Can Marc Ecko Pay His Rent? (Updated)

Last month it was widely reported that free-spending, once-cool designer Marc Ecko's empire was on the verge of bankruptcy. Today, we scored an internal memo from Ecko (kind of) reassuring his employees. And another rumor!

Our tipster says this memo went out to employees after the "close to bankruptcy" ruckus a couple weeks ago. In it, Ecko acknowledges that, yes, 2008 was a shitty year, and things kind of suck, and we've had to cut costs and lay people off and so forth, and we may need to break up the company, but there are some bright spots, and we're not folding.

Can Marc Ecko Pay His Rent? (Updated)S

But our tipster also tells us (unconfirmed, so far) that Ecko's company is being forced to leave its huge, opulent headquarters space on 23rd St. and relocate to New Jersey to save money, very soon. [If you know more on this, email us].

UPDATE: Ecko PR person Laurie Baker says "Our retail operations are consolidating in New Jersey where our distribution center is. This is a long planned move. There is no truth to any other rumors." Asked to clarify what that meant, she said "it's approximately 20 people that take up less than 25 percent of one of 5 floors" in the 23rd St. space.

Full memo below:

We're writing today to provide an update on developments in our Company.

We have recently been subject to mischaracterizations and inaccurate reporting. While it is our policy to avoid replying to negative press, in light of the assertions and the economic climate we wanted to set the record straight. While we have certainly had our challenges, the characterization of our status with our lenders and suppliers is simply wrong on many counts.

Now for the real story...

It is an understatement to say that 2008 was a difficult year, not just for us, but for the overall apparel and retail industries. We are living in an unprecedented economic environment and we've not been exempt from these challenges. After years of outstanding growth and financial performance, the combination of a weak retail environment and poor timing of growth initiatives has created challenges that we have addressed, and will continue to address.

Our focus has been, and continues to be, in three key areas of opportunity:

Cost Reduction and Operational Improvement.
As most of you know, we've already hurdled the most painful steps of reorganizing our operations by cutting costs and right-sizing our company to today's realities. Over the past several months we have reduced head-count, shut-down underperforming businesses, eliminated unnecessary capital expenditures and licensed categories that we recognized were not realizing their fullest potential. It is also true that, as a result of consolidation in the broader retail landscape we no longer have a need for our expansive showroom spaces. To that end it is common knowledge that over the last year we have looked to sublet portion of our office space on 23rd street. We hope it is clear to everyone that these were necessary steps that have positioned us for strong financial performance in 2009 and beyond.

The early results of these efforts are evident in our ‘09 year-to date results. We are exceeding our business plan, with nearly every business unit out performing its forecast. Most divisions are well ahead of projections in sales, comp store sales, gross margins and expense management. Specific Q1 Highlights include:

▪ ecko unltd. Full-price stores comp-store gains of +25%
▪ ecko unltd. Outlet stores comp-store gains of +15%
▪ ecko unltd. Total retail gross-margin gains of 7%
▪ ecko unltd. Wholesale sales to plan +10.2% on stock to plan +1%
▪ MEC wholesale sales to plan +20% on stock to plan +3%
▪ E-Commerce business up 300%+YTD
(ok, so our e-comm business sucked last year, but its still pretty impressive, and we'll take it)
▪ Zoo York Jr's sales to last year +25%
▪ Avirex will be launching two new labels in JCPenny's for fall delivery
▪ Complex Media's Digital Ad-Network is now the largest Digital Ad-Network in the 18-34 Male Demo with 21 premium content sites with over 10MM unique visitors and 110MM page views per month.
▪ Successfully launched Unlimited MMA line to 11% sell-thru's at top specialty sporting
goods chains.

Our positive performance is a testament to the fact that - besides "operational improvements" – the brands we live and breathe everyday continue to create excitement and resonate deeply with our consumers. Additionally, we have signed new licenses, we are seeing strong growth in our International businesses, and have two new video games launching this summer. Finally, in light of our current performance and excellent real estate opportunities we plan to open 5 -10 new full-priceecko unltd. store's in the back half of this year.

In short, we have materially exceeded the sales and profit projections that were submitted and approved by our lenders and other financial stakeholders. We are confident this performance is the result of, our strategic initiatives and expect this trend to continue.

Strengthening our Balance Sheet for Growth
Contrary to reports, we are in compliance with our current lending provisions. However, we do not believe that our long-term strategic goals can be met with our existing group of financial partners. Accordingly, we have engaged an investment banking firm to help us explore alternatives. We are looking at a variety of options and have every confidence that our efforts will result in new, long-term capital arrangements that will allow us to continue to grow and prosper.

Decentralizing our Businesses
The market has made it clear to us that each of our individual businesses is worth more on a stand-alone basis than combined. Accordingly, we are working to decentralize the businesses of MarcEcko Enterprises. We want to ensure that the difficult environment does not ultimately impede the continued growth and development of any business unit. We have no biases in this regard beyond the belief that a decentralized model is best, and that each brand should be aligned with the strategic or financial partners that will optimize its future growth and opportunities.

We have found that, irrespective of common ownership, the financial community that is attracted toecko unltd. is different to that which wants to invest in Avirex. We have likewise found this to be the case with different parties interested in providing growth financing and support to Zoo York, MarcEcko's COMPLEX, and Marc Ecko Games. While several exciting opportunities have already presented themselves, we are not prepared to make any announcements at this time. We do however; acknowledge that for each brand to realize its full potential we will need to operate each entity with financial and operational autonomy.

In the weeks and months ahead, we commit to keep you abreast of key developments. We hope that everyone understands that the actions we have taken thus far and the actions we will continue to take will help position each of our businesses for long- term success.

We have the resources, assets, people, talent and passion to continue to be a leader in our industry. We will emerge from this recession stronger and better positioned to create value for our employees and our partners for years to come.

Finally, and most importantly, we've grown and succeeded beyond our imagination through your hard work, loyalty and dedication. We have been especially appreciative of how so many of you have delivered so much more with less resources. You are responsible for our past success and the key to our future. More than anything we want to thank you and tell you how grateful we are for your dedication and support. As always we have an open door and you're welcome to approach us with any questions you may have.

Respectfully,
Seth, Marc Marci, and the Management Team