Slimmer Judy’s Inc. Strides Out on Runway : Bankruptcy: The women’s apparel chain will work to win back customers after its reorganization. A new owner is at the helm.
Judy’s Inc., one of the region’s oldest specialty apparel chains, has emerged from bankruptcy reorganization with a new owner, a much-slimmer operation and fresh hopes of re-establishing itself in young women’s fashions.
In a plan approved by the U.S. Bankruptcy Court last week, the Van Nuys-based retailer was acquired by Larry Hansel, owner of Rampage Clothing Co., a Los Angeles apparel manufacturer that was one of Judy’s major suppliers.
Hansel put up $2 million in cash for 80% control of Judy’s, which operates 52 stores in the western United States--half the number it did a few years ago. The remaining interest in the private company will be held by Alan Reed, Judy’s president since 1989. Hansel, 32, will be Judy’s chairman.
But Judy’s comeback won’t be easy, analysts and competitors said. Besides having to overcome the persistent recession in Southern California, they noted that Judy’s will have to win back customers lost because of the bankruptcy and the emergence of tougher competition in recent years.
“Judy’s was kind of unique, even in the way its stores blared rock music,” said Douglas Christopher, a retail analyst at the Los Angeles brokerage Crowell, Weedon & Co. But vying for the same market today are such giants as the Limited and the Gap, as well as smaller retailers that include the Wet Seal and Clothestime, both based in Orange County.
“Judy’s is going to have to differentiate itself,” Christopher said.
Judy’s was founded in 1946 by Marcia Israel, who ran it until 1989 when Laws International of Hong Kong bought the company for $31 million. The retailer made its mark by selling moderately priced, avant-garde clothes to juniors, or those in their late-teens and early 20s.
But hurt by the weak economy and unable to keep up with current fashions, Judy’s lost $7.8 million on sales of $53 million in its fiscal year ended Jan. 31, 1992. A month later, Judy’s sought protection from creditors in Bankruptcy Court, listing assets and debts at about $12 million each.
Under the reorganization plan, Judy’s unsecured creditors voted overwhelmingly to accept 20 cents on each dollar they were owed. The alternative was liquidation in which they would have received nothing.
Judy’s also agreed to sell its headquarters building and three acres of land on Haskell Avenue in Van Nuys to pay off a $7.5-million debt to a bank in Hong Kong. Laws will pay part of that bank note, and then walk away from Judy’s.
Judy’s also owes Israel about $600,000 from a $1-million non-compete and consulting agreement Israel signed with Laws. However, attorneys for Judy’s are contesting that claim, saying Israel did not provide consulting services. Israel countered that the $1-million fee was based solely on an agreement that she not compete against Judy’s.
Despite that dispute, Israel said, “I’m very happy that Judy’s will survive.” She added: “I think Hansel can turn the company around because he has a good eye for fashion.”
The new Judy’s will be virtually debt-free, Hansel said, and it will begin with 52 stores--28 of them in Southern California, mostly in malls--and 500 employees. But court papers also show that the company may close up to a dozen stores if it can’t renegotiate leases.
Judy’s also won’t be operating its chain of 33 GHq men’s apparel shops, which were shut down late last year and are being liquidated because Judy’s couldn’t find a buyer for them.
Still, Hansel said, “Judy’s has the potential to be a leader again.” And he plans to buy new styles of clothes and remodel the stores, which average in size between 3,500 and 7,000 square feet.
As in the past, Hansel said some of that merchandise will come from his Rampage operations. But because Rampage also supplies goods to Judy’s competitors, Hansel said Judy’s will operate independently of Rampage and will seek new vendors.
But Judy’s will need to raise more cash. After paying about $1 million in overdue rent and $500,000 in legal and accounting fees, Judy’s will have about $2 million in working capital, plus $1 million in an available credit line. Much of that is expected to be used to replenish low inventories. Hansel said Judy’s stores now have goods worth $3.2 million at cost, compared with $4.5 million of inventory a year earlier.
Judy’s will also have to regain customers it lost in the last year because of the bankruptcy. Under Chapter 11, Judy’s continued to operate, but the bad publicity and lack of cash to adequately stock its stores hurt its performance. From February through November last year, Judy’s sales were $23.7 million, down 30% from the comparable period a year earlier.
Hansel said his goal was to break even this year, and then become profitable in the following years by raising Judy’s store sales from its historical average of about $165 per square foot to about $275--which analysts say is about the norm for a shop in a mall.
E. Lesley Martin, marketing director at Wet Seal in Irvine, which operates 125 apparel stores, agreed that Judy’s was once the region’s preeminent juniors’ store.
“When I was a high school student in the ‘60s, Judy’s was the place to shop,” Martin said. “They were the first to carry trendy clothing. I bought my first hip-hugger miniskirts and bell-bottoms there. It was phenomenal.
“But I don’t know what they’re known for now,” Martin said. “The challenge for the new owner is to come up with its own niche, to appeal to the ever-changing taste of junior customers.”
