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Company Profile of Fruit of the Loom
Company Profile of Fruit of the Loom - May 6th, 2011
Fruit of the Loom is an American company which manufactures clothing, particularly underwear. The company's world headquarters is in Bowling Green, Kentucky. It is currently a subsidiary of Berkshire Hathaway.
Fruit of the Loom wants to be in everyone's drawers. Besides the basics -- underwear made under the BVD, Fruit of the Loom, and Lofteez names -- its products include activewear, casual wear, and children's underwear sold under such labels as Russell, Funpals, Fungals, and Underoos (with licensed characters). Its items are sold primarily in North America through discount and mass merchandisers the likes of Wal-Mart and Target, as well as to department stores, wholesale clubs, and screen printers. It boasts the largest market share for branded men's and boy's underwear and its Russell Athletic unit leads in team uniforms. Fruit of the Loom, owned by Berkshire Hathaway, produces its products in Latin America.
Fruit of the Loom, Inc., a global manufacturer and marketer of family apparel, is America's biggest seller of men's briefs. The company's products also include underwear for men, women, and children, as well as T-shirts, activewear, casualwear, and clothing for children. As of the late 1990s, the company's brands, which included BVD, Munsingwear, Gitano, and the namesake Fruit of the Loom, were among the best known in the world. In addition to these popular brands, the company licensed characters for children's apparel--such as Winnie the Pooh and Batman--and the names, logos, and trademarks of colleges, universities, and professional sports teams. With more than 60 manufacturing and distribution facilities, the company had operations in ten states and in various countries around the world, including Canada, Mexico, and Germany
Fruit of the Loom's main business focus is on branded products for consumers ranging from children to senior citizens. The company is one of the largest manufacturers and marketers of men's and boys' underwear, women's and girls' underwear, printable T-shirts and fleece for the activewear industry, casualwear, women's jeanswear and childrenswear.
The company sells its products to all major discount chains and mass merchandisers, wholesale clubs and screenprinters. The company also sells to many department, specialty, drug and variety stores, national chains, supermarkets and sports specialty stores.
Fruit of the Loom offers an unconditional guarantee on all the products it sells. The brand has significant market share for basic apparel. The familiar logo with the apple, purple grapes, green grapes, currants and leaves is a widely recognizable trademark. The company is a vertically integrated manufacturer.
The company also controls another long-known underwear brand, B.V.D. (Bradley, Voorhees, and Day). Other brands also manufactured and sold by the company are Funpals/FunGals, Screen Stars and Underoos. Brands once owned or marketed by Fruit of the Loom include Gitano, Munsingwear, Salem Sportswear, and Pro Player, which once had the naming rights to what is now Sun Life Stadium (originally Joe Robbie Stadium) in Miami, Florida from 1996 to 2005, despite bankruptcy by the parent company in 1999.
Hanes and Jockey are the main competitors to Fruit of the Loom. The Fruit Of the Loom logo consists of an apple, leaves, purple grapes, green grapes, and gooseberries. In TV commercials for the brand, actors play the roles of only four of the logo's parts: the apple, green grapes, purple grapes, and leaves. The role of "Apple" is played by Rad Daly, and the "Leaf" was at one time played by Academy Award-winning actor F. Murray Abraham. "Green Grapes" is played by Richard Steven Horvitz.
Union Underwear strove to energize advertising for men's underwear in the late 1960s and early 1970s. In 1969 the company contracted sportscaster Howard Cosell to appear in five television commercials over three years. Next, British comedian Terry Thomas was named spokesperson, as advertisers hoped that an English representative would lend an air of quality and endurance to their commercials. The use of celebrity spokespersons brought more public attention to Fruit of the Loom underwear, but the company continued to seek more brand recognition and market share.
In 1975, Union made advertising history with the first "Fruit of the Loom Guys" campaign. The commercials featured three men in costume as a bunch of grapes, an Autumn leaf, and an apple, all elements of the brand's trademark. The characters helped propel the Fruit of the Loom brand to 98 percent recognition and doubled Union's share of the market for men's and boy's underwear.
Also that year, Moore retired and was succeeded by John Holland. In 1976 Union acquired the century-old BVD trademark. The company began to merchandise BVD as a completely separate line of underwear aimed at the more upscale department store market. Union also began to expand its product line in 1978 to include "Underoos"--decorated underwear for boys and girl--and began to supply blank T-shirts for the screen print market during the 1970s. The expansion into plain T-shirts soon evolved into a huge business known as Screen Stars, which sold unbranded T-shirts, sweatshirts, and sweatpants to wholesalers who imprinted them for promotional uses.
Mid-1980s Leveraged Buyout and Reorganization
Union did not escape the trend toward leveraged buyouts of the 1980s. In 1984, William F. Farley acquired Union Underwear when he bought Northwest Industries for $1.4 billion. Farley privatized the parent company and renamed it Farley Industries. In the 1980s tradition of leveraged buyouts and junk bonds, Farley parlayed his acquisitions into larger and larger conquests until, by the end of the decade, he had fashioned a textile and apparel conglomerate with $4 billion in annual sales and 65,000 employees worldwide.
In 1985, the conglomerate was restructured, $260 million in shares were sold, and Union Underwear was renamed Fruit of the Loom, Inc. to relate the business more closely to its famous trademark. Farley, a former encyclopedia salesperson, worked to improve Fruit of the Loom's operational efficiency and squeeze more profits out of the company's number-one status as the holder of a 35 percent share of the undergarment market. Farley proceeded to sell the bulk of Northwest Industries' other businesses and cut costs at Fruit of the Loom. The proceeds of the asset sales were combined with revenues from bond issues to finance domestic modernization and expansion into Europe.
Over the course of the 1980s, those manufacturing changes facilitated Fruit of the Loom's evolution from an underwear manufacturer into an apparel company. Farley and Chief Executive Holland decided to expand into men's fashion underwear, women's underwear, and socks over the course of the decade, putting the Fruit of the Loom label on sportswear in 1987. Women's panties became one of the brand's most popular extensions. The company launched that division in 1984 and led the category with a ten percent share within four years. Fruit of the Loom also made apparel history with its popular pocket T-shirt. Produced in a rainbow of colors, the wardrobe staple's flexibility made it a consumer favorite for decades.
In 1982, sales of men's and boy's white underwear accounted for 80 percent of the company's revenues, but by 1988, brand extensions comprised more than 40 percent of revenues. The activewear market also grew much more rapidly than the underwear category: activewear sales tripled in the 1980s, while the underwear market grew only about six percent annually.
Losses in the Late 1980s
Capital improvements had enabled Fruit of the Loom to expand into newer, faster-growing markets, but they also left the company saddled with debt. Fruit's debt-to-equity ratio of 3.5-to-1 contributed to three out of four years of losses before the decade was over. Interest expenses also consumed ten percent of annual sales revenues in 1989. At the same time, Fruit of the Loom was threatened on two fronts: low priced imports began to eat into Fruit of the Loom's 38 percent market share of basic men's undergarments, and the company's largest competitor, Sara Lee Corp.'s Hanes Knit Products, was raising the ante in the "underwars."
In an effort to promote its move from department stores to discount merchandisers, Hanes introduced "Inspector 12" into its advertising campaigns in 1982. The curmudgeonly quality-control character claimed that her brand fit better and shrank less than Fruit of the Loom's. Fruit of the Loom fired back with promotions that featured the tagline, "Sorry, Hanes, you lose!" The war escalated into a legal battle that ended with an out-of-court settlement wherein the two competitors agreed to pull the offensive ads.
The Fruit of the Loom Guys were phased out when the company launched its more modern "We fit America like we never did before" campaign in 1988. The television spots featured family scenes, including a mother dropping her daughter off at the school bus, and also included the first views of a woman in a pair of panties on network television. The $25 million campaign, created by Grey Advertising, Inc., emphasized Fruit of the Loom's move into basic apparel for both sexes and all ages.
The brand extensions, expanded capacity, advertising blitz and years of debt paid off in 1988 when Fruit of the Loom made its first profit since its acquisition by Farley. The mid-1980s capital investments had pumped up domestic operating margins to 20 to 25 percent, and European plants began earning profits in the early 1990s. Sales had actually grown 13 percent annually since 1976 to $1 billion in 1988, but debt had consumed all of the income.
In 1990, Fruit of the Loom unveiled the underwear industry's first network advertisements that featured a male model sporting the flagship white briefs. The commercials asked the musical question, "Whose underwear is under there?" The answer was provided by hunky celebrities Ed Marinaro, Patrick Duffy, and James DePavia. Lawyers for Grey Advertising spent two weeks battling one of the big three networks to air the commercials that would have been banned just three years earlier. Over the next two years, Fruit of the Loom's celebrity "underwearers" would include soap-opera star Don Diamont, action-adventure hero David Hasselhoff, and sitcom dad Alan Thicke.
Continued Challenges in the 1990s and Beyond
In 1991, Fruit of the Loom introduced the "It's your time," campaign for its growing line of casualwear, which was extended to include garments for infants and toddlers. The company enlarged its array of brands that year through a licensing agreement with the upscale Munsingwear brand in the hopes of expanding Fruit of the Loom's retail distribution.
The company's financial restabilization continued. Debt was reduced by more than $332 million with the help of sales totaling $1.4 billion, a stock offering of $100 million, a decline in capital expenditures, and the conversion of $60 million of debt into equity. Fruit of the Loom's European sales surged 43 percent in 1990 as these divisions hit stride.
Despite a lingering recession in the United States, the company once again found its capacity constrained. Farley and Holland predicted that Fruit of the Loom would invest $125 million in new equipment and increase the workforce by 3,000 at plants in the United States, Canada, and Europe in 1992. With strong ties to mass merchandisers, major product launches, and line extensions, Fruit of the Loom hoped to increase sales 15 percent each year, decrease debt load, and grow per share earnings by one third annually in the 1990s.
However, Fruit of the Loom's optimism led to manufacturing overcapacity in 1993. Management responded by cutting back production; unfortunately, customer spending was starting to rebound then from the recession of the early 1990s. In 1994, cotton prices unexpectedly rose and exacerbated the company's problems. Fruit of the Loom's stock price fell 50 percent between 1993 and 1995.
The company took several steps to correct its problems. In an effort to reduce its dependency on low-margin briefs and boxers, Fruit of the Loom focused on developing activewear and casualwear products, both by continuing to broaden the product lines of its traditional brands and by purchasing new brands. In 1993 the company acquired Salem Sportswear and arranged a licensing agreement to manufacture and market athletic wear under the Wilson logo. The following year it acquired sports logo clothing makers Artex Manufacturing Inc. and Pro Player. Also in 1994 it bought the bankrupt sportswear maker Gitano Group, Inc., for $100 million. By 1995, only 25 percent of the company's revenues derived from sales of men's and boys' underwear.
Fruit of the Loom also addressed operating inefficiencies in the early and mid-1990s. It invested in modernizing its manufacturing facilities, from spinning the yarn to assembling the finished clothing. However, in 1995 the company took more drastic measures to cut costs: It closed nine manufacturing facilities in the United States and laid off 6,000 employees. With the hope of cutting costs through lower-cost offshore labor, the company began moving its sewing operations--a labor-intensive step in manufacturing clothing&mdashř the Caribbean and Central America. One-time charges related to the plant closings and relocations added to Fruit of the Loom's losses for 1995, which tallied in at $227 million.
The following year, Fruit of the Loom helped fund its manufacturing relocations by selling the operating assets of its hosiery division to Renfro Corp. for $90 million. In 1997 the company laid off an additional 4,800 workers and closed another U.S. plant. By that time, over 60 percent of the company's production was taking place internationally, with plans for it to reach 80 percent by 1999.
Although the company returned to the black in 1996, with approximately $147 million in net earnings, in 1997 the company saw another loss. The net loss of $488 million was due in part to continuing costs of moving sewing operations offshore, and to a charge of $102 million made to pay a legal judgment against Fruit of the Loom. The court judgment ended litigation dating from 1984 related to the Fruit of the Loom subsidiary Universal Manufacturing (which the company sold in 1986). However, sales were also down to $2.1 billion from $2.4 billion in 1996.
The company's reduction in labor expenses seemed to be reaping rewards early in 1998. First quarter profits were up 38 percent, and a price increase in men's underwear in April 1998 indicated potentially higher margins in a traditionally low-margin area for Fruit of the Loom. CEO William Farley expressed confidence in a press release in February 1998: "We feel strongly that the company can affect a strong recovery in 1998. Inventories are expected to decline while capital spending will continue to be restrained. These factors should help to improve cash flow and, along with better operating performance, result in improved shareholder returns." However, similar optimism had been expressed earlier in the decade and the predictions did not materialize. The company's performance over the next couple of years would tell if such confidence was warranted.
Principal Subsidiaries: NWI Land Management Corp.; Union Underwear Co., Inc.; Fruit of the Loom GmbH; Russell Hosier Mills, Inc.; Camp Hosiery Company, Inc.; Union Sales, Inc.; Union Yarn Mills, Inc.; FOL International; Fruit of the Loom International, Ltd.; Fruit of the Loom Investments, Ltd.; Fruit of the Loom Trading Company.
Sales: $2.1 billion (1997)
Stock Exchanges: American Chicago Pittsburgh Pacific
Ticker Symbol: FTL
SICs: 2211 Broadwoven Fabric Mills, Cotton; 2252 Hosiery Not Elsewhere Classified; 2253 Knit Outerwear Mills; 2254 Knit Underwear and Nightwear Mills; 2321 Men's and Boy's Shirts; 2322 Men's/Boys' Underwear & Nightwear; 2329 Men's/Boys' Clothing Not Elsewhere Classified; 2341 Women's/Children's Underwear
• President and CEO: John B. Holland
• EVP and CFO: G. William Newton
Address: 1 Fruit of the Loom Dr.
Bowling Green, KY 42103
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