It was the end of an era on Wednesday in a fashion world that marks time in biannual seasons. The day marked the finish of one of fashion’s longest, and most successful partnerships: that between Barry Schwartz and his boyhood friend Calvin Klein.
This story first appeared in the February 13, 2003 issue of WWD. Subscribe Today.
Phillips-Van Heusen Corp. on Wednesday completed its deal to buy Calvin Klein Inc., for $430 million, with additional incentives in coming years that could up the ante significantly. Now, Schwartz is getting ready to step aside from a business he’s been associated with for 35 years — and one that, literally, would not have existed without him.
When Schwartz lent his best friend Klein $10,000 to open a coat business in 1968, he never imagined that investment would have led to the creation of one of the most famous designer companies in the world, one whose products generate $5 billion in retail sales a year. As the businessman behind the Calvin Klein brand, Schwartz steered the company through several blockbuster periods, as well as numerous rough patches.
He’s leaving as CKI is in yet another transition phase: PVH is eager to build Klein’s women’s and men’s wear businesses through additional licenses; its key jeanswear licensee Warnaco has just emerged from bankruptcy, and Calvin Klein Cosmetics, its beauty business, is mature.
But, fortunately for Schwartz, he won’t have to worry about such things now. Instead, he has a new challenge: Two years ago he was appointed chairman of the New York Racing Association, a post he has been serving in part time. Now he will be able to devote himself full time to his real passion — raising the profile and expanding the horse racing business in New York State.
WWD sat down with Schwartz at the CKI offices last week, as he’s about to close one chapter of his life and embark on another. He discussed the high and low points of building the Calvin Klein brand; what he’ll miss most about the fashion business; what he might have done differently, and the relationship he and Klein have shared for more than 50 years.
WWD: How did you and Calvin first become friends?
Schwartz: Our parents were friends. That’s how we met. We played together as little kids. We weren’t in the same school, but we lived two blocks apart [in the Bronx]. I went to P.S. 56 and he went to P.S. 80. I’m six months older. Our fathers both owned groceries in Harlem. Our mothers weren’t that friendly. When we got to seventh grade, I skipped, and took SPs and I went to ninth grade. He went to the High School of Art & Design and I went to DeWitt Clinton. It was a tough school. I started to lose interest in school. I skipped a half year and graduated in January at 16. I didn’t want to go to college in the middle of the year. In September, I enrolled at NYU downtown. I spent three months there and didn’t like it. I used to joke with people that I was majoring in billiards. Calvin went to FIT.
WWD: What did you do after you dropped out of NYU?
Schwartz: I went to work at my father’s grocery store. It was a supermarket and had a full meat department. It was called Sun Dial and was 3,500 square feet. My father believed in putting me in different departments. I was a butcher for six months and a produce man for one year. I worked in frozen food in the freezer. I was better at produce than as a butcher. I liked it. Actually, I never said I liked it, and shouldn’t start saying that now. My father was murdered [at the supermarket] in a holdup. He was 54. I was in the army. I got out for hardship. I supported my mother and my sister. I really did hate the grocery business. When Calvin asked me for money to open his business, I said, “Yeah, sure.” He was my best friend. Two weeks after he opened up in 1968, Martin Luther King was killed. There were riots in Harlem, and the store was wrecked. At the time, I wasn’t planning to join Calvin. I was just giving him money, and he said, “We’ll go partners.”
WWD: So Martin Luther King’s murder convinced you to enter the fashion business? What did you do with the supermarket?
Schwartz: After King was murdered, I didn’t want to go back there. The plan always was that if Calvin’s initial six coats didn’t work out, and the business didn’t succeed, Calvin would go into the grocery business with me. That was our safety net. But I just left it there. I never went back. I filled up four shopping bags of what we could salvage, and I threw the keys into the rubble and never went back. I got married March 17, 1968, and the next day, on Monday, we opened the business at the York Hotel at 488 Seventh Avenue. It was half the size of this office.
WWD: Were you worried that you knew nothing about the apparel business?
Schwartz: I was never nervous. I always believed if you’re a businessman and you apply yourself, you can run any business. In the early years, I ran the day-to-day business, but I haven’t run the day-to-day operations in eight years. First, we had Gabriella Forte and now Tom Murry.
WWD: What part of the business did you hate the most?
Schwartz: I didn’t really like selling. At the York Hotel, we both sold. I bought the piece goods and figured out the cutting tickets and I shipped it. At first, it was all coats. I left all the creative to Calvin. The only creative area I ever got involved in was the fragrance. I was “the nose.” Ultimately, Calvin would defer to me on fragrance. I have a keen sense of smell. I can tell what comprises a scent.
WWD: What was the best period of building the business?
Schwartz: The early years. When we struggled so hard to ship every single coat. We’d get phone calls from people who would reorder at full price. I remember staying up late at night to get the first New York Times with the Bonwit Teller ad.
WWD: Reflecting on the last 35 years, what would you have done differently?
Schwartz: When we bought the jeans company [Puritan in 1983] we took on an enormous amount of debt. Looking back, Puritan was on its last legs, and we were trying to protect the trademark. Had the company faltered and gone into bankruptcy, which it would have likely done, we most likely wouldn’t have acquired all its debt. We made a tender offer and bought it for $68 million. We could have gotten the license back [had Puritan gone into bankruptcy]. It was a decision we made, but it was not the right decision. I believe that the average ceo only has to make one key decision every five years. If you look back at turning points in a business, it’s every five years or so.
WWD: What was another turning point?
Schwartz: We had set up our own fragrance company. We decided we wanted fragrance and cosmetics. It was making a lot of money and we were pouring a lot of money into it. It was draining. Along came Bob Taylor, chairman of Minnetonka, and he said, “Let me buy it.” We got $500,000 for the company. That was a pivotal decision. It became a $600 million business. It became one of our greatest assets. On the other hand, we sold the jeans company for $50 million to Arnie Simon. We never knew it would land with Warnaco.
Something so unimportant became so important [the fragrances], and something that could have been a great deal, [jeans] turned out to be a horror because it brought us Linda Wachner.
WWD: Do you wish you held onto the Calvin Klein Underwear business?
Schwartz: We needed to sell the underwear company. The men’s underwear was doing under $55 million when we sold it. The women’s was doing around $15 million. Linda [Wachner] turned it into a $300 million business. Selling it was the right thing, but it was the wrong partner. As everyone knows, the relationship imploded.
We were not great manufacturers. We would never have built it into a $300 million underwear business. They built a $700 million jeans business. We’re not a great manufacturer of commodity products that appeal to the masses. We always manufactured the Collection [except for a brief period it was licensed to Mariella Burani Fashion Group]. Our women’s Collection business peaked around 1994 at $55 million.
WWD: Do you think a designer today can build the kind of company that you and Calvin built?
Schwartz: It’s not impossible. A kid like Zac Posen could suddenly take off with the right financing.
WWD: After that initial $10,000, did you invest more of your own money into the business?
Schwartz: I put more money in when we got our first big order from Mildred Custin at Bonwit Teller. I put another $25,000 in. I had saved a lot of money my four years at home. I always worked and saved money.
We were making coats with dresses, and coats with skirts and blouses. We made a third coat with a fox collar and a dress under it. She [Custin] bought it all and ran ads every month. We shipped it in July and ran our first ad that summer. We met with Manufacturer’s Hanover and we had a lunch with them. They did something that just doesn’t happen anymore. They asked me, “How much capital do you have?” and I said, “$30,000.” They said, “We’re willing to match it.” That first loan from Phil Chetta, the head of the bank, had more risk to it than the $100 million loan we were looking for in 1983 to buy Puritan.
WWD: What made you ask David Geffen to pay off your debt?
Schwartz: After we bought Puritan we had $55 million in debt. We were paying back the principle and we were cash short. David [Geffen] went in and paid $43 million for $55 million in face value in the outstanding bonds. We paid him his cost, which was $43 million. We had a cash problem and he did us a favor. He didn’t make money on it.
WWD: What do you feel is your biggest contribution to building the Calvin Klein business?
Schwartz: From the very beginning, Calvin and I had very clear-cut responsibilities. I handled the business, and he handled the creative. It was that way for almost all the years. More partnerships break up when they’re successful, because egos get in the way. I was very clear what my responsibilities were, and Calvin was freed up to design. We were friends first before building the business.
WWD: What was your management style in the beginning?
Schwartz: In the early days of the business, it was so small. I was extremely demanding with stores. There were no guarantees and no such thing as markdown money. We never gave a store a dollar before [we bought] Puritan. We never paid for ads in the early years, and I wouldn’t allow them to comingle the Calvin Klein name with other designers. We did a lot of things to protect the name.
WWD: What would you and Calvin most frequently fight over?
Schwartz: We go back 50 years. We discuss and argue. If we both didn’t agree on something, we didn’t do it. If it was the hiring of a person or something to do with a store, we’d discuss it. The friendship really laid the foundation of the business. Over the years, some people tried to use devices [to come between us].
WWD: Did you ever want to take the company public? How would you have handled the scrutiny?
Schwartz: Frankly, I always thought I should go public. That was an area we didn’t totally agree on. We looked at it in the Eighties with Drexel Burnham. I guess I was more in favor of it than Calvin. Not having that kind of capital put us at a huge disadvantage.
WWD: Were you ever envious of the huge payouts your competitors, such as Tommy Hilfiger, Donna Karan and Ralph Lauren were getting when they went public?
Schwartz: We made a lot of money. You don’t need to throw a benefit for me. We weighed the positives and negatives of being in a fishbowl.
WWD: Were you and Calvin in agreement to selling the company?
Schwartz: We were in total agreement on selling the company. I think Phillips-Van Heusen will be very good for the brand. If you look back, we built an incredible brand, starting with virtually nothing. I think the name is known worldwide. I think they can take it to the next level. When we bought Puritan and were integrating it, it was a very difficult task. There were the Puritan people and the Calvin Klein people. PVH knows how to do it. I’m very impressed with the professionalism they’ve shown in meeting people and creating one company. They know they don’t have the expertise in women’s wear. But they’re taking over an existing organization that does have expertise. Tom [Murry] is the ideal person to be president of this division of PVH. He understands our business inside and out and understands the retail business inside and out. All design is intact. Certain areas will be consolidated. Nothing will have an affect on the aesthetics on this company.
WWD: How do you feel about now being a part of a public company?
Schwartz: I’m very excited about it. I’m glad to be a stockholder going forward. [Klein and Schwartz will receive shares representing a 4.4 percent stake in PVH].
I met Bruce Klatsky a few years ago. The first time around, he was very interested in buying the company. We didn’t feel he had the credentials others had. The longer I got to know him, the more I respected him. He’s very intense and he’s a quick learner. He wanted to understand every aspect of this company before we close. His due diligence went on forever. He has a great understanding of the business.
WWD: Lots of apparel executives make deals and cut corners. What were you like as a businessman?
Schwartz: Calvin always said the best part of being partners with me was not having grown up in this business. I didn’t know how to cut corners. I did things the right way. I didn’t try to make a coat with three inches less to save fabric. There were no deals with stores. We really ran a legitimate business. All of the really good stores in America supported us: Bloomingdale’s, Saks Fifth Avenue, Bergdorf Goodman. Over the years, Bergdorf’s was the strongest supporter. When I look back, I feel really blessed to know some pretty great merchants, such as Bob Suslow [formerly of Saks Fifth Avenue], and David Farrell of May Co. and Ira Neimark [formerly of Bergdorf Goodman]. They were really great merchants. Today, I believe the emphasis is strictly on numbers. Today, buyers come in with a computer to figure out what to buy. With Ira [Neimark] and Dawn [Mello], it wasn’t about sitting with a computer and figuring out what things they liked.
Stores started to consolidate and we saw bankruptcies and the entire retail climate changed. Many of them were driven by the numbers and the deals. It wasn’t about creating excitement and individualism in your stores. It made things less exciting around here. In the early years, every time we got a reorder, it was exciting. Nowadays, so and so wants to reorder at 25 percent off. It’s all numbers driven.
WWD: What made you decide to change the focus of your business from coats to sportswear?
Schwartz: It was Calvin’s decision. We had a six-month [coat] business with a 12-month overhead. In the early Seventies, we had a discussion that sportswear was where it was at. In 1973, we introduced sportswear. I refused to sell any store that wanted to put us in the coat department only. I remember fighting with the Neiman Marcus buyer, who wanted to buy it for the coat department. I closed many accounts. They had to buy the sportswear for the sportswear department. Sometimes, we got two buyers from their stores. Helene Solomon at Saks put us on the third floor. That made a statement for the whole business.
WWD: What was it like when Calvin Klein Jeans hit the market?
Schwartz: We went into the jeans business with Puritan. We had made a lot of money up until that point. The Puritan launch was a blockbuster for us. We made $1 a jean for the first five years. That was the deal. By the third year, he [Carl Rosen, ceo of Puritan] was shipping 500,000 pairs a week. At the time, they were wholesaling for $18, and retailing for $38. It was almost 6 percent. We had done a designer jean the year before and only sold it to Bloomingdale’s. It retailed for $60. Carl Rosen advertised on TV [in the iconic Brooke Shields campaign] and built a huge business. By the third year, we were making $15 million to $18 million just off the jeans business. It was pure profit.
WWD: When did you and Calvin realize you had really made it?
Schwartz: Our philosophy was we never looked back. No matter how successful we were, it was more “what can we do to make this company better?’’ It was always looking forward. If you start looking back and resting on your laurels, you start to become complacent. We made so much money in the Seventies. That’s when I got into the horse business. I never looked at it as an investment. There are better things to invest in. I always was interested in horses as a kid. I had gone to the race tracks since I was 15. Calvin would come with me. Carl Rosen had a stable and he introduced me to a trainer. I got along very well with Carl. I got along better with him than Calvin did.
WWD: Do you wish you would have sold the company two years ago when the offers were higher?
Schwartz: I don’t think anybody would have bought the company for a fair price with Linda Wachner there. No one wanted to be her partner. We inherited her. The underwear was different. They had a solid foundation company. We had nothing to say about her acquiring the [jeans] business from Arnie Simon.
WWD: What was the best idea you ever had for the business?
Schwartz: I came up with the name for Eternity. I saw it in a catalog when they were selling the Dutchess of Windsor’s jewels.
WWD: You and Calvin seem to have totally different lifestyles. Has that helped or hindered the business?
Schwartz: One of the great reasons for the success of this company is we were best friends first. I went to Allen Questrom at Neiman Marcus once, and there was a sign, “There’s No Telling How Much You Can Accomplish If Nobody Takes Credit For It.”
From the time he got married, our lives changed. [Calvin got married to his first wife, Jane, a few years before Barry married Sheryl.] But we’ve always been best friends. Legal always reported to me, the cfo always reported to me, human resources always reported to me. All of the administrative areas reported to me, and all the creative areas reported to Calvin and it worked.
WWD: How did you feel when Calvin wanted to do some of the more edgy advertising? Were you afraid you’d lose accounts?
Schwartz: It never did worry me. He always showed it to me. We always talked about it. We’d be in sync on all the other things. I wouldn’t sign a contract without bouncing it off him. He has an excellent business sense. He’s not an irrational person. It could be a problem with an irrational person.
WWD: Were you ever embarrassed by stories you’d hear about Calvin? Were you afraid it would hurt the business?
Schwartz: I was always more concerned with Calvin the person than Calvin Klein the company. My concern was for his well-being.
WWD: Are there categories of business you always wanted to enter and didn’t?
Schwartz: We probably should have accentuated retail more. To control your own destiny today, especially in luxury, you need your own areas of distribution. We’re working on furniture. The home area has been great. The only area that I can really think of, and people continually made offers but Calvin didn’t want to go into, was jewelry. Am I sorry? No. We have a staff that does home, and at one point, Zack [Carr] was very involved in it. We have a woman, Barbara Deichman, who runs it.
WWD: Will the home category stay intact under PVH?
Schwartz: They have to respect all that. There are licenses. The royalty stream is very attractive to PVH. One of the things I personally am sorry I didn’t focus on is the Far East. I wish we had paid more attention to the Japanese market. I took Japanese lessons five years ago. I think it’s one of the largest untapped regions for us. I’ve been saying that for years: Taiwan, Hong Kong and Singapore. We do $100 million in Japan. I would have approached that part of the world differently. I would have set up our own company there, not a joint venture. One of Kashiyama’s companies, OBT, runs it now. When we first started in 1973, we exported the clothes. That didn’t work. We started with Isetan and they produced it and we gave direction. If I had to do it over again, I’d have focused on Asia. The European companies have done it better.
WWD: Several years ago, it appeared that the company was much more aggressive in opening stores and signing deals overseas.
Schwartz: Most of that came under Gabriella [Forte, former president and chief operating officer]. She found people to open stores, and she found partners to license with. The push into Europe came under Gabriella. She was bringing in royalty money and expanding us into Europe and making our business better in Asia.
She was one of the most extraordinary people I have ever worked with. I know a lot of people found her very difficult to work with. She’s so smart and knew this world so well. She drove people extremely hard, but she drove herself harder. She really broadened our global presence.
WWD: What do you think of the problems Ralph Lauren is having with Jones Apparel Group over their businesses and licensing fees?
Schwartz: We almost had a deal with Jones, but Ralph threatened him and Sidney [Kimmel] chickened out. It would be ironic if he lost the [Lauren] licenses.
WWD: Did it ever concern you that the Calvin Klein brand was more well-known for its jeans and underwear than the designer collection?
Schwartz: Sure it does. That came about to a great degree when Carl Rosen put the Calvin Klein Jeans on television all the time. You can’t be on network TV and constantly hammering away without people thinking of you for those things. We also do a lot of fragrance advertising. The trick is to make sure you promote the luxury categories where the right people can see it.
The Madison Avenue store was a tremendous boost for the image of the company. It’s a great store and a terrific location. We currently have three wholly owned stores on Madison Avenue, Dallas and Paris. At one point, we had five. The Collection clothes have always been beautiful and fabulous. They’re clean and understated and make a woman really look beautiful. I don’t think we take a backseat to anyone.
WWD: But didn’t the women’s Collection business decline dramatically from a high of $55 million to about $12 million?
Schwartz: That was by choice. To elevate the brand, Gabriella thought the distribution should be curtailed. She took it to the other extreme. We are now building it up.
WWD: Where do you see the opportunities for Calvin Klein going forward? What role do you see yourself playing in the new company?
Schwartz: There are huge opportunities in the better business, the women’s collection business and the men’s business, especially sportswear. We took that license back and are doing well. The home business could really be expanded. We’re looking to get into other related areas to the home. I think Bruce [Klatsky, ceo of PVH] understands the concept of Collection and how it sets the tone and image for the entire company.
WWD: What will you miss about working at Calvin Klein?
Schwartz: I won’t miss the commute. [He lives 46 miles away in northern Westchester County.] I’ll really miss all the people here. People have been with us a very long time, many over 20 years. Calvin will be a lot more involved. It’s still his name on the door. That ties him to the company. He’s very proud, and he wants it to be successful. He’s a consultant, and so am I. But he has a game plan.
Thirty-five years is a very long time at one thing. The governor called me the other day to congratulate me on selling the company. I’ve reached the point of my life where I’m really ready for another challenge. I took it two years ago [when he accepted the NYRA post]. The consensus is I’ve made great strides there. If I devote myself full time to it, I can have a major impact on racing in this state. New York is still the premiere state for racing in America. We’re on the verge of creating a casino at Aqueduct. When it is complete, we will have the third-largest slot machine casino in the U.S. It will have 4,500 slot machines in the first phase. We’ll help plug a hole in the governor’s deficit.
New York Racing Association is a $3.6 billion business. There’s Aqueduct, Belmont and Saratoga. It’s going to be a full-time job. I’ve done it as a part-time job. We’ve increased the revenues by $300 million in the last two years. I’m very passionate about it. There’s such a great future to it, if we get the casino built and we’ll take over OTB, which is run by the city. The purse account last year was $116 million. I’d like to see it go up 25 to 30 percent. Sixty percent of the slot machine revenue will go to education. It’s the only casino in America with subway access, and it will attract 8,000 to 10,000 people a day.
WWD: It’s a nonpaying job, right?
Schwartz: Yes. I’m doing it for the industry, not for profit. I’m doing it because I love racing and love the industry.
WWD: How many horses do you own? And what was your biggest win?
Schwartz: I own 75. The most I’ve ever owned at one time was 220. On average, it costs $1,000 per month per horse to feed them. Race horses cost $3,000 a month to feed. My biggest win was with Three Ring, who won a $400,000 race. She won $775,000 in 10 starts.
WWD: Do you see any parallels between the fashion and racing industries?
Schwartz: Not really. Although a lot of things I learned here in marketing, public relations and advertising helped me there. We have a great relationship with the working press, and it’s a lot better than it’s been in the past. There was always a veil of secrecy to the way NYRA was run. I’m very accessible to all the press.
WWD: Who do you turn to for advice, and what’s the best advice anyone’s ever given you?
Schwartz: As a kid growing up, my father was the best. Everything I ever learned about running a business and business principles came from him. He taught me how to run a business and instilled in me values. He was very fond of Calvin.
WWD: As a boy, did you see the potential in Calvin?
Schwartz: I thought Calvin was great. He showed me his first designs that he did when he worked for Dan Millstein, and I thought they were great.
WWD: Did you ever wish you had partnered with any other designer, or brought other designers under your wing?
Schwartz: No. Over the years, we had lots of opportunities to manufacture other people’s products. People came to us to do a Michael Jackson jeans line. We’ve had a lot of opportunities to invest in other designers. I always turned the conversations right off.
WWD: When did you realize you had a passion for risk-taking and gambling?
Schwartz: As far back as I can remember. Risk-taking has never been a problem for me. The biggest risk I ever took was probably when we had a successful coat business and decided to do sportswear and wouldn’t sell the coat departments. There were a lot of screaming discussions with retailers. As I relinquished responsibilities [to Forte, and later Murry], I didn’t scream as much. I mellowed. The only way to build a big business is to delegate. You give the guy a ball and let him run with it. This is a big, diverse, complex business. No one can oversee every facet. The whole key is getting good people. People have always told me how smart I was. I just surrounded myself with smart people, and listened to what they had to say. Ultimately, I have to make the decision, but I get the best advice.
WWD: Looking back, what was your favorite part of the apparel business?
Schwartz: Shipping. There’s a lot of gratification seeing the numbers, especially when they’re good. That was my greatest responsibility so it was my greatest gratification. We’ve been profitable every year we’ve been in business.
WWD: I understand it came down to the wire between selling to VF Corp. and PVH. Why didn’t the deal with VF Corp. work out?
Schwartz: They couldn’t get the pieces together. They only would buy us if they could buy the other Warnaco pieces. Both PVH and VF very actively pursued us. We likened it to a horse race. Whoever gets to the finish line first wins. PVH got to the finish line first.