Sun Sportswear, Inc.

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Sun Sportswear, Inc.

6520 South 190th Street
Kent, Washington 98032
U.S.A.
(206) 251-3565
Fax: (206) 251-0527

Public Company
Incorporated: 1981 as Sun Shirts, Inc.
Employees: 508
Sales: $93.9 million (1995)
Stock Exchanges: NASDAQ
SICs: 2329 Men’s/Boys’ Clothing, Not Elsewhere Classified; 2339 Women’s/Misses’ Outerwear, Not Elsewhere Classified; 2369 Girls’/Children’s Outerwear, Not Elsewhere Classified

The largest producer of silkscreened apparel in the United States, Sun Sportswear, Inc., designs, sources, prints, markets, and sells an extensive collection of imprinted, dyed, and decorated casual sportswear for men, women, and children. During the mid-1990s, Sun Sportswear sold its proprietary and licensed designs to roughly 30 national and regional chains, including Wal-Mart, Target Stores, K-Mart, Montgomery Ward, JC Penney, and Sears. The company conducted its business by purchasing blank T-shirts, sweatshirts, sweatpants, tank tops, nightshirts, and similar apparel items and screenprinting designs on those garments. For its licensed designs, the company owned the rights to use or distribute certain characters and trademarks that included “Looney Tunes,” “Major League Baseball,” “Pocahontas,” “The Lion King,” “101 Dalmatians,” “Garfield,” “Batman Forever,” and “Winnie the Pooh.” For its proprietary designs, Sun Sportswear relied on concepts developed by its merchandising staff and internal graphics design department.

Founded in 1981

In March 1981, David A. Sabey, Richard Lentz, and James A. Contini entered into business together with the establishment of Sun Sportswear’s predecessor, Sun Shirts, Inc., a small firm that began business as a T-shirt designer in suburban Seattle, Washington. From the company’s founding date forward, Sabey and his successors steered Sun Sportswear in new directions by adding product lines, penetrating new markets, and redefining the company’s business strategy. The changes initiated transformed the modestly sized, T-shirt designer into the largest producer of silkscreened casual sportswear in the United States in little more than a decade. Absent from the proceedings that marked the rise of the company they had helped found were Lentz, founder of Union Bay Sportswear, and Contini, a graphic artist. Before Sun Sportswear’s inaugural year of business was through, Sabey bought out his partners and assumed full control over the company. Under Sabey’s stewardship, the whirlwind of changes that shaped Sun Sportswear into the preeminent leader in its industry ensued.

Initially, Sun Sportswear contracted with other manufacturers to supply screenprinted tops to coordinate with pants sold through Lentz’s Union Bay Sportswear. With Lentz’s departure and the arrival of three hand presses in 1982, however, the scope of the business changed. Beginning in 1982, the company operated by creating its own designs, screenprinting those designs on blank T-shirts purchased from outside sources, and selling the garments to small, regional retail chains, gift and surf shops, and mass merchandisers, deriving nearly all of its business from sales to male customers. A decade later, Sun Sports-wear’s business would be dramatically different, as a series of pivotal, evolutionary steps transformed the company into a proprietary and licensed designer of casual sportswear for massive retail chains that drew the bulk of its business from female customers. The first important step toward this end was taken in 1983 when the company expanded beyond T-shirts and started to become more of a full-line sportswear company, changing its name from Sun Shirts, Inc. to Sun Sportswear, Inc. to reflect this change. Concurrent with this significant diversification, the company resolved to develop a customer base comprising mass merchandisers and forego the practice of distributing T-shirts to small retail chains, gift shops, and surf shops. Sabey and his executive staff decided to develop long-term relationships with mass merchandisers such as Target Stores and Wal-Mart who operated retail outlets on a nationwide basis. The decision to eschew smaller retailers and target the country’s largest mass merchandise chains was a significant one in Sun Sportswear’s history, paving the way for the high-volume, low-cost casual sportswear designer the company would eventually become.

By the mid-1980s, Sun Sportswear was gradually making its way toward becoming a contender in the national market for silkscreened garments, having altered it business strategy meaningfully during its first half decade of existence. The company purchased undecorated apparel items from domestic and foreign producers and then, through its internal art staff, created designs that were applied to the garments at Sun Sportswear’s production facility in Redmond, Washington. Operating as such, the company existed exclusively as a proprietary designer, scoring its greatest success with its creation of “Rude Dog” in 1986, by which time Sun Sportswear had expanded its production capabilities to include five hand presses and five automatic presses. Initially, “Rude Dog” was emblazoned as a character on T-shirts, but as the popularity of the Sun Sportswear-created figure grew enormously after its introduction, “Rude Dog” appeared on a plethora of items, including skateboards, beach towels, and socks.

By the end of the 1980s, the “Rude Dog” character had turned into a valuable revenue-generating engine of its own, enjoying such widespread popularity that the apparel items decorated by Sun Sportswear could not satisfy consumer demand. The character was licensed to other manufacturers as a result, appearing on 21 different types of consumer products and giving Sun Sportswear a welcomed yet unanticipated boost to its business. Despite the phenomenal success of “Rude Dog” as a licensed character, Sun Sportswear’s most important move in the market for licensed products came not as a licensor but as a licensee. For the first six years of its existence, Sun Sportswear derived all of its business from designs created by its own team of artists, with “Rude Dog” ranking as the biggest success. In 1987, however, the company added licensed designs to its product line and opened the door to a lucrative market that in less than half a decade would account for roughly half of its total sales volume. The decision to produce and sell licensed designs stood as a watershed development in the company’s history, equalling the significance of the diversification beyond the T-shirt market and the development of a mass merchandiser customer base in 1983.

1987 Entry into Licensed Designs

Sun Sportswear’s entry into the licensed design arena was effected in August 1987, when one of the company’s largest customers, Wal-Mart, helped it gain the license for the “California Raisin” characters from Applause Licensing Co., based in Woodland Hills, California. With the highly marketable “California Raisin” characters gracing its casual sportswear garments, Sun Sportswear enjoyed an appreciable increase in sales, convincing Sabey and the company’s management that the rewards to be gained in producing licensed designs merited further investment. Other licensed designs entered Sun Sportswear’s fold after the “California Raisins” deal was brokered, including “Garfield” the cat and a “Batman” license in 1989, when Wal-Mart and Target Stores suggested Sun Sportswear as a more capable supplier than the previous licensee.

Although the licensed segment of Sun Sportswear’s business represented a new and promising avenue of growth for the company, it by no means abandoned its mainstay proprietary design business. By 1988, the company’s internal design staff was creating 1, 200 designs a year and more than 2, 000 designs by the following year, as Sun Sportswear executives strove to beat back the capricious nature of garment designs by flooding markets with a vast and ever-changing product line. By continually adding to and revamping its proprietary product line and by negotiating for licenses for popular characters and trademarks, Sun Sportswear kept moving forward and surpassing competitors, recording encouraging financial growth along the way. Annual sales, which amounted to $28.9 million in 1987, more than doubled the following year to $59 million, as revenues from the recently added licensed line of garments came pouring in and the consistent effort to refreshen the proprietary line paid off in financial gains.

To accommodate the company’s rapid growth and the increasing number of customers located east of the Mississippi River, a second production facility was purchased in 1988, when Sun Sportswear acquired a warehousing and manufacturing property in Johnson City, Tennessee. On the heels of this acquisition, the company stood poised for a banner year, its position as one of the country’s largest silkscreeners firmly established. Sun Sportwear by this point purchased roughly 65 percent of its blank garments from manufacturers predominately located in the southeastern United States, and the remaining 35 percent were imported, primarily from Pakistan, Portugal, and Costa Rica. Once decorated, either with designs created by the company or with licensed designs, the garments were sold to 30 major mass merchandisers, with K-Mart, Wal-Mart, and Target Stores ranking as the company’s three largest customers by far.

Company Perspectives:

Sun Sportswear is recognized for its ability to attract retail shoppers ’ interests. We accomplish this by offering a well-designed product line and fresh, attractive artwork that sells our screen printed goods.

Women’s and Girls’ Apparel Launched in 1989

Perhaps more remarkable than the company’s consistent and rapid growth in a market driven by whimsical and fleeting fashion trends was that nearly all of the growth achieved during the 1980s was realized from selling to only half of the American population. Since its inception, Sun Sportswear had relied nearly exclusively on male customers for its business, but in June 1989 another opportunity for growth came about when the company began test marketing apparel items targeted for women and girls. By the end of its first year, the women’s and girls’ apparel division generated $3 million in sales, a modest contribution when compared with the $73.2 million generated in revenues for the year, but expectations ran high, leading company officials to project that eventually women’s and girls’ apparel would account for between 25 percent and 30 percent of the company’s total sales. In this projection the company was wrong, for during the 1990s, when the sales of men’s and boys’ apparel began to flag, the women’s and girls’ division picked up the slack, eventually accounting for nearly 70 percent of Sun Sportswear’s total business.

Before Sun Sportswear officials realized the riches they had tapped by targeting female customers, the company made one more significant move in 1989. In October, Sun Sportswear filed with the Securities and Exchange Commission for an initial public offering of 1.7 million shares. The sale of Sun Sportswear stock to the public, which was completed in October, represented 21 percent ownership of the company, with Sabey retaining the remaining percentage of ownership. With the money yielded from the public offering, an amount that was expected to bring in as much as $20 million, Sabey intended to finance Sun Sportswear’s recent expansion, including $2 million to purchase new equipment for the company’s new office and printing facility located on a 9.6-acre site in Kent. The remainder of the funds were earmarked for repaying loans associated with the acquisition of the Johnson City facility and for future expansion, giving Sun Sportswear some of the financial resources it would need to maintain its leadership role in the decade ahead.

Sun Sportswear entered the 1990s on a strong note. The company’s product line of screenprinted knit cotton T-shirts, sweatshirts, sweatpants, shorts, and woven T-shirts generated $73.2 million in sales in 1989, a 24 percent increase over the previous year’s total. The acquisition in early 1990 of the apparel licensing rights to use the National Wildlife Federation logo on T-shirts and sweats kept the company moving in a positive direction, but from there things began to sour. As the onset of a national economic recession began to appear in headlines across the country, laggard consumer spending, retail inventory reductions, and the popularity of licensed characters not owned by Sun Sportswear combined to negatively affect the Kent-based company’s business. In August 1990, as a result of waning sales, the company trimmed its work force by 126 at its screenprinting plants in Kent and Johnson City. Then in April 1991 the company announced it would suspend screenprinting operations at its Johnson City facility altogether. The company continued to use the Johnson City plant as a warehousing hub, but the production was shifted to the manufacturing facility in Kent, where Sun Sportswear management anxiously awaited the return of more prosperous economic conditions.

More prosperous economic conditions did not arrive soon enough, particularly for Sabey, who found himself mired in serious financial difficulties during the early years of the 1990s. Since the establishment of Sun Sportswear, Sabey had greatly expanded his business interests by acquiring a fashionable department store chain based in the Pacific Northwest called Frederick & Nelson. As Sun Sportswear struggled during the early years of the decade, recording a $517, 000 loss in 1992, Sabey’s Frederick & Nelson department store chain suffered from more pernicious financial difficulties and slipped into bankruptcy as the recession worsened. The financial troubles of Sun Sportswear’s chairman resulted in a new majority owner for the company and the return of more prosperous economic times for the country’s largest producer of silkscreened garments.

1993 Resignation of Sun Sportswear’s Founder

In January 1993, Sabey transferred to Seafirst Corp. 67.7 percent of Sun Sportswear’s shares to pay part of his debt to the Seattle-based bank and announced his resignation as chairman effective January 22, 1993. To replace Sabey, Seafirst selected Larry C. Mounger, a Sun Sportswear director who had joined the company’s board in 1991. For Seafirst, Mounger, and Sun Sportswear, the timing was perfect. Less than two weeks before Sabey’s resignation was scheduled to take effect, Mounger had sold his family-owned business, Pacific Trail Inc., a 48-year-old outerwear firm founded by his father. Despite the propitious turn of events that made Mounger available to guide the fortunes of Sun Sportwear, Mounger had no intention of becoming the company’s chairman and chief executive officer. “I was going to retire, manage my own investments and possibly buy, but not run, a business,” Mounger later remembered to a reporter from the Puget Sound Business Journal. “I had no idea in the world when I was closing Pacific Trail that this would happen.”

Despite his surprise, Mounger wasted no time in making his presence known at Sun Sportswear. He quickly developed a 100-day strategy for the company and explained his objectives. “Number one, we’ve got to turn this company around and increase profits in 1993,” Mounger explained in a Puget Sound Business Journal interview. “Number two, we’ve got to grow the top-end and increase our customer base.” To achieve these goals, Mounger instituted tougher quality control standards, closed the Johnson City plant, and concentrated the company’s focus on its core business of screenprinting. By the end of the year, Mounger could point to tangible proof that the changes undertaken during his watch had worked. After recording a loss of $517, 000 for 1992, Sun Sportswear’s net income rebounded significantly, jumping to a $2.7 million gain. Sales were up as well, rising from $70.6 million to $104.8 million. For the first time since its initial public offering in 1989, Sun Sportswear entered a new calendar year supported by growth on all fronts.

After Sun Sportswear’s president resigned in early 1994, Mounger assumed his post to reign as the company’s chairman, chief executive officer, and president. Occupying the company’s three top executive positions, Mounger moved resolutely forward in 1994, intent on sustaining the positive momentum built up in 1993. More than $2 million was spent on the latest screenprinting technology, with another $2 million slated for investment in late 1994, giving the company a total of 15 screenprinting presses. With the acquisition of additional presses, Sun Sportswear stood well-positioned for anticipated growth, but 1995 would prove to be a difficult year for the company. Sales were invigorated by the popularity of the company’s licensed rights to the “Pocahontas” and “Lion King” characters, but the effects of a strike by major league baseball players caused sales of Sun Sportswear’s “Major League Baseball” designs to decline. For the year, sales dipped to $93.9 million and the company plunged once again into the red, recording a $3.7 million loss.

As the company struggled through 1995, a leadership change was effected. Just as quickly as he had arrived, Mounger was gone by October, with the only explanation for his sudden departure coming from a company announcement that Mounger had resigned “to have more time to pursue community service and other personal goals.” In Mounger’s place, William S. Wiley was selected as president and chief executive officer. Wiley, who had been a consultant to the company’s reengineering efforts for the six months prior to his arrival at Sun Sportswear as president and chief executive officer, was charged with guiding the company into the late 1990s and steering it toward consistent profitability. As Wiley and his executive team charted their course for the late 1990s, the one undeniably healthy aspect of Sun Sportswear’s business was its women’s and girls’ apparel division. Since its inception in 1989, the division had developed into a $67-million-a-year business, accounting for nearly 70 percent of the company’s total sales in 1995. In February 1996, the women’s/girls’ and men’s/boy’s divisions were combined, giving both segments the leadership that had orchestrated the women’s and girls’ division’s robust growth. Structured as such, Sun Sportswear headed toward the late 1990s, intent on maintaining its lead as the largest screenprinting producer in the United States.