Fashioning a New Strategy at Claiborne : Apparel: New Chief Executive Paul Charron brings an outsider’s perspective to the struggling designer label.
Paul Charron, the new chief executive of Liz Claiborne Inc., was telling a visitor about the giant apparel maker’s outlook when, eight stories below his office window, a man on the street started yelling angrily at no one in particular. It was one of those Manhattan moments, and Charron couldn’t resist.
“That’s one of our shareholders,” he deadpanned.
Charron will need his sense of humor in the coming months, because the task facing him and Claiborne’s other 8,500 employees is not particularly funny.
After astonishing growth in the 1980s that made it the hottest women’s apparel brand in department stores nationwide, Claiborne has been struggling. The company badly misread a major change in women’s clothing tastes--a mistake that strained customer loyalties and led to flattened sales, eroded profits and a battered stock price.
It’s nothing new in the faddish rag trade that an apparel maker is a hit one day and struggling the next. But Claiborne’s misstep illustrates how even an enduring company can succumb to the caprice of the apparel business if it does not adapt quickly.
“They weren’t listening to the customer,” said Jennifer Black Groves, executive vice president of Black & Co., a brokerage firm in Portland, Ore.
Claiborne’s stall, which began in 1992 after its sales surpassed $2 billion a year, is also due to several other factors: The national recession in the early 1990s, continued weak spending on women’s apparel in general, growing competition and a declining number of department stores due to mergers and bankruptcies.
But analysts, retailers and even Charron said Claiborne’s cardinal sin was failing to adapt to the change in women’s attitudes toward clothing in the 1990s, both in terms of what clothes they want and how much they’re willing to pay.
The experts generally explain the shift this way: In the 1970s and ‘80s, many women--notably the flood entering the workplace--were willing to let Claiborne and others dictate what they should wear.
But by the 1990s, those women became more confident and assertive about choosing apparel themselves. And women in their 20s are more independent than their mothers and older sisters, and they seek wider selections and the freedom to wear more casual clothes to work.
Before, “women wanted to be told what to wear, how to dress,” said Charron (pronounced Sharon ). “Today, women want to be shown their options, so they can put their own individual stamp on what they appear to be.”
Because it did not see the shift, Claiborne let its styles go stale and designed its core lines of office wear (called Collection) and casual clothing (LizSport and LizWear) too much alike, leaving women confused and frustrated, critics said.
“People come in here and say, ‘I want something new,’ ” said Eva Przybyla, the Claiborne specialist at the Broadway store in the Glendale Galleria.
“You’d go into a store and you wouldn’t even have to see the label, you’d know it was theirs,” said Evelyn Faruzzi of Sunland, a Claiborne customer for years.
Also, “the customer in the ‘90s is not interested in forking out a big budget for apparel, because she has other things to worry about [paying for],” such as kids’ educations and home furnishings, said Eileen Gormley, an analyst with the Pershing subsidiary of Donaldson, Lufkin & Jenrette Securities Corp.
Case in point: Judy Ganz, a 30-year-old homemaker and mother. As she browsed through Claiborne’s racks at the Broadway store in Glendale last week, she said she values Claiborne’s quality--but only up to a certain price.
“I don’t want to buy something that’s going to fall apart,” she said. “But I usually look only when Claiborne is on sale.”
Analysts also said there aren’t as many women entering the work force each year as there were a decade ago, which is limiting growth for all apparel makers. And those women who are taking jobs aren’t as clothes-conscious.
“Today’s consumer aged 25 to 44, their core audience, is less interested in clothes and less a consumer of apparel than her mother or grandmother,” said Alan Millstein, publisher of the Fashion Network Report, a trade publication.
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Add it all up and Charron, 52, who left apparel powerhouse VF Corp. a year ago to join Claiborne and became its top executive earlier this month, has his work cut out.
To be sure, Claiborne still has strengths that keep it a power on Seventh Avenue, home to the New York fashion industry. The company retains enormous space in department stores, and has a solid, identifiable franchise with women, in large part because they still admire founder Liz Claiborne--even though she retired six years ago.
The company also sells successful lines of cosmetics, shoes, purses, other accessories and men’s apparel, and the company has zero debt. That gives it the financial wherewithal to make changes and then wait for them to pay off.
And Charron is making changes, with the help of Claiborne Chairman Jerome Chazen, 68, a company co-founder who helped engineer its earlier growth but also presided over its fall from grace.
To counter the pressure on Claiborne’s profit margins caused by retailers’ incessant sales, the company “must make sure we’re lean and mean,” Chazen said. “We’re examining every single part of how we’re running the company” to find cost-savings, he said.
They hope to wring $100 million out of Claiborne’s operating costs over the next three years, and are phasing out its First Issue chain of 77 women’s clothing stores. Started six years ago, First Issue failed to carve out a niche amid the ferocious competition in shopping malls and never made money.
Claiborne also is slashing 25% off of its “cycle time”--the 40 weeks it now takes for a season’s garments to be approved, manufactured and delivered to stores. That enables the company to react more quickly to changing trends. (All of Claiborne’s goods are made by 700 outside suppliers, most in East Asia.)
Finally, Charron is taking a step that’s conventional practice at many big companies but still a novelty in the apparel business, where seat-of-the-pants judgments are still commonplace: He’s conducting an exhaustive study to find out exactly what women want in clothes.
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Charron said he decided “we ought to get away from salesmen’s judgments, or the insights of the last retailer with whom we spoke, and we ought to go to the ladies who buy our clothes. I wanted to get inside her, to understand what her attitudes are.
“There’s a lot of hypotheses about what the hell is going on in the mind of the sportswear consumer, but I have yet to see anybody who’s dealing with any facts, other than what sales were yesterday,” he said.
The results of Charron’s study will be out in June. But because apparel is produced months in advance of its sale, “It won’t be until the spring of ’96 when we know how the consumer responds,” said Margaret Whitfield, an analyst with the investment firm Sutro & Co.
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Consumers responded wildly to Claiborne in the 1970s and ‘80s, when the company’s growth was little short of remarkable.
Liz Claiborne, now 66, started the company in 1976 with a small group of other co-founders, including her husband, Arthur Ortenberg, and Chazen. She was 47 at the time, a high-school dropout who had worked her way up through the fashion business as a designer at several small firms.
With her own firm, Liz Claiborne hit on a simple formula: She designed clothes that she believed other working women, like herself, would confidently buy. The styles were contemporary but not gaudy, well made, comfortable to wear and didn’t cost a fortune like those of the high-brow designers who grab headlines at Milan fashion shows.
Claiborne became something of a celebrity among women who believed she was designing clothes just for them. Once, when she made a personal appearance at a department store in New York in 1988, about 600 women greeted her.
“The company grew because of Liz herself,” recalled Black & Co.’s Groves. “She was the consumer, and she really made products that she liked.”
The company’s annual sales soared to $2 billion in just 15 years, and Claiborne routinely earned a sizzling 25 cents or more on every $1 of its stockholders’ investment, an almost unheard-of performance in the fickle apparel industry.
“Claiborne achieved a track record virtually unmatched since the end of the Second World War by any publicly held apparel company,” Millstein said.
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But the company suddenly lost its touch beginning in 1992, when its sales went flat and Claiborne had to sell its bulging inventories at distress prices. The reversal drained Claiborne’s profits and hammered its stock.
After earning $219 million on sales of $2.2 billion in 1992, Claiborne last year earned only $83 million on the same level of sales. Those 25% returns on equity are long gone; last year’s profit amounted to a mediocre 8% return on its shareholders’ investment.
The stock, which soared from $18 a share in 1989 to $46 in mid-1991, today is back in the $18 range. That means 60%, or about $2 billion, of Claiborne’s market value has been wiped out in just 2 1/2 years.
The problems also rattled department stores’ confidence in Claiborne. As a result, some of the massive space the stores had afforded Claiborne “has been lost” in recent years in favor of other brands, said Sutro’s Whitfield.
So Claiborne recruited Charron to stop the bleeding. Even Ms. Claiborne and Ortenberg, though no longer on Claiborne’s board, issued a statement saying they “agree that new times demand new leadership” at the company.
A 6-foot-4 graduate of Harvard University’s School of Business, Charron is indeed more Ivy League than flashy, and he dresses in the same stylish, yet conservative, way that’s Claiborne’s own hallmark.
Charron can be self-deprecating and modest about the fact that his fashion expertise goes back only seven years. But he’s confident of his management skills and, even while draping one of his long legs over the corner of his desk, he uses direct, no-nonsense language to make clear that he can turn Claiborne around.
“We’re not going to use the [retail] environment as an excuse,” he said. “The reality is we have to do a better job. I’m convinced the company’s best days are ahead of it.”
He joined the company after becoming executive vice president of VF--the nation’s largest publicly held apparel concern, maker of the Wrangler, Lee and Jantzen clothing brands and a company “known for the depth and strength of its management,” Whitfield said. Charron first arrived at VF in 1988.
“The thing that impressed me most is that Paul is very smart and a very quick study,” Chazen said.
Others are skeptical. “He has great credentials coming from a company that made a product with one color: blue,” Millstein said, referring to VF’s heavy emphasis on denim. Claiborne’s “big problem is not in its financial controls, but in the whimsy of merchandising” new, appealing sportswear designs; “It’s yet to be proven whether he has those talents,” Millstein said.
But Charron said Claiborne’s market study not only will help him “listen better” to shoppers, it will also give him “the facts to break down some of the paradigms here” among Claiborne’s work force, he said.
What paradigms? “That the development of fashion apparel is some kind of art form or rocket science,” he said. “This cannot be the most complex undertaking in the world.”
And if that tenet strikes the fashion community as heretical, Charron said he’s not concerned, because the world has changed.
“One of the disadvantages is that I don’t have 25 years of wisdom and perspective in this industry,” he said. “But I also do not have 25 years of baggage.”
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Fall From Grace
After spectacular growth in the 1980s, women’s apparel maker Liz Claiborne Inc. lost its touch beginning in 1992.
Sales stalled...(in billions of dollars): $2.2
...And profits deteriorated...(in millions of dollars): $8.3
...Sapping the company’s return on investment...(return on investment, percentage): 8%
...And driving down the stock.: (per share price, end of quarter, except latest): Friday: $18.50
Sources: Liz Claiborne Inc., Bloomberg Business News, Value Line Investment Survey
