90 Park Avenue
New York, New York 10016
Telephone: (212) 661-1300
Fax: (212) 687-0480
Sales: $2.25 billion (2000)
Stock Exchanges: New York (Delisted 2001)
NAIC: 315212 Women's, Girls', and Infants' Cut and Sew Apparel Contractors; 315231 Women's and Girls' Cut and Sew Lingerie, Loungewear, and Nightwear Manufacturing
1874: Brothers DeVer and Lucien Warner found the company.
1894: The Warners' business is incorporated.
1915: The bra is patented.
1968: The company changes its name to Warnaco.
1986: Linda Wachner gains control of company in hostile takeover.
1991: The company goes public.
1996: Annual revenues top $1 billion.
2001: Warnaco declares bankruptcy; Wachner resigns.
The Warnaco Group Inc. is a major international apparel company operating out of New York City. Along with its subsidiaries, the company designs, manufactures, and markets women's intimate apparel, women's and junior's apparel, men's apparel, and swim accessories and fitness apparel. It has licensing deals with such prominent brands as Calvin Klein, Fruit of the Loom, and Chaps by Ralph Lauren. A subsidiary, Authentic Fitness, is the North American distributor of Speedo swimwear. In 1994, Warnaco distinguished itself as the only Fortune 500 industrial company with a female chief executive, Linda Wachner. After several successful years, she would be ousted in 2001, leaving the company saddled with debt, operating under bankruptcy protection, and in the shadow of an Securities and Exchange Commission (SEC) investigation.
Warnaco's Origins: 1874
Brothers DeVer and Lucien Warner started what would become Warnaco in 1874. Both men had been trained as doctors, but each also had an entrepreneurial bent, as evidenced by their ventures ranging from traveling medical lecture series to snake-oil remedies. Among the latter was "Warner's Safe Kidney and Liver Cure," a bottled formula prescribed for urinary disorders and malaria, among other afflictions. Another of the brothers' projects was a replacement for the corset, which they felt was hazardous to women's health. They had devised a less constricting "waist pattern" in the 1860s, but it did little to shape women's waists. In 1874, though, DeVer invented an improved version that sported shoulder straps. Manufactured samples were met with enthusiasm in New York. The brothers quit their other jobs and, with $2,550 in start-up capital, began selling their "Dr. Warner's Health Corset. Problems were numerous during the start-up phase. A competing manufacturer threatened to sue the Warner's for copying its design, and the brothers were forced to change the original name of their corset (Dr. Warner's Sanitary Corset) because somebody else already owned the name. Understandably, they also suffered from a dearth of pattern-making experience. While DeVer learned the necessary pattern-making skills, Lucien used his contacts in New York City to begin developing distribution channels for their corset. Lucien's wife, Karen, pitched in and the three labored in Lucien's home. Once they got the operation up-and-running, sales were swift. They moved the company out of the Warner residence in 1875, and by 1876 had already outgrown their small manufacturing plant in McGraw, New York.
As word of Warner's comfortable corset spread, sales soared at an astonishing rate. In 1876, the Warner's moved to Bridgeport, where they built a four-story factory. They continued to redesign and improve their corsets with considerable success. They even introduced new products like an innovative folding bustle (used to support the rear of a dress). Particularly successful was the Coraline Corset line, which was manufactured in part with Tampico grass imported from Mexico. In 1883, in fact, Harper's Bazaar identified the four most popular corsets in the U.S. as Warner corsets, three of which were Coralines. The incredible success of the Coraline and other Warner designs made both brothers millionaires by the early 1880s. By the mid-1880s, the Warners employed more than 1,500 workers, most of whom were immigrant women or poor New England farm girls. During the remainder of the late 1880s, Warner Brothers, as the company was called, continued to flourish. The brothers introduced a steady stream of designs, usually based on European fashions, and began importing products from England for resale. Some ideas languished. Failed efforts included wool underwear, a chemical business, a Florida orange grove operation, and an attempt to manufacture baseballs.
The corset company constantly prospered and both brothers amassed considerable wealth. Besides building opulent homes for themselves and their families, they heaped their fortunes on a number of beneficiaries. For instance, they established the Seaside Institute, a type of boarding house for poor women that served meals at cost and offered a reading and music room, among other amenities. Lucien also donated large sums to his alma matter, Oberlin College. By the end of the century the Warner brothers had effectively retired from the day-to-day operations of the company. DeVer married a 26-year-old woman after his wife died in 1895. He then purchased a succession of yachts that he sailed up and down the East Coast. DeVer wintered in Augusta, Georgia, where he established a strong friendship with John D. Rockefeller. Lucien, a frequent White House guest who cultivated friendships with Presidents Cleveland, Taft, Harrison, and Roosevelt, became a world traveler after his secession from the business, vacationing in China, Japan, New Zealand, Egypt, and elsewhere throughout the world.
Company Incorporated in 1894
With its originators no longer active in the company, Warner Brothers was legally changed from a partnership to a corporation in 1894. DeVer's son, D.H., took control of the company around that time. D.H. differed from his father and uncle in that he had little formal education. He started working at the company in 1887 when he was 19 years old and worked as an apprentice in every department in preparation for his father's departure. Despite his lack of education, D.H. was a savvy businessman with multiple talents and a flair for leadership. As a young man, he had been an amateur boxer, flute player, and yachtsman, among other credits. By the time he took over Warner Brothers, he was also acting as the president or director of several other concerns, including the Bridgeport National Bank, a gas company, and a department store. When he finally focused his intensity on Warner, the company profited handsomely.
Between 1894 and 1913, Warner's sales vaulted more than three-fold to $7 million and profits averaged $700,000 annually. The gains were largely the result of ongoing innovation. Warner introduced rust-proof steel boning as a replacement for more expensive whalebone in corsets, and introduced a successful corset that doubled as a hose supporter. The latter innovation is recognized as an important evolutionary step in the development of the brassiere in the 1910s. Indeed, Mary Phelps Jacob patented the bra in 1915, and shortly thereafter sold the invention to Warner. The purchase of the bra proved to be an excellent move at the time, and during the late 1910s Warner achieved steady sales and profit growth, with revenues hitting $12.6 million in 1920.
Contributing to the success of the company during the early 1900s was Lucien's son, L.T. He was very different from D.H. in both background and personality. The two often clashed, but their skills were complementary and their combined efforts were ultimately beneficial to the company. The Warners' fortunes began to change, however, after 1920. Corsets quickly fell out of fashion early in the decade and were replaced with the "wraparound." The company scrambled to adapt its products with only tepid success. Throughout the Roaring Twenties, Warner's performance waned. Sales fell to a pitiful $2.5 million by the end of the decade. During the Great Depression, moreover, Warner began to lose money. By 1932, its balance sheet was bleeding more than $1 million in red ink.
Augmenting the company's downfall was the personal deterioration of D.H. Although an energetic businessman and leader as a young man, D.H. was a dissolute womanizer throughout his adult life. His decline hastened after his wife died in 1931. He continued to spend lavishly and drink to excess before his death in 1934 at the age of 66. D.H.'s son-in-law, John Field, became the new chief executive and L.T. became chairman of the board. A Yale graduate, Field had worked with D.H. and L.T. at Warner for several years. Under Field's control, Warner tightened its belt and revamped its product line during the 1930s, barely escaping bankruptcy. Vital to Warner's survival were inventions like the "Two-Way-One-Way" girdle, an elastic undergarment that wrapped around the body and flattened the hips yet still allowed full body movement.
By the early 1940s, Warner's sales had surged back up to about $4 million, approximately $300,000 of which was retained as profit. The lean war years were followed by solid growth as the U.S. economy boomed. Warner's revenues topped $12 million and profits roared back to $1 million by 1947. John Field's son, John Jr., joined the company and was placed in charge of advertising, among other duties. Warner continued to prosper during the 1950s by selling its popular Warner brand lines of bras, girdles, and "corselettes." Sales rocketed to more than $25 million by 1956, growing at more than three times the industry average. Beginning in the mid-1950s, though, Warner Brothers lost focus and became too unwieldy. Frustrated by his 73-year-old father's authoritative, non-progressive management style, John Field, Jr., wrested control of the company from the elder Field by persuading the board of directors to oust him.
New managers worked to whip Warner Brothers into shape during the late 1950s. In addition to restructuring, they grew the company at a rapid rate by diversifying, acquiring other companies, and expanding distribution channels. Specifically, Warner broadened its product lines to include menswear and accessories, and both men's and women's sportswear. It expanded distribution by selling through large chain stores like Sears and J.C. Penney, and by opening production facilities in Europe and South America. Importantly, Warner purchased C.F. Hathaway Company, America's oldest shirt manufacturer, and Lady Hathaway, a well-known women's sportswear division. That buyout instantly made Warner a major player in those respective industries. Warner went public in 1961, and by the early 1960s was generating annual revenues in the $100 million range.
During the 1960s, Warner Brothers continued to grow through acquisition and merger. It purchased the popular Puritan and Thane brands in 1964, and then bought out White Stag, a casual sportswear maker. Sales increased to an impressive $185 million in 1968, and profits reached an all-time high of $77 million, reflecting annual growth since 1960 of more than 25 percent. By the late 1960s, the company had unarguably become a leader in the U.S. apparel industry.
In the early 1970s, the company stepped up its rampant expansion strategy. In an effort to keep up with rapidly changing fashions during this period, Warner tried to assemble a diverse group of holdings that would allow it to capitalize on consumer whims as they emerged. Brands accumulated in the 1970s included Speedo, Playmore, Rosanna, Jerry Silverman, and High Tide. Warner also branched into retail stores and launched a more aggressive international agenda.
The company had changed its name to Warnaco in 1968 and in 1974 celebrated its 100th anniversary with record sales and profits. By the mid-1970s, though, the company had again grown unwieldy, ballooning into a diversified, international apparel conglomerate with nearly 20 divisions. The aggressive diversification strategy had made Warnaco a big player, but was failing to generate profit growth. In fact, Warnaco's profitability began to slip in the mid-1970s. During 1975 and 1976, the company experienced severe stress as a result of various mishaps. Warnaco's entry into the leisure suit business, for example, brought crushing losses when that short-lived style faded. Its retail store division also suffered, contributing to hefty losses. Distressed by Warnaco's mounting difficulties, Field offered to allow a new, fresh management team to pick up the ball and carry Warnaco into the 1980s.
Warnaco's board brought in two outside managers--Philip Lamoureux and James Walker--to work with Field and eventually assume leadership of the company. They immediately clashed with Field, assuming control of day-to-day operations, but then edging him out of the decision-making process. The situation deteriorated to the point where Field, like his father, had to be forced out of his leadership role. Warnaco's balance sheet improved significantly under the new management. Walker and Lamoureux jettisoned several of Warnaco's non-performing units, restructured management, and labored to improve the profitability of its successful core apparel lines. Profits soon recovered to record levels during the late 1970s. Even during the recession of the early 1980s, Warnaco's sales and profits boomed.
After successfully reviving the embattled Warnaco, Lamoureux left Warnaco in 1982. The following year, Walker died unexpectedly from a kidney-related virus. The company itself, however, remained healthy to all appearances, and in 1983 hit a record net income of $28.3 million. Furthermore, the company's balance sheet was strong, with relatively little debt and a vigorous cash flow. But Warnaco's balance sheet failed to reflect some underlying problems. During the late 1970s and early 1980s, the company had reduced spending on research and development and cut back on its marketing efforts. These moves reduced costs but boded poorly for Warnaco's long-term growth. In 1984, the company's profits again started to slide. Performance continued to slip into the mid-1980s, despite the purchase of the successful Olga Co. in 1984. Warnaco began to review its alternatives.
Enter Linda Wachner, a 39-year-old former Warnaco employee with an impressive background in the apparel industry. Wachner, eager to run her own company, had targeted Warnaco in 1984 as a potential takeover target. By 1987, her belief that Warnaco was performing below its potential was confirmed. She joined forces with Los Angeles investor Andrew Galef in a month-long battle for control of the company. Wachner and Galef, through their newly-formed W. Acquisition Corp., won the bid and Wachner stepped in as chief executive in April of 1987, with Galef as chairman. Wachner quickly replaced Warnaco management with her own team and reorganized the company. Her strategy was to streamline the corporation, pay down the debt incurred as a result of the leveraged buyout, and build Warnaco into a dominant force in its key market niches.
Wachner, one of just a few women heading Fortune 500 companies, was a force to be reckoned with. She had known since her childhood in Forest Hills, New York, that she wanted to run something. She came to that conclusion at the age of 11, lying in a full-body cast after undergoing surgery to correct severe scoliosis. Facing the possibility that she may never walk again, she became determined to take charge of whatever she did in her life. "The focus I have today comes from when I was sick," she explained in a June 15, 1992 Fortune interview. "When you want to walk again, you learn how to focus on that with all your might, and you don't stop until you do."
Wachner translated her intensity into career success beginning in 1966. She graduated from the University of Buffalo in that year at the age of 20 and went to work in the retail industry with a division of Federated Department Stores. She immediately began telling her superiors how they could improve the operation, earning a reputation as an aggressive business woman. Wachner accepted a position in Warnaco's marketing department in 1974. Within less than a year she was promoted to vice-president. In 1978, she was recruited to head the sagging Max Factor division of Norton Simon, and in two years turned the operation from a $16 million loss to a $5 million profit. Wachner unsuccessfully attempted a leverage buyout of Max Factor in 1984, after which she resigned. She tried to buy Revlon in 1986 before setting her sights on Warnaco.
Warnaco Group, Inc. was a troubled apparel company in the 1990s, but it grew into an industry powerhouse under the leadership of Linda Wachner. Wachner assumed an aggressive stance at Warnaco. She pared the company's 15 divisions down to two main categories: intimate apparel and menswear. She dumped other units, including the large women's apparel and sportswear businesses, and initiated widespread cost-cutting programs. She brought a new customer and cash-flow focus to Warnaco that resulted in significant gains. In addition, she broadened Warnaco's core product lines with new ventures, such as a deal to supply the popular Victoria's Secret retail chain. In 1990, she organized a separate company, Authentic Fitness, to acquire the Speedo swimwear brand from Warnaco for $85 million plus debt, then took on the additional role as CEO of this separate company. She began to build a national chain of Speedo stores, funded by taking Authentic Fitness public in 1992. Wachner also raised capital for Warnaco with a successful public offering in 1991. By 1992, Wachner had slashed the company's burdensome debt load by 40 percent, boosted the company's stock price by a hefty 75 percent, and increased cash flow from $50 million to $90 million annually. To this point in her tenure at Warnaco she was given high marks for turning the company into a rising star of the apparel industry. The only criticism of her performance came from former employees who chafed at her tough, hard-nosed management style.
Few people, however, were able to criticize Warnaco's financial performance during the early 1990s. Despite a recession during much of that time, Warnaco's sales steadily grew from $518 million in 1989 to more than $700 million by 1993. Warnaco experienced losses during the late 1980s, but was netting income of about $50 million by 1992. More importantly, the company had reduced its long-term debt from more than $500 million in the late 1980s to less than $250 million by 1993. Furthermore, the company was positioned for future growth. Warnaco had plowed capital into its important Warner and Olga brands, allowing it to cash in on the growing upscale lingerie market in the mid-1990s. In addition, in 1994 Warnaco purchased the rights to produce Calvin Klein men's underwear, following by Calvin Klein's women's underwear a year later, and North American rights for Calvin Klein jeans in 1998. To widen its channels of distribution, the company also acquired well-known labels for sale to the discount chains. In the early 1990s, Warnaco launched a line of bras under the Fruit of the Loom label for such mass merchants as Kmart and Wal-Mart, followed by a distribution agreement with Avon Products. In 1994, Warnaco acquired the Van Raalte label for apparel sold to Sears Roebuck.
Wachner was especially aggressive in 1996, completing three major acquisitions: GJM Group, Hong Kong maker of private label sleepwear; Body Slimmers Inc., makers of shapewear; and Lejaby-Euralis, French manufacturer of bras and swimwear. She also sold off the Hathaway men's shirt business, which had been underperforming. Although Warnaco surpassed the $1 billion mark in annual revenues in 1996, it posted a $8 million loss, due in large part to costs associated with the Hathaway sale and a restructuring effort.
The success of Warnaco under Wachner reached a high-water mark in 1998, when the price of the company's stock topped $44. By the middle of the year, however, Warnaco began to lose its footing, as demand for its products fell and the company began to take on excessive debt, much of which was incurred in order to buy back stock that had peaked in value. The situation was aggravated in 1999, when Warnaco brought Authentic Fitness, which had been previously sold off, back into the fold at a cost of $600 million. Critics charged that while the deal added greatly to Wachner personal wealth, it hurt Warnaco's balance sheet, a transaction that Time magazine characterized as "financial gymnastics."
Wachner had benefited from positive press coverage in her early years at the helm, resulting in a celebrity and social standing that she put to good use in building Warnaco. The Fruit of the Loom deal was reportedly struck on the ski slopes of Aspen, and the Calvin Klein men's underwear agreement was broached at dinner in the Hamptons. Now Wachner was becoming increasingly the subject of severe press criticism, much of which centered on an abrasive personality and a hefty compensation package. Her board was also attacked as being weak, its members too dependent on Wachner's social connections that helped them to land other lucrative board positions. A public relations nightmare would ensue in 2000, when designer Calvin Klein sued Warnaco and publicly declared that Wachner was a "cancer" on his label. At the heart of the matter was his contention that Warnaco was violating its licensing agreement by selling Calvin Klein jeans to warehouse clubs like Costco and Sam's Club, thereby undercutting the value of the brand. In general, Warnaco was accused of dumping product in order to boost sales and make financial targets.
Although Klein and Warnaco settled its differences in January 2001, shortly before the matter was to go to trial, Warnaco was already in deep financial trouble in the spring of 2001. Despite generating revenues of nearly $2.25 billion in 2000, the company lost $344.2 million. As a result, the price of the company's stock began to plummet. By June 2001, Warnaco was forced to declare bankruptcy, and was soon forced to restate its number for the previous three years. The company entered the autumn of 2001 under the cloud of an SEC investigation and a stock price that continued to drop until it was worth just pennies, resulting in Warnaco being removed from the ranks of the Fortune 500 and ultimately delisted from the New York Stock Exchange.
On November 16, 2001, Wachner was ousted as chairman of Warnaco's board, then resigned as chief executive. Antonio C. Alvarez, Jr., brought in months earlier to serve as the company's chief restructuring officer, was appointed the new CEO. With the company burdened by nearly $2.5 billion in debt, he immediately announced an intention to sell off a number of assets, and possibly the entire company. Whatever actions that were taken to deliver the business from bankruptcy, it was clear that Warnaco was about to begin an entirely new, and uncertain, chapter in its corporate history.
Principal Subsidiaries: Calvin Klein Jeanswear Company Inc.; The Bra Company Limited; Warnaco Inc.; Warnaco International Inc.
Principal Competitors: Benetton; Danskin; Donna Karan; Jockey International; Liz Claiborne; Maidenform; NIKE; Nautica Enterprises; Tommy Hilfiger.
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Source: International Directory of Company Histories, Vol. 46. St. James Press, 2002.