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The complexities of manufacturing and distribution have proved too much for many fashion designers, Calvin Klein among them. Getting two legs on a pair of pants seems to be their limit. So Wachner came to the rescue. A master of fashion marketing, she became one of the principal licensees for Klein, making jeans and underwear and giving him 5% to 10% royalties in return. She practically invented the men's fashion-underwear business and grew Klein's total sales from $55 million to $340 million.
By pooling a number of smaller designer names, the theory goes, licensees can take advantage of manufacturing efficiencies and exert more leverage over retailers, leaving individual designers to do what they do best. But in recent years, fashion powers like Gucci, fearful that broad exposure was killing their cachet, have scaled back licensing. Growing a brand without cheapening it, says Liz Claiborne CEO Paul Charron, "can be a delicate balance. Once you go over that cliff, it's almost irretrievable."
And that, at least according to the suit Calvin Klein filed a year ago, is exactly what happened to Warnaco. In that case, settled earlier this year as a hungry New York City press corps waited for the trial to begin, Klein tried to recapture his license, claiming that Wachner was destroying his jeans brand, skimping on quality and flooding the discount bins at merchandise clubs. Of course, Klein didn't seem to have any such complaints until he had trouble finding a buyer--including negotiating with Warnaco--for his suddenly unfashionable company. Warnaco, in its view, was simply responding to market forces, as more consumers continued to bypass department stores and their not-so-exclusive brands. Warehouse clubs are the only thriving retail sector, with an increasingly upscale clientele that's hard to ignore.
As long as Wachner kept growing the brands, her flaws were easy to overlook. Her reputation as a taskmistress who demanded perfection from her employees--and torched them if she didn't get it--is legendary. Her friends say it's exaggerated. "I know she's a loyal and caring person. She asks nothing of her people that she doesn't ask of herself," says Richard Grasso, CEO of the New York Stock Exchange.
But below a cadre of long-serving top lieutenants, there has been an unusually high level of staff turnover during her watch. Warnaco insists that it's no different from the usual number of revolving doors on Seventh Avenue, but last week, in the first of many expected defections, the head of Warnaco's Authentic Fitness division, Christopher Staff, jumped ship.
Shareholders find it harder to ignore some of Wachner's more complicated dealings--like her dual role as chairman of both Warnaco and Authentic Fitness for much of the past decade. Wachner and a group of investors bought Warnaco's Speedo swimwear division in 1990 and took it public two years later as Authentic Fitness, only to bring it back to the corporate fold in 1999--a bit of financial gymnastics that helped prop up Wachner's bank account but ultimately loaded Warnaco's balance sheet with an extra $600 million in debt.
