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The Co-Pilot

Barry Schwartz was a critical player in the rise of one of America?s most iconic brands, even if his isn?t a household name.

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WWD Milestones issue 09/03/2008

Barry Schwartz was a critical player in the rise of one of America’s most iconic brands, even if his isn’t a household name.

This story first appeared in the September 3, 2008 issue of WWD.  Subscribe Today.

 

Five years after selling the company he cofounded with boyhood friend Calvin Klein to Phillips-Van Heusen Corp., Barry Schwartz has no regrets.

In an interview at his sprawling 700-acre horse farm in Granite Springs, N.Y., the former Calvin Klein Inc. chairman discussed “life after Calvin Klein,” in which he raises racehorses; trades stocks for family and friends; spends winters in Santa Barbara, Calif., and summers at his Westchester farm and in Saratoga, N.Y., and enjoys time with his wife, Sheryl, two grown children and two grandchildren.

“I haven’t had a single second thought,” said Schwartz, 66, who has retained most of his stock in PVH. “It was a wonderful deal. It was certainly good for them. It has had a tremendous run-up.”

Schwartz and Klein sold CKI to PVH in February 2003 for $430 million, with additional incentives that significantly upped the value of the transaction. Both founders received stock in the acquiring company, and today Schwartz is one of PVH’s largest stockholders. He had a five-year noncompete clause that expired in February and has watched the comings and goings at CKI from the sidelines.

While the deal clearly enriched both men, its timing and ultimate price was said to have fractured their long relationship. Klein reportedly wanted to hold out for a higher price and wasn’t quite ready to retire.

“My link to PVH is Francisco [Costa],” said Schwartz, referring to the current creative director of women’s Collection. Schwartz is good friends with Costa’s partner, John DeStefano Jr., a horse trainer, and introduced Costa to Klein, who hired the designer two years before the sale of the company.

Schwartz has since helped Costa negotiate his contracts. According to Schwartz, Costa is much happier now after a rocky start at PVH, having recently won his second Womenswear Designer of the Year award from the Council of Fashion Designers of America.

Schwartz said he had tried to sell CKI a few years earlier for a much higher price, but he’s happy with the way things worked out. “If it wasn’t for Linda Wachner [former chairman of Warnaco Inc., which had the Calvin Klein Jeans license], we would have sold it three years earlier,” said Schwartz. He hasn’t shed any tears over the scuttled deal, however, speculating that he would have lost the additional money in the stock market anyway.

After he left CKI, Schwartz became chairman of the New York Racing Association, a post in which he had previously served part-time. “The first two years were great,” said Schwartz. But then Eliot Spitzer, New York’s attorney general at the time, brought a case against NYRA and the following two years were spent huddled with lawyers. Investigations into a tax fraud scheme allegedly orchestrated by NYRA clerks from 1985 to 1999 — before Schwartz signed on — made his role much more challenging. Schwartz persevered and managed to keep NYRA in business by agreeing with the government to a deferred prosecution, which included a major restructuring. He then turned the reins over to two people on NYRA’s board.

“I don’t ever want to be in racetrack management again,” said Schwartz, who nonetheless cherishes the relationships he built. “I met terrific owners and trainers through my association in the racetrack, and I became friendly with [Speaker of the New York State Assembly] Sheldon Silver and [former] Gov. Pataki, and people who own and race horses all over the world.”

Turning back to business, Schwartz expressed the opinion that PVH has demonstrated successful stewardship of the Calvin Klein name, and that president and chief operating officer of CKI “Tom Murry has been terrific.” “The management today of [PVH] is far superior than when we sold to them,” he added, noting that PVH’s prior management didn’t understand the importance of the Collection business. “[PVH chief executive officer] Manny [Chirico] really understands it. He took the Collection back in-house and is supporting it. For the long-term viability of the brand, there’s nothing more important,” said Schwartz, who referenced reports of a successful reception by retailers. “There’s no question Manny has done a great job. He’s hired a new president of Collection [Robert Vignola], and I think the future is very bright. I certainly wouldn’t sell any of my stock.”

While Schwartz was CKI chairman, he and Klein discussed many additional categories they could have added through licensing. “It was a different philosophy when Calvin and I were running the company. The decisions weren’t made for financial reasons,” said Schwartz. “They were made more for aesthetic reasons.

“If Calvin didn’t have a feel for the category and it didn’t work for the Collection, regardless of how much money was involved, we weren’t going to go into it,” continued Schwartz. “Jewelry is the best example. Calvin didn’t care for jewelry. He didn’t like to accessorize the Collection with jewelry, so we didn’t do it. In today’s world, the financials mostly override other considerations. So what’s right for PVH might not have been right for Calvin.”

Schwartz said that the fashion business today is much tougher than it was when he was involved. “Consolidation has made it very difficult for manufacturers,” he observed. “A very few retailers control most of the business.” Schwartz recalled the early days, when there were many more stores to which to sell. “In the early Seventies, we sold to a thousand stores, many of which were specialty stores all over the country. Today, Macy’s Inc. controls the lion’s share of the business,” he said.

When they ran the company from 1968 to 2003, Schwartz and Klein made every major decision together. “We never did anything unless we agreed upon it,” he said. However, the two haven’t been in touch over the last few years. “We kind of drifted apart, but there was no disagreement,” Schwartz added.

He once was quoted in a WWD interview saying a good ceo has to make a major decision every five years, and he still believes that to be the case. “Five years after we started, we changed the company from coats to sportswear,” he said. Five years after that, in 1978, Klein signed the jeanswear deal. In 1983, they took over Puritan Fashions, “which had major significant financial effect on the business; it was not the greatest deal,” said Schwartz. Another turning point for the business came in 1980, when Minnetonka bought Calvin Klein Cosmetics Corp. for about $1 million. Beauty became a $600 million business, and CKI received $30 million in royalties.

To this day, what Schwartz is most proud of is how large and well-known the company became. CKI was profitable every year it was in business. “I’m most proud of the numbers, the amount of money we were able to make,” said Schwartz. “I’m also proud of building a world-class brand. When things were going great, they were comparing the brand to McDonald’s and Coca-Cola.”

Much of that recognition was accomplished through cutting-edge advertising. “I never thought the advertising was too edgy,” recalled Schwartz. “There was a lot of external pressure to scale it back. Calvin was more on the hot seat than I was, but it always got results.”

Looking back, Schwartz said the smartest thing he ever did was give Klein $10,000 to start the company, an arrangement that came after years of friendship. Klein and Schwartz played together as young boys in the Bronx and both their fathers owned grocery stores in Harlem. After Schwartz dropped out of New York University, he worked at his father’s supermarket, Sun Dial, for a few years, but wasn’t happy. Then his father, 54, was murdered at the supermarket in a holdup. Schwartz was in the army at the time, and was discharged for hardship, citing the need to support his mother and sister. It was then Klein asked Schwartz for money to open his coat business, and Schwartz agreed. Two weeks after Klein opened the business in 1968, Martin Luther King Jr. was assassinated, there were riots in Harlem and the grocery store was wrecked. Klein then said, “We’ll go in as partners.”

The plan was simple: If Klein’s first six coats didn’t sell, the designer would go into the grocery store business with Schwartz. With that understanding, the childhood friends opened their coat company in a tiny office at the York Hotel on Seventh Avenue. “It was a small room, with rolling racks,” recalled Schwartz.

He doesn’t consider himself a great judge of talent, but Schwartz always admired Klein’s artwork when they were young. “Calvin used to draw and paint,” he said. “We were inseparable for years and years and started with such modest means. Calvin would be in the showroom and I’d be laying out the fabric. We slept in the place more nights than I want to recall. We would ship at night.” As they built CKI into a global brand, Schwartz was responsible for all legal, financial, human resources and administrative matters, while all creative functions reported to Klein.

Schwartz believes that, had he and Klein taken the company public, things might have turned out differently. “I was always in favor of going public, but [Klein] was against it,” said Schwartz.

He recalled that they almost sold the business to Nelson Peltz in 1987, but then the stock market crashed that October, and the deal didn’t go through. “It was a phenomenal deal. We would have owned 30 percent of the stock, and they would have had 70 percent. They would have financed the company and expanded it.”

He fondly recalled the years when Gabriella Forte was president and chief operating officer of CKI, and she broadened the company’s global presence by expanding into Europe and Asia. “I love her. I was able to step back. People started reporting to her. I’ve always been a big believer in delegating responsibility. You can’t build a big company without delegating.”

In retrospect, Schwartz said it’s unfortunate that CKI didn’t develop a bigger business in Japan. “We had a $100 million business there and Ralph [Lauren] had a $500 million at that point. Gabriella tried. The weakest link [in the business] was Asia. Now people are going to China, India and Brazil. When they start tapping oil in Brazil, it will be one of the wealthiest countries in the world.”

Klein’s jeans business stands out as one of the company’s biggest success stories. Carl Rosen, chairman of Puritan Fashions, owned the license in the late Seventies and early Eighties. When Arnie Simon bought the jeanswear license in 1994, Schwartz said, he built it “into a bigger business than we ever dreamed of. At its peak, it was doing $700 million. We got 7 percent in royalties.”

But when Warnaco took over the license in 1997, Schwartz claimed, Wachner sold the line to places she shouldn’t have, and that became the center of a huge controversy. “Warnaco ultimately went bankrupt and we hired David Boies to represent us,” Schwartz explained. “[Wachner] caved in the morning the trial was going to start. We got everything we wanted.” Wachner had to phase out of the questionable channels of distribution. She had been doing over $100 million [in] business with Costco, Schwartz said. “[Warnaco] was public, and she was trying to make the numbers.”

These days, more and more designers are charged with the responsibility of taking over a design house from a retired or deceased designer. Some rise to the challenge, whereas others face difficulties. When asked whether he feels it has been difficult for Costa to take over from such a legendary designer as Klein, Schwartz replied: “I don’t think so. I don’t know how many consumers really know who’s designing the collection. This isn’t a case where someone is taking the label and bastardizing it.”

Does he believe it’s possible in today’s economy for a designer to build the kind of business that he and Klein did?

“Anything is possible,” he said. He mentioned that his son, Jonathan, recently started a women’s performance activewear firm called Splitz59, with a store in Brentwood, Calif., and plans to open several more.

In assessing the fashion industry today, Schwartz said there are a few designers and companies he greatly admires. “I think Ralph Lauren has done a phenomenal job. When you look at his business, he’s taken it to the next level. Ralph believed in stores. He was very smart in that sense. And he spent the last several years reacquiring his licenses to be in total control.”

As for which fashion designer he most admires, he said: “I think, more than anybody, it would be Yves Saint Laurent. From the very start in the business, he just defined style.”

Although he says he would never entertain returning to the fashion business full-time, Schwartz would consider helping out some companies. “I’ll help anybody who asks me,” he said, noting his noncompete agreement has lapsed. “That was my greatest excuse,” he joked.

Today, Schwartz’s numerous passions keep him busy: “I run a horse business. I have 30 people working here, and 100 horses. It’s a 700-plus-acre working farm. We raise horses and keep pregnant mares here. When they’re just short of two years old, they go to the training center.” Schwartz said he goes to three to four [horse] auctions a year. “It’s a very exciting and challenging endeavor.”

In addition, Schwartz actively invests in the stock market: “I manage money for a few friends, but mostly for the family and myself,” he said. “I’m building a position in J.C. Penney. And PVH is clearly undervalued. Since we sold the company, Goldman Sachs upgraded PVH to neutral, where it’s been for the past four years. They called PVH their most favorite ‘neutral.’ I also like Lululemon, which I bought when they went public.”

Schwartz spends three months in Santa Barbara, one month in Saratoga and the rest of the year at the Westchester farm. He also owns oceanfront property in Miami, but hasn’t built a home on it yet.

Asked what he thinks his greatest contribution was to Klein’s business, he said: “I’ll leave that to others to decide.”

But one thing’s for sure: He’s not pining for the good-old days on Seventh Avenue: “I never miss it. I know that’s a disappointing answer, but 35 years is enough.” Nonetheless, Schwartz believes fashion is as important to people today as it was when he was in the throes of running Calvin Klein. “You don’t have to buy designer clothes to like fashion, but people will always be interested in it.”

Asked to cite the five most important elements of building a successful business today, he listed them off the top of his head: “Work hard. Pay attention. Don’t compromise. Set high goals. Be passionate.

“Calvin would know what the American consumer would want before she knew. He was ahead of his time. He had great perception and when he believed in something, you couldn’t deter him.”

Summing up the secret of his successful 35-year partnership with Klein, Schwartz said: “We were friends first and partners second. So many businesses feel the strains of the partnership when they find success. But we were always different. It worked for us.”

 

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