Warnaco's Formidable CEO Wachner Sees Company Through Turbulent Times
By REBECCA QUICK
Staff Reporter of THE WALL STREET JOURNAL
ANY OTHER CAPTAIN might be tempted to jump ship. But as the seas grow ever rougher at Warnaco Group Inc., Linda Wachner's determination to plow on has only intensified.
Things started to get ugly last May when the venerable apparel company, which makes lingerie, jeans and sportswear under familiar names such as Ralph Lauren, Speedo and Olga, was sued by its biggest licensee -- Calvin Klein Inc. -- which accused Mrs. Wachner personally on nine counts ranging from breach of fiduciary duty to deceptive acts. Although a federal judge removed her from nearly every count in the lawsuit, the battle grew increasingly nasty when Warnaco filed a counterclaim accusing Calvin Klein of trade libel and bad-faith dealing. The long-awaited trial is set to begin later this month.
Making matters grimmer, sales at major department stores slowed over the summer and early fall, forcing the company to twice lower its earnings estimates for the year. Hefty restructuring charges ate up remaining profits, and Warnaco wound up posting a loss for the last two quarters. The deluge of bad news pushed Warnaco shares to an all-time low of $1.25 in recent days, well off its high of just over $40 in the summer of 1998.
The confluence of turbulent events has presented something of an executive whiplash for the hard-charging Ms. Wachner, Warnaco's chairwoman and chief executive. Her reputation as a headstrong, formidable player in the apparel industry hasn't always won her friends in the male-dominated apparel industry. But like many successful top executives, her almost singular devotion to Warnaco's business (her dog's name is Ebit, short for the accounting term "earnings before interest and taxes") and her uncanny knack for foreseeing customer trends have kept the company flourishing until now.
Warnaco began as Warner Brothers Co., a maker of corsets, in 1874. Its founders, two brothers who were also physicians, thought women's underwear was too restrictive and offered up their own designs to reduce pressure on women's bodies. Indeed their company masterminded the A, B, C, D sizing in bras, which arguably transformed the industry. Ms. Wachner, after graduating from the University of Buffalo with a business major in 1966, held a variety of apparel positions at various companies before becoming a vice president with Warner's in 1974. Like Warnaco's founders, Ms. Wachner continued to buck mainstream trends when she saw fit. Early in her tenure at the company, she developed innovations that transformed the retail world, such as taking bras out of the box and putting them on hangers for shoppers to examine up close.
Mrs. Wachner has survived hard times before, starting when she was diagnosed with severe scoliosis (curvature of the spine) as a child, which she believes fueled her ability to shrug off tough problems personally and professionally. Her husband died in 1983, which some who know the CEO say only spurred her determination professionally. Indeed, after leading a messy buyout at Warnaco in 1986, she then built the $450 million company into a $2.3 billion giant that today boasts some of the most recognized brands in America's shopping malls. Ms. Wachner is now Warnaco's largest shareholder with beneficial ownership of more than 20%, a stake she accumulated in part via her lucrative compensation package with the company.
Keeping Warnaco afloat in the current beleaguered retail environment may be her toughest challenge yet. Recently, Mrs. Wachner discussed her proclivity to trust her own instincts in times of crisis -- and to remember what the customer wants at all costs. Here are excerpts from several conversations:
WSJ: What hours do you work?
Wachner: All the time. From seven in the morning until late in the evening. I've always put in long hours and they've lengthened because of the lawsuit. Plus, we spend a lot of time on our product, and I spend part of every weekend reviewing our product.
WSJ: Do you confide in anyone?
Wachner: No.
WSJ: Who is your primary customer now?
Wachner: The people who want a relaxed style. For example, ten years ago men's shirts were four inches narrower in the body than they are today.
WSJ: Through the waist?
Wachner: Through the sides. And people wanted narrower cuts. Now today, everything is big and loose and people want that. You have to adapt to that. You have to look and see what do people want. What are they asking for? The average T-shirt size today for a small is equal to what a medium was years ago. Everything is not for the skinny people of the world. It is for the average consumer. We respect that. And we have to understand that. ... America is not all wearing the same size that it wore 10 years ago or 20 pounds ago.
WSJ: That's where the Weight Watchers line of clothing you developed for Wal-Mart comes in?
Wachner: Exactly.... Our best-selling size in a bra was a 34B 10 years ago; today it is clearly a 36C. In Chaps, where the best-selling men's casual pant was 32, now it's 34 or 36. So it doesn't mean that we have changed the grading of the product. It means the customer is asking either for a different looseness, a different feeling. Or that they have grown into larger product. So I think that is all the things that our people need to understand.
WSJ: How actively involved are you in these processes?
Wachner: I am extremely involved. There is no question. I am a hands-on manager. But we have great brand presidents.
WSJ: The last year has been a difficult one for Warnaco. How has that affected the business on a daily basis?
Wachner: We are running our business the way we always did, five days a week -- seven if necessary. Having said that, we are dealing with various things that happened to us. Number one is certainly a lawsuit that came from outer space, which we are managing and our lawyers are managing very well. ("We are pleased with the progress in the lawsuit to date, and look forward to trying our claims of trademark violation and breach of contract," said a Calvin Klein spokesman.)
Second, in the last year we have seen [several] of our customers go into financial difficulties. Customers such as SRI Stores have gone into Chapter 11. And Canadian retailer T. Eaton Co. closed completely. So those were dramatic things that have happened in the environment. Back in 1986 we used to count our total department and specialty stores at about 2,600 to 2,700 specific doors. And now those are down by consolidations and other things in our environment to about 1,800.
WSJ: How have you dealt with that?
Wachner: We sat down and took out 20% of our work force, over 3,800 employees. We closed five manufacturing facilities and one cutting facility in intimate apparel. We closed eight distribution centers in Europe, consolidating down to two. Those were measures we took in the second and third [fiscal] quarters so we could manage in the turbulent times that we see coming in 2001. And their effects will be very positive for us starting in the fourth quarter.... We will be more efficient, more streamlined and ready to move with greater speed and efficiency into the year 2001.
WSJ: From age 11 to age 13 you were in a body cast (from when Ms. Wachner was diagnosed with scoliosis.) What kind of effect did that have on you growing up?
Wachner: When you're so young you formulate your opinions and desires about tomorrow and your future. Today I give credit to everyone who has a disability because you have to try so much harder to overcome things. The only thing I thought about those years in bed was would I be able to walk again? And if I could, could I ski and live a normal life and how would that begin? Would I be dependent or independent? You find yourself looking for walls to hold onto if there isn't a helpful hand. I had to do it on my own.
My ability to focus on issues and shrug problems off and keep walking to reach my goal was greatly influenced by this part of my life. That left a greater impression on me than anything you could imagine. I think I have the ability to focus more deeply on issues than most people and to stay focused on them until I complete my goals.... If you're a dilettante and jump from one thing to the next you can't get the maximum result. If we didn't focus on our business over the years, we wouldn't have grown to a $2.3 billion company.
WSJ: Is it fair to say you're a tough manager?
Wachner: I think it's fair to say I'm demanding and fair. I don't ask anyone to do anything I don't do myself. It takes a tough-minded person to cut 20% of the work force and prepare the company for the next decade.
WSJ: If the outlook is so rosy for Warnaco, why has the stock fallen so far recently?
Wachner: All that I can say is that we believe the stock is undervalued. In the course of appraising the brand names and trademarks [that Warnaco owns], they are worth nearly $1.7 billion, which should add value to our stock when you recognize the strengths of our brands and the power of cash flows.... I have personally been buying back Warnaco shares.
WSJ: With the stock trading so low, is the company a takeover target?
Wachner: Since the company has the best brands and market share, we're obviously a takeover target. And obviously we have to do what's best for the shareholders. Whether it would be considering a bid or selling assets, we will always think first of the shareholders.
But it's not just the stock price you [a potential buyer] have to consider. Our debt outstanding is in the area of $2 billion.
WSJ: Warnaco has been criticized recently for taking a continuous string of "non-recurring" charges. Do you have any response to those criticisms?
Wachner: In six years of operation, we did 14 acquisitions and eight divestitures. These kinds of charges are consistent and expected for a company engaged in the number of acquisitions and divestitures that we have done.
WSJ: When things get busier, when there is more going on, does this take your focus away? How do you keep focused on the styles and the designs and keep bringing out new things?
Wachner: Well, that's our job. We have line planning meetings and line development calendars that work on timetables. When we took over this company in the '80s, it was never on time with anything. Now we try to pride ourselves on being on or as close to our time schedule as we can be in terms of product development. And meeting development schedules for new product, new fabric.
WSJ: What other measures have you taken to deal with the fact that your main customers -- department stores -- have been losing market share to specialty stores and discounters over the last decade?
Wachner: We developed brands for other channels of distribution than just department stores. We ... established new brands. For example, Van Raalte for Sears, which was a bra brand we bought several years ago.... We had done a very small business with Sears. And that's a very good business now. Another thing we did was a license of Weight Watchers for the Kmarts, Wal-Marts and such of the world, which puts us into full-figure merchandise -- which is a major, growing segment of the bra and bottoms business for a very large channel of distribution whose doors are growing.
This company has consistently developed innovations year in and year out. And you have asked how do you do that? You do it by having an eye for things that your customer might really want.
WSJ: Are there some brands on which you spend more time on than others?
Wachner: No .... But if there is a problem in one area, we allocate more time to it. And we spend the time it takes to build a new idea, or the time that it takes to make sure a line is done. So that we have something to be proud of. And we have grown some of the best managers, I believe, in the business.
WSJ: Do you trust the people who work for you and their ability to run their divisions?
Wachner: I don't think it's so much trust as respect for people's intellect and judgment. You have to have good instincts about people. I think I have excellent instincts about people. I've been surprised by some and hurt by some, but that's my biggest asset, my ability to perceive people.
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5 Lessons from Linda Wachner on Leading in Troubled Times
Focus -- don't get distracted by what isn't important. 'If you're a dilettante and jump from one thing to the next you can't get the maximum result.'
Give customers what they want. Grow along with them. 'Customers change and body sizes change and you must follow the customers and the trends.'
Trust your instincts. Rely on yourself first. More importantly, 'know in your heart you're doing the right thing.'
Choose people whose intellect and judgment you can respect -- that's more important than trust.
Live by the golden rule, 'I always believe in God, and I believe that when people try to be mean and nasty, what goes around comes around.' |
