venture in the apparel business. Two months later they started shipping goods.

They began with jeans and cotton pants in the category known as juniors, styled and sized for women from 16 to 24 years old. Tops were added the following year, and in 1983 Cherokee started making sporty clothes for the older “misses” group.

Cherokee also has expanded into large sizes. And, under its profitable licensee program, which is expected to bring in revenue of $800,000 in the current fiscal year, 17 other companies make a variety of Cherokee-brand clothing, shoes, belts, coats, and swim wear for women, men, boys and infants.

Gets 5% Fee

Cherokee gets a 5% fee on the retail sale of licensed goods, which must meet Cherokee standards before they leave the factory. Licensees must also meet minimum sales quotas and sign three-year contracts.

Apparel now accounts for about 70% of Cherokee’s sales, and Cherokee clothes are carried by department stores such as Robinson’s, The Broadway, Macy’s, and Bloomingdales, and in chains like The Gap.

Cherokee supplies Sears and Wal-Mart, among others, with some of the same products under private labels that sell for less.

Cherokee has not done particularly well with its own retail outlets, mainly, officials say, because four of the 13 stores were in Texas and Idaho, far away from the company’s marketing strength in Los Angeles and New York.

The company closed those four shops last fall, leaving nine in Southern California, and it plans to attack outside this region again: Argyropoulos said plans call for 100 stores nationwide within three years.

Company officials say franchising offers a means of expansion without heavy indebtedness, and gives local management a strong incentive to succeed--ownership. Margolis said specifics such as the cost of a franchise have not yet been determined, and that a consultant has been hired to work that out.

Plans to Make Uniforms

Company officials also say Cherokee plans a big push into uniforms, particularly nurses’ uniforms.

Margolis said most such uniforms are pretty dowdy now and that Cherokee hopes that nurses and other service workers will jump at the chance to wear fashionably cut whites.

Although the company has had some success selling to older and heavier women, its colorful, sporty designs continue to appeal mainly to juniors, who account for roughly half the clothing it sells. In keeping with its youthful orientation, the company’s most successful advertising medium has turned out to be radio. Cherokee also advertises in magazines like Glamour and Seventeen.

“It’s kid stuff,” one Los Angeles apparel expert said of Cherokee clothes. “But it’s fun kid stuff.”