What the Hell Happened?

Inside the collapse of the Mossimo empire

And so the people who didn't and still don't understand why Giannulli didn't stay the surfwear course to such great success as Quiksilver and Hurley didn't and don't understand what drove Giannulli.

"Moss needed fashion, needed the fashion world," Knapp said. "In surfwear, we're much more about function. Moss was never a function guy. He was always more about fashion. Quiksilver, Hurley—this is California lifestyle; it's about play. New York is fashion. Moss needed New York."

New York beckoned him with the company of beautiful designers. So in 1996, when he thought the company was ready (it wasn't), Giannulli took it public to raise money for the company's expansion: he would upgrade its men's line into things like $500 suits as well as create a women's line.

this is where some people get confused. Some people think the company's expansion into high-end fashion alienated its core surf customers while it was never embraced by its new target audience. That's not true: Mossimo was never a hit with skate grommets; his new line was a hit with retailers; orders rolled in.

It wasn't indifference that battered Mossimo. It was popularity.

Mossimo committed the fatal—and common—error of expanding too quickly. Inexperienced and overwhelmed, Mossimo Inc. couldn't accomplish the most basic industrial tasks.

"Our merchandiser book is how we promote our latest line to stores, but by the time the line came out, half the stuff that was in that book wasn't even produced," said Lori Mitsch, who worked for five years at Mossimo, first in the South Coast Plaza store as a manager and then in the company headquarters as merchandise coordinator. "The stuff just never got made. Stores were really getting fed up."

The stuff that did get made was arriving late in the store—a cardinal sin in the business. "If you miss your shipping dates, let's say by a couple of weeks, that's two weeks less you're on the floor," said Heuser, who remains one of Giannulli's biggest fans. "The retailer is mad because his floor doesn't look fresh. Your window for sales is cut by a couple of weeks because when that season is over, it's over, and your stuff is gone.

"It kills you in terms of reorder because now the store has a lot of your stuff left over, goods they have to discount. And, you know, when something is discounted, there's a tendency for people to think something's wrong with it. It's like a house that stays on the market too long.

"So now the store is feeling burned, and they don't trust you. They'll say to themselves, 'I gave them orders for 8,000, and they only shipped 4,000. This time, I'll order 4,000 and see how they do.' Not shipping on time absolutely kills you. You can paint your image, do all the right marketing, get in all the right stores, but the bottom line is if you're not hitting your shipping dates, the stores don't care. They'll take you out."

Problem two: the stuff that did arrive in the stores was of an inconsistent quality.

"Quality control had completely broken down," Mitsch said. "When I went back to work in the [South Coast Plaza] store, the amount of returned items was just unbelievable. And this wasn't because someone didn't like the color. It was for basic things like shrinkage or cheap material, things that were just unacceptable to customers."

Stuff like this gets around, especially if your company is on the New York Stock Exchange. By mid-1997, less than a year after going public, the value of Mossimo's 11 million shares had fallen from $550 million to $88 million. The stock that had traded as high as $50 was now at $8.

And that was pretty much that. In the fashion biz, that's all it takes to kill you.

"The one big lesson from what's happening at Mossimo is that you're never safe," Heuser said. "What happened there could happen to any one of us. Have one bad season, you're dead. Don't ship on time, you're dead. Your quality control is off, you're dead. Grow your line too quickly, have consumers think you're overdistributed, you're dead. It's a brutal, brutal business."

CEOs were brought into this brutal, brutal business to save things, streamline operations, get things running smoothly again. John Brincko, who had turned around Barney's New York, was brought in and failed. Edwin Lewis, who had been CEO at Tommy Hilfiger, came in and didn't accomplish much—unless what he had set out to accomplish was pissing people off.

"That is the rudest man I've ever met," Mitsch said. "When he came in, we were all like, 'Oooohh, this guy turned around Tommy Hilfiger; he's going to turn us around.' But he just never had a good thing to say to anyone. Everyone was terrified of the guy; all he did was demoralize the staff, and I think pretty soon people were too scared to do their jobs.

"I remember right before we went public—and even after, when things weren't going so well—there was still a lot of energy in the company. We were like a family. We believed in Moss, and we believed we could turn it around. But by the time Edwin got there, you couldn't find Moss anymore. He just wasn't around. And Edwin was just riding everyone. He was the buzz kill for everyone. It ruined the energy, ruined the moment. That's when I knew it was over."

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