United Merchants & Manufacturers, Inc.
Address:
1650 Palisade Ave.
Teaneck, New Jersey 07666
U.S.A.
Telephone: (201) 837-1700
Fax: (201) 837-9015
Statistics:
Public Company
Incorporated: 1922 as Cohn-Hall-Marx Co.
Employees: 1,500
Sales: $98.3 million
Stock Exchanges: New York Pacific
SICs: 3961 Costume Jewelry and Costume Novelties, Except Precious Metal; 5621 Women's Clothing Stores; 5632 Women's Accessory and Specialty Stores
Company History:
At one time United Merchants & Manufacturers, Inc. (UM&M) was one of the biggest companies in the garment industry, with annual sales of textiles and apparel exceeding $1 billion. By 1995, however, the firm that a 1989 Forbes article called "The Incredible Shrinking Company" had been in bankruptcy proceedings twice since 1977, having lost money in every year since 1985. Although it sold off unprofitable divisions to stay afloat, UM&M continued to remain in the red through the mid-1990s; independent auditors then considered the company's survival doubtful.
United Merchants & Manufacturers began as Cohn-Hall-Marx in 1912, a New York City textile converter. As a converter, it bought unfinished fabrics (known as "gray goods") from textile mills and sent them to finishing plants to dye or print the fabrics according to specifications. Then it sold these finished goods to apparel manufacturers or retail stores. Because a converter requires no manufacturing facilities, it can make a big return on small capital if it comes up with a popular design or color combination. Between 1916 and 1923 Cohn-Hall-Marx reported annual profits ranging from $290,967 to $844,275.
Investment bankers at the Boston office of Kidder, Peabody & Co. approached the owner of Cohn-Hall-Marx and proposed a merger of their converting business with manufacturing plants. Advantages of such a consolidation included greater efficiency and flexibility, better cost control, and the ability to deliver new styles more quickly. Accordingly, with a $20-million investment from Kidder, Peabody, United Merchants & Manufacturers was incorporated in 1928 to acquire interests in New York City textile-selling houses or converters and to purchase plants bleaching dye and prints and mills specializing in products being sold by the selling houses.
Cohn-Hall-Marx's president, Lawrence Marx, ran day-to-day operations at UM&M until 1938, with the rank of vice-president. Jacob W. Schwab, a cousin of Marx and the company's original treasurer, was president of UM&M from 1939 to 1959. His son, Martin J. Schwab, became treasurer in 1955 and attained the presidency in 1968.
While the core business remained Cohn-Hall-Marx, UM&M quickly purchased three textile mills in South Carolina and plants in Jewett City, Connecticut, and New Bedford and Fall River, Massachusetts. Its first headquarters were in Boston but were moved to New York in 1931. Company assets were given as $24.3 million in 1930. During the first seven months of 1931, UM&M made a profit of $1.2 million, but in the fiscal year ending July 31, 1932--a severe Depression year--the company suffered a loss of over $2.2 million. It rebounded the following year, earning more than $1.4 million.
By 1935 UM&M had net sales of nearly $35 million and had acquired a silk- and rayon-weaving plant in Louiseville, Quebec. The company expanded into the factoring field that year, through the creation of United Factors Corp., a subsidiary of Cohn-Hall-Marx. As factors, United handled the accounts receivable of a roster of clients, guaranteeing they would be paid when due. Since many of UM&M's customers were poorly financed apparel manufacturers, factoring enabled the company to exploit the experience of its salesmen in rating the creditworthiness of their customers. The first dividend on UM&M's common stock was paid in 1936, when the company had about 2,400 stockholders.
By 1940 UM&M and its associated companies owned and operated, through subsidiaries, 12 plants, including a cotton mill and finishing plant constructed in Buenos Aires, Argentina, in 1936. This made the company one of the first U.S. textile firms to expand outside North America. In addition to units manufacturing and converting textiles and related fabric products, a subsidiary was producing chemicals for use in the textile industry. The company was listed on the New York Stock Exchange by 1940. Sales were flat in the late 1930s, however. UM&M lost money in fiscal 1938 and paid no dividend on common stock in 1938 and 1939.
Like the country as a whole, UM&M was not able to put the Depression behind it until World War II. Net sales, stagnant until fiscal 1941, reached $66.9 million in 1942, $98.2 million in 1943, and $125.6 million in 1944. Net sales reached $211.5 million in 1948, while net income rose from $3.8 million in 1942 to $22 million in 1948. In 1945 UM&M acquired Union-Buffalo Mills Co., a manufacturer of cotton cloth with three plants near Union, South Carolina. By mid-1949 UM&M held 34 subsidiaries in the United States, Canada, Argentina, Uruguay, and Venezuela, not including subsidiaries of these subsidiaries. Together, they operated 13 weaving plants, seven finishing plants, and five miscellaneous plants and warehouses. Jacob Schwab was one of the highest-paid executives in the United States, earning $440,542 in 1946.
UM&M became a major retailer with the acquisition and growth of Robert Hall Clothes, Inc. and Case Clothes, Inc. These discount clothing chains stemmed from a single store opened in Waterbury, Connecticut, in 1940. Merged in 1948 as Robert Hall, the chain had 75 stores and was operating coast-to-coast by mid-1949. Its annual sales were estimated at between $50 million and $75 million. Locating at first in lofts and hanging clothes on pipe racks, Robert Hall hewed to a cash-and-carry, no-frills strategy that enabled it to hold its average mark-up to about 21 percent, compared to 40 percent or more for the average full-service clothing store. In 1946 Robert Hall started its own men's topcoat and suit factories, but the women's lines were purchased on the open market. The 200th store opened in 1955.
The company's growth continued to be robust in the 1950s. Net sales of $215 million in fiscal 1950 increased to $500.1 million in 1960. By then UM&M had 21 weaving plants--including two in Rio de Janeiro, Brazil--and ten finishing plants. It was now merchandising and marketing woolen and worsted fabrics as well as manufacturing and selling cotton, silk, and rayon textile fabrics under trademarks that included "Cohama," "Ameritext," "Juilliard," and "Comark." Between 1959 and 1960 UM&M acquired an English textile converter and--jointly with Swiss interests--a Scottish silk-dyeing company. Robert Hall had grown into a 327-store chain. Net profits, however, rose only from $10.8 million to $14.4 million between 1950 and 1960 and dipped below $10 million during 1952--54.
In 1964 UM&M was among the five largest domestic producers of fiberglass industrial fabrics to be charged by the U.S. Justice Department with conspiring with distributors and each another to fix prices and rig bids. After the companies pleaded no contest to criminal charges in 1965, the federal government sought double damages in civil suits. In July 1966 UM&M agreed to pay $250,000 to settle the case.
In 1966 Financial World reported that UM&M had "finally broken out of its earnings rut," increasing profits in fiscal 1965 to $3.13 a share, compared to the previous high of $2.44 a share in 1956. This increase was attributed to modernized production facilities and tightened internal controls as well as heavy demand, both military--due to the Vietnam War--and civilian. As a result the company's stock price had climbed to $36.50 after spending most of the previous decade in the teens.
Textile production and related activities accounted for about half of 1965's record sales volume of $559.7 million. The Robert Hall chain, consisting of 384 stores, accounted for 30 percent, and foreign textile operations the remaining 20 percent. The company's merchandising and distributing units were taking 45 percent of its weaving-plant output and 90 percent of its finishing-plant output. Sales included a variety of cotton, silk, wool, synthetic and fiberglass textiles, plastic products, and chemical specialties, including acrylic polymers and resins for making durable-press apparel. UM&M was also providing financing and factoring services for textile firms.
By 1975 UM&M was the nation's third-largest publicly owned textile company and its largest factoring company. Among its 70 manufacturing facilities, it held 19 weaving mills, 13 finishing factories, and 7 synthetic-yarn plants. Textiles were also being produced in Japan, England, and Colombia under joint ventures. There were also 16 merchandising and distributing units, including two in France, which acted as the company's converters. UM&M also had five research and five chemical units, plus five commercial factoring and financing offices. Its United Factors subsidiary had an annual volume of $1.4 billion and was so successful in analyzing creditworthiness that its losses were averaging less than one-quarter of one percent. Another subsidiary was performing other financial services, such as managing credit-card charges for several hundred department stores. The number of Robert Hall stores had reached 436.
Net sales of $787 million in fiscal 1972 was a record, but net income of $15.3 million was well below the high of $24.1 million recorded in 1966. In fiscal 1974 net income was $30.9 million, double the 1972 figure. Nevertheless, for the first five years of the 1970s, UM&M's annual return on investment averaged less than five percent compared to an average return of more than 11 percent in 1974 for all manufacturing companies. Another troubling figure was the $226 million in long-term debt, about 43 percent of the company's total capital and a sharp rise from $99 million in 1966.
UM&M lost $26.3 million in fiscal 1975 and $19.8 million in fiscal 1976, despite record sales volume in the latter year of more than $1 billion. To improve the situation, the company brought in new managers, closed some unprofitable operations, and consolidated profit centers. To reduce short-term debt, it sold its equipment-leasing business to Crocker National Bank for about $50 million, and a financing operation to Citicorp for $51 million. But turning around Robert Hall was a tougher problem. This subsidiary had earned $14 million as late as 1969, but it lost about $21 million in 1975 and a whopping pretax $41.8 million in 1976, despite having closed 135 unprofitable stores. The low-budget retailer specializing in men's suits and coats had been slow to move into shopping centers and suffered from a dowdy, Depression-era image.
A former Sears merchandise executive brought in to manage Robert Hall stocked the stores with a wider array of wearing apparel, including more infant's and children's wear, men's leisure clothes, and jeans and tops for young people. By mid-1977, however, UM&M, still hemorrhaging, had omitted its quarterly dividend and two of its debt securities had been downgraded by Moody's Investor Service. Accordingly, Martin Schwab decided to close the remaining Robert Hall stores--which had lost $100 million since 1974--and also decided to sell the lucrative factoring division to Crocker. George L. Staff, the president and chief operating officer Schwab had hired in November 1975, was dismissed.
Only a month later, on July 12, 1977, UM&M filed for protection under Chapter 11 provisions of the federal bankruptcy act. Although UM&M listed assets of $566.5 million and liabilities of only $381.3 million on March 31, 1977, it told a federal judge it was unable to pay its debts as they matured. In the biggest auction of retail-store merchandise ever, the contents of 367 Robert Hall stores were sold in the summer of 1977 for $35 million.
UM&M lost $191.8 million in fiscal 1978. The liquidation of Robert Hall, costing more than $100 million, was its biggest expense. The factoring division brought more than $160 million in its sale to Crocker. Some foreign textile operations also were shed. In June 1978, the end of its fiscal year, UM&M emerged from Chapter 11 bankruptcy on schedule--the biggest company ever to do so--having deposited $195.9 million to cover initial payments to creditors and other expenses. Under the plan, creditors were to be paid 35 percent in cash and the rest in annual installments. UM&M had paid about half of its debt of $410 million by May 1982, when it adopted a plan to eliminate the rest by issuing about 1.25 million shares of common stock and a cash payment of about $66 million. Manufacturers Hanover Trust Co. extended a loan for this payment, secured by UM&M's receivables.
A reorganized UM&M soon attracted the interest of an Israeli investment group composed of Libora, N.V., a Netherlands Antilles holding company, and Piryon Investment Trust Co., an Israeli public company. Eventually the group's holdings were sold to Uzi Ruskin, a citizen of both the United States and Israel who became a company director in 1980. Backed by Israeli investors, Ruskin bought $3 million more of UM&M stock in 1981, raising his stake in the company to 17 percent. He became its president in 1982.
Ruskin and his backers apparently were attracted to UM&M because of its $187 million in tax-loss credits against future earnings. However, he was unable to turn the company around. It lost $24.8 million on continuing operations in fiscal 1980, $7.3 million in 1981, and $44 million in 1982. The tax credits were spent on acquiring losers, according to a critical Forbes article. The worst of these was Jonathan Logan Inc., purchased in a 1984 hostile takeover for $195 million. A big apparel manufacturer with brand names like Misty Harbor, Act III, Rose Marie Reid, and Villager, Jonathan Logan proved unprofitable at the purchase price, which included $99 million in new bank loans and the issuance of high-yield bonds. In 1986, for example, Logan lost $36 million when including interest costs of more than $51 million.
To keep the company afloat Ruskin first sold one-sixth of UM&M's costume-jewelry unit to the public and closed the company's South American operations, some of its textile-printing plants, and a dyeing-and-finishing unit. In 1988--89 he sold the fiberglass-fabrics division, a shoe-and-handbag division, and part of the home-furnishings group. He raised more than $100 million, but in fiscal 1989 the company still carried an operating loss of $29 million. This sum did not include $35 million in interest payments on the company debt of $264 million. By the end of 1989 a share of UM&M was trading for about $2, compared to $21.50 in 1986. At this price Ruskin and his supporters felt confident enough to raise their stake in the company to about 30 percent. However, a proposal by Ruskin in September 1989 to acquire majority control of the company and pay for it with a new preferred-stock issue was rejected by company directors as too complex. Three of the four outside directors resigned in November.
Early in 1990 UM&M sold its Decora and Misty Harbor divisions for $33.6 million in order to reduce its debt. However, in November the company again filed for Chapter 11 protection because it was unable to repay $11.6 million on a maturing debenture. The petition included two subsidiaries--Jonathan Logan and United Merchants Trucking Inc.--but not Victoria Creations Inc., its costume-jewelry subsidiary.
UM&M emerged from bankruptcy in August 1992 but defaulted in January 1993, when it could not make a bond-interest payment due at the beginning of the year to CIT Group/Commercial Services, a unit of CIT Group Holdings, Inc. The restructuring agreement ending bankruptcy had required the company to reduce its debt to CIT to $88 million by the end of 1992, but UM&M still owed about $95 million at year's end. However, CIT agreed to continue to advance money to UM&M.
For fiscal 1993 UM&M registered a loss of $25.2 million, compared to a loss of $33 million the previous year. In November 1993 CIT agreed that if UM&M reduced its debt of $124 million to $60 million by mid-1994, it would forgive $30 million of the remaining debt and accept a long-term subordinated income note for the other $30 million. To pay for the latter, UM&M borrowed money from Foothill Capital and sold its Uniblend yarn division and Clarkesville Mill division for about $8.3 million. UM&M reported a loss of only $752,000 in fiscal 1994, but accounting changes masked a loss from continuing operations of $23.2 million. For the second straight year independent auditors expressed "substantial doubt" that the company could continue as a going concern.
In August 1994 UM&M settled a $22 million dispute with the International Ladies Garment Workers Union (ILGWU). The company had argued that its liability to pay this pension-plan sum had been wiped out by Chapter 11 reorganization. After a bankruptcy judge rejected the argument, UM&M issued ILGWU a contingent-income note due June 30, 2019.
UM&M closed its last remaining operation in the apparel textile division, South Carolina's Buffalo Mill, in early 1995, the last Jonathan Logan unit, Rose Marie Reid, having been sold in 1992. This left as its chief asset Victoria Creations, Inc., a 79-percent-owned subsidiary based in Providence, Rhode Island. Manufacturers of women's accessories, Victoria Creations lost $9.1 million in fiscal 1991, $7.4 million in fiscal 1992, and $1.6 million in fiscal 1993.
With the sale of Buffalo Mills, UM&M's only businesses consisted of Victoria Creations and a chain of 51 discount retail stores. Victoria Creations was one of the leading designers, manufacturers, and distributors of costume jewelry in the United States and also an exporter of such products. Its range of costume jewelry included relatively expensive items sold under the Bijoux Givenchy, Richelieu, and Karl Lagerfeld trade names. The retail chain consisted, in 1994, of 40 stores selling women's apparel and 11 selling women's accessories. About 60 percent of the apparel items were being sold under the Jonathan Logan name and most of the accessories were being manufactured by Victoria Creations.
UM&M registered a net loss of $18.8 million in fiscal 1994 on net sales of $98.3 million. Its long-term debt was about $150 million and its common stock was quoted at 12.5 cents a share at the end of the first quarter of 1994. Ruskin owned or controlled 6.5 percent of the common stock in September 1994, while Menachem Atzmon controlled 32.2 percent. By mid-1994 UM&M had a tax-loss carryforward of about $300 million that could be used to shelter future profits. The company said it was shifting the focus of its businesses to financial services and took steps in 1994 to establish a reinsurance business. Company headquarters, previously located in Manhattan's garment district, moved to Teaneck, New Jersey, in the early 1990s.
Principal Subsidiaries: Victoria Creations, Inc.
Further Reading:
Barmash, Isadore, "United Merchants, Citing Losses, Files Voluntary Bankruptcy Action," New York Times, July 13, 1977, p. D1.
Bingaman, R. P., Jr., "United Merchants & Manufacturers," Wall Street Transcript, June 17, 1968, p. 13580.
"Bloodbath at UMM," Forbes, August 15, 1976. p. 44.
Lappen, Alyssa A., "The Incredible Shrinking Company," Forbes, December 11, 1989, pp. 207, 210.
"The Lure Is Price, Not Glamor," Business Week, April 23, 1955, pp. 46, 51--52.
"United Merchants' Record Recovery," Business Week, July 31, 1978, pp. 77--78.
"United Merchants--Trade Complex," Financial World, May 11, 1966, pp. 12, 22.
"Up in the Loft," Time, April 25, 1949, pp. 86, 88.
Vanderwicken, Peter, "... And So UMM Decided to Trim Its Capital Budget," Fortune, September 1975, pp. 124--29, 167--68.
Wallach, Jack B., "Bargains--But No Basements," Nation's Business, February 1949, pp. 72--75.
Yaeger, Deborah Sue, "United Merchants Emerges, with Cheers and Tears, from Chapter 11 Proceedings," Wall Street Journal, July 3, 1978, p. 4.
Source: International Directory of Company Histories, Vol. 13. St. James Press, 1996.
