Herbert Gallen, who built Ellen Tracy into a $200-plus million powerhouse bridge sportswear company, is slowly learning to let go. Having completed the sale of his company to Liz Claiborne Inc., Sept. 30 for $180 million, the 87-year-old Gallen is trying to get used to the idea that he’s no longer steering the ship.
This story first appeared in the October 23, 2002 issue of WWD. Subscribe Today.
But what a voyage it’s been.
Since founding the company in 1949, Gallen has guided Ellen Tracy to the No. 1 position in the bridge sportswear market, as it became the best-performing bridge line in every department store it sells. Among its biggest accounts are Saks Fifth Avenue, Bloomingdale’s and Neiman Marcus.
Over the years, Gallen and his design director, Linda Allard, who married two and a half years ago, travelled the country and the world together, visiting scores of department stores for fashion shows, trunk shows and benefits, as well as seeking out sourcing opportunities.
Gallen immersed himself entirely in Ellen Tracy, often working 15-hour days, and weekends, and travelling four to five times a year to the Orient, overseeing production there. In both his personal and professional lives, timing has always proven critical to Gallen, who likes to do things his way.
“I think it was the right thing to do,” said Gallen, about the company’s sale to Claiborne for $180 million. “I’m very happy I did it. I’m happy it worked out with Liz Claiborne.”
Seven years ago, Gallen came close to selling the firm to Bain & Co., the Boston-based investment banking firm, and new management was put in place, however the deal never materialized. “There was no sale,” Gallen said matter-of-factly, declining to discuss those negotiations.
Gallen is convinced that Claiborne didn’t buy Ellen Tracy to make drastic changes and said it has other divisions to play around with if it wants to create a younger, trendier line.
“It will be the same way it was,” he said. “They’re going to build it up and open regular-price stores. They’re going to push it. Ellen Tracy is a very successful company. They’ve certainly agreed to keep it the way it is.”
Ellen Tracy wasn’t always a bridge sportswear company. It slowly navigated its way into that market, evolving from a junior sportswear firm to a contemporary brand to its current incarnation in high-end bridge. The evolution was partly attributed to the growing number of female executives in the workforce, and progressively, the line became more sophisticated.
Today, the line’s target customer is a woman between the ages of 30 and 55 years old. However, Gallen said, “I know a lot of women who are 75 who wear Ellen Tracy, and women who are 23 and wear Ellen Tracy.”
Asked if he believes Ellen Tracy should shift gears and start targeting younger customers and then follow that woman as she matures, Gallen said the company has a big customer base that requires no tampering. But, he concedes, “It’s not up to me. I personally think [the current way] is the right way to go, but they should include some younger looks.”
Ellen Tracy now lies in the hands of Glenn McMahon, former president of Kenneth Cole women’s sportswear at Liz Claiborne, who as Ellen Tracy president will oversee day-to-day management. McMahon will report to Gail Cook, group president at Liz Claiborne who’s responsible for Ellen Tracy, Dana Buchman and Sigrid Olsen.
McMahon and Cook worked in management positions at Ellen Tracy earlier in their careers. Currently, McMahon has a temporary office on the 9th floor of Ellen Tracy headquarters and will move once an office is secured for him.
Although Gallen and Allard said they don’t plan to leave Ellen Tracy any time soon, Gallen indicated he’d be winding down his business there.
“It’s going to be a short time,” he said. “I don’t know how long.”
He plans to travel with Allard to make some appearances at department stores in the spring, but after that, it’s unclear what his involvement will be, if any.
“Linda will design for Ellen Tracy and will find some people to take over when she leaves. I want to lose about 40 years,” quipped Gallen.
He said he will spend more time on his yacht, The Mystique, and plans to sail to St. Barths for a month over the Christmas holidays. He also plans to spend more time with his seven grandchildren and nine great-grandchildren, with one on the way.
The grandson of a Paterson, N.J., silk mill owner and the son of a fabric manufacturer, Gallen never intended to enter the apparel business. As the oldest of three siblings, he graduated high school in Paterson and went straight to work for his uncle, who owned 27 R&S Auto Supply stores in New Jersey. “I opened my own auto store,” he said.
Then he closed it and went to work for another auto supplier before joining the U.S. Army, where he was stationed at Camp Blanding in Florida. By that time, he had already gotten married to Betty Barr, who worked in a small retail shop, and had two daughters. He kept in touch with the auto supplier and when he returned from the army, he went back to work there.
Gallen realized it was difficult for apparel manufacturers to get fabrics because of the war, and he knew people in Paterson, including his grandfather, father, and father’s friends, who were able to get fabric. While he was still working for the auto supply company, he got fabric from a friend and made up some sample blouses. He took them to stores along 34th Street in Manhattan, such as Oppenheim Collins, and sold out within a couple of hours. He then found himself in the blouse business.
From the mid-to-late Forties, Gallen manufactured blouses under his first wife’s name, Betty Barr. Eventually he secured a showroom on Third Avenue, where he received stock and shipped merchandise. He teamed up with a sales manager and together they made the blouses in Manhattan and sold them. In 1949, he established a new firm and named it Ellen Tracy. He said, “It wasn’t named after anyone. I just made it up.”
Eventually Gallen hired more people and moved showrooms. “We were in one booth for awhile, and we added another booth,” he recalled. “We made the blouses mostly in New York, but we acquired some contractors in Pennsylvania.”
Initially, Gallen had a partner who put up the money. He has since died, and Gallen declined to divulge his name. Besides Oppenheim Collins, Gallen wholesaled his blouses to stores such as B. Altman and Macy’s for $28.50 to $30 a dozen. He said the blouses weren’t actually designed by anyone.
“As long as you had fabric, you designed them,” he said. “We took prints and made blouses out of them. When we got a designer, they got pretty.”
For the first 10 to 12 years, Gallen had a few different designers. Then in 1962, he met Allard.
“She came to New York on the bus from Ohio,” Gallen recalled. “She had just graduated from Kent State University and went up and down the buildings from one place to another. She knocked on doors and went wherever it sounded like a fashion or manufacturing company.
“After 10 days to two weeks, she spoke to my sales manager. We had somebody working as a designer and a couple of days later the designer got me very aggravated. She showed me things I didn’t like, and the sales manager said there was a girl who was here earlier in the week, and we called her in. It was a rainy afternoon, and I hired her [Linda].” Allard was the assistant for a year, and after that year, the head designer left.
Allard began designing blouses, but then expanded her repertoire.
“We were still doing blouses soon after she joined, but she made one jacket, a blazer jacket, and that started it off,” Gallen said.
From that point forward, the company was in the sportswear business, as Allard designed pants, jackets and skirts for the junior market.
“We showed the stores what we had, and we never forced them to buy it,” Gallen commented. “We continued for a couple of years, and little by little, it started to take off. We hired more and more people. I guess six to eight years later, it moved to contemporary, and then from contemporary to bridge.”
Gallen said the business was a lot simpler then. “All you had to do was make a nice garment that appealed to the buyers and they bought it,” he noted. “Everybody was happier and had more fun. Everything was done in your head or on a piece of paper.
“We didn’t have these,” said Gallen, pointing to his state-of-the-art computer. “It’s not as fun. It’s more numbers. That’s the business today.”
Although Ellen Tracy started as a domestic producer, it eventually moved most of its production offshore. “We were a union company, and not until 1963 and 1964 did we go overseas to do manufacturing,” said Gallen. Even as it began to produce offshore, it continued to manufacture some categories domestically, and it paid union fees.
“When you’re in business you try different places to see if you can improve your business,” he added. “We made a trip to Hong Kong, it was a pleasure trip to check out the manufacturing there. We got a few names, and a month or two later, we started to send some things there. The quality was only fair in the beginning, but the factories improved tremendously. They began using the latest equipment and they started to turn out beautiful garments. It took a few years. [We never got out of the union.] We started overseas with the knits, and then did everything.”
Gallen would travel to Hong Kong four to five times a year for two weeks at a time, with his production team and Allard. Eventually they began manufacturing in China, South Korea, and “every place all over the world.”
As everyone knows, the apparel business is always fraught with problems and is never smooth sailing. But Gallen managed to weather his way through many storms.
He said, “The first thing we always tried to do was ship on time. We never had a problem with that unless something was unforeseen. There were fabric problems.”
Over the years, Ellen Tracy has been in the enviable position of securing great real estate in every department store it sells. However, Gallen said it’s no secret how he got prime space in stores.
“You sell them merchandise, and they sell it. The better they sold it, the more space you got,” said Gallen. “Markdowns weren’t as important then as they are now. [The retailers] got smarter.”
He noted that chargeback fees have become a profit center for the stores. Gallen earned a reputation in the industry for being the first manufacturer to offer stores markdown money if they didn’t sell the merchandise, although he denies he was the first to do that.
“We tried to stick to what we thought was right, as long as we could,” said Gallen. More recently, Ellen Tracy got tougher on markdowns. “We got a reputation as being strict and rough and tough about markdowns and special deals,” said Gallen.
Some sources said Gallen was always smart enough to build the markdowns into the price of the garment, but Gallen denied that.
“We were only pricier when there was more in it,” he said, referring to the design and labor costs. “We didn’t build it into the price. We were at the high end. We’ve been successful through the ups and downs of the bridge category.” Gallen attributes that to Allard’s design and colors. “We sold better than other people so we’ve been the leader in bridge. We have the best product in the business, and we’ve done a lot of good advertising.”
Known as an intense executive and hands-on manager, Gallen got involved in every aspect of the business. Some observers believe that attention to detail may have curtailed some of the company’s global brand potential because the firm was run more as a “mom-and-pop operation.” Therefore, Ellen Tracy never successfully penetrated the European market, and has only six licensees: eyewear, footwear, hosiery, fragrance, scarves and belts. The company’s sales surpassed $200 million in the Nineties, although last year it had net sales of $171 million.
Gallen has no qualms about keeping a tight rein and being involved in every major decision.
“I owned the business. I’m running the business and I had to get involved,” said Gallen. He said he would be the one on the phone with the stores getting weekly sales reports. “It was mostly me in the beginning and Howard [Rosenberger] at the end.” Rosenberger is executive vice president, sales manager, reporting to McMahon.
“I sort of butted into a lot of things,” admitted Gallen. “I go on the advertising shoots. If I have something to say, I say it.”
He explained that he would go on all the advertising shoots because he wanted to make sure the model and the clothing were presented properly. For years, the advertising was done by Murray Salit, and since 1990 it has been created by Ziccardi & Partners in New York, now known as Ziccardi Partners, Frierson Mee, Inc.
“He’s been amazing to work with. He’s very enthusiastic and has good insights,” said Donald Ziccardi, who confirmed that Gallen goes on every photo shoot. “He’s very vocal about wanting to see how his clothes look and that they look a certain way.”
Throughout his career, Gallen said he never looked at acquisitions and was content with cultivating the brand he had. “We had a pretty fair business going and we didn’t want to interrupt it,” he said.
In 1991, the firm launched Company Ellen Tracy, a casual weekend counterpart to Ellen Tracy. “We thought there was room for another division of ours to take care of the easy group. It would be for weekend, and not as dressed up,” said Gallen. He said Company is much smaller than Ellen Tracy and “it’s for younger people.”
Observers believe Gallen’s success can be attributed to his ability to put the customer first. Asked if that was true and whether it’s the retailer or the consumer who’s number one, Gallen was diplomatic: “I think they both came first. We gave the customer what we thought she should have.”
Gallen said he works closely with Allard and is not afraid to reject styles he doesn’t like.
For a ceo of a top apparel company, Gallen has shunned the spotlight, unwilling to speak at industry events or be honored at fundraisers. “I didn’t want to,” said Gallen. He did at one time serve as vice president of the Blouse Manufacturers Association. Was he afraid to reveal his secrets of success? “There are no secrets in this industry,” he said.
Colleagues describe Gallen as having a great sense of humor and big heart. He isn’t the kind of executive who flaunts his success, although he has enjoyed the fruits of his labor. Gallen played golf when he was younger, but had to give it up because of a bad back. Lately, his free time is spent sailing.
Gallen’s love affair with the seas began in 1970 when he bought a 29-foot boat. He had it for three weeks and then went with his grandson to a boat show.
“He made me buy a 45-foot boat,” said Gallen.
In 1984, Gallen bought his first 98-foot yacht, The Mystique, and had a christening party where he entertained the fashion industry. In 1989, he traded up and purchased a 163-foot yacht, which he also christened The Mystique. Gallen also owned a plane, which he used to travel to department stores and other places around the world, and now has a time-share for a Gulfstream jet.
“I still have an airplane,” he said. “I don’t fly commercial.”
Although his parents didn’t live to see the tremendous success he became, Gallen said, “They thought I was successful even before I was.”
Figuring out what to do with the company he has nurtured over 53 years has weighed heavily on Gallen’s mind. Gallen’s two daughters, Joan Megibow and Nancy Sheriff, aren’t involved in the business, however two of his grandsons are. Adam Runyon is in charge of Company Ellen Tracy piece goods, while Andrew Megibow is in the production department, in charge of imports and knitwear.
Over the years, Gallen said he thought about taking the company public, a move made by many of his competitors. “I thought about it many times, but it never materialized,” he said.
Competitors such as Tommy Hilfiger Corp., Polo Ralph Lauren, Liz Claiborne and Donna Karan Co., made millions by taking their companies public.
“I’m jealous, but I’m happy. You can only use ‘x’ amount of money. Our big payout was last week,” Gallen said earlier this month.
However, Gallen said that many of those who made fortunes going public have seen their stock portfolios greatly diminish in the past year. Over the years, Gallen said he has witnessed the ups and downs of the stock market, but he has never seen the market this bad.
Gallen said Allard didn’t influence his decision to finally sell the company and retire.
“When I was ready, I was ready. She didn’t urge me, but didn’t say anything against it. She’s happy with her home and her garden,” he said.
Gallen and Allard spend a lot of time in their home in Demarest, N.J., and Allard’s home in Washington, Conn. where she’s an avid gardener and cook. Gallen said he likes the way it worked out and has been celebrating with friends during the month. Although a new corporate culture is slowly taking over, Gallen has the utmost respect for Claiborne.
“I think Liz Claiborne runs their business very well. They do a large volume and they’re successful,” he said. “I remember the week they started. I was in their [show] rooms when they were getting ready to start.”
He said he always admired the way Liz Claiborne, Art Ortenberg and Jerome Chazen ran the company.
Gallen said that he personally didn’t make any overtures to buyers, but hired Gilbert Harrison, chairman of Financo Inc., a New York-based investment banking firm, who brought him the Liz Claiborne deal. Harrison said there was tremendous chemistry between Gallen and Paul Charron, chairman and chief executive officer of Liz Claiborne Inc.
“[Gallen] recognized there was a fit there,” Harrison said. “It was something that would be good for the long run.”
Harrison explained that when Gallen authorized him to move forward on the transaction, “I personally called up Paul Charron, and Marvin [Traub] and I went to visit him. Ellen Tracy was something on the top of Paul Charron’s list.” Goldman Sachs represented Liz Claiborne.
“We felt Liz Claiborne would be a perfect match,” Harrison said. “Liz Claiborne was looking at companies that would bring them further into the bridge business. There’s no question that Dana Buchman and Ellen Tracy complement each other.”
Since the early Eighties, Harrison has been speaking to Gallen about the potential of selling the business.
“I have a huge respect for the man,” he said. “He always wanted to remain independent. But now, it was best for his family and the company to be in strong hands.”
Harrison doesn’t believe that Gallen’s independence stifled the company’s growth at all.
“From his point of view, he had a wonderful business that was extremely profitable,” he said. “He was able to grow the business on a controlled basis. The potential of the company is enormous.”
Asked if he believes Claiborne can nurture Ellen Tracy the way Gallen did, Harrison responded: “I think the jury is out very frankly. I believe very strongly that Paul Charron will protect the integrity of the company. They own a gem. It’s one of the few companies that’s been totally unspoiled and is loved by the vendors and the consumers.”
Harrison said they started negotiating this past spring, and there were several hurdles they had to clear. Usually, in these deals, “the buyer thinks he overpaid, and the seller thinks he didn’t get enough.” Besides haggling over price, there were contracts and Gallen and Allard’s involvement in the new company to work out.
Describing Gallen’s personality, Harrison said, “He is an intense person who truly loves his business. He likes what he’s doing and has fondness that is greater than any individual entrepreneur I know.”
Reflecting on his 53 years in the industry, Gallen said, “The business has changed tremendously. There are much fewer customers. They’ve all been put together through mergers.” Years ago, Ellen Tracy had many more customers than it does today, he pointed out.
Still there are things that continue to enamor him with the industry. Earlier this month, after completing the sale of the company to Claiborne, he and Allard flew down to Neiman Marcus for a luncheon and fashion show at two different units in Texas.
“We had a show in Dallas and we did $600,000 in one day,” he said. “The women love Linda and she loves the women.”
Gallen said he has gone to every personal appearance Allard has ever made. He visits with the store executives and shops the competition. “That’s how I get to see the stores and what the customer looks like,” he noted.
Over the years, Gallen and Allard have talked about doing a designer line under the Linda Allard name, but that never materialized. “We thought about everything, but it was never a big deal,” said Gallen.
Does he believe a savvy entrepreneur like himself can come along and build a company like Ellen Tracy today?
“It’s not easy to build a company like this,” said Gallen. Nor would he encourage his great-grandchildren to go into this business, although as he looks as his stock holdings online, he’s not sure what industry he would encourage them to go into. “I have no idea. I won’t be here,” said Gallen.
While business has been the focus of his life, once he and Allard are away from the office, they don’t talk shop. “She has a fantastic garden,” Gallen said. “A couple of weeks ago she had the Garden Conservancy over. She had 60 people for lunch and they visited her gardens in her home in Washington.”
Does Gallen worry that the company could sink if he’s not minding the ship?
“Paul [Charron] is a great fellow,” said Gallen. “How do I make sure? By being here and hoping to keep it the way it was. Their intention is to keep it the way it is.”
Gallen believes Claiborne will give the company the financial resources to expand internationally, as well as add products it doesn’t already have.
“Liz Claiborne is big in jewelry with its Monet and Trifari divisions. We don’t have jewelry or handbags,” said Gallen, noting those two categories would be a natural for Ellen Tracy.
Gallen prides himself on having a loyal staff over the years. Some Ellen Tracy employees have been at the company over 20 years, and of course, Allard is celebrating 40 years at the firm.
When he finally does retire, Gallen said he’ll miss every aspect of running the company.
“I’ll miss the business, the buyers, the sellers, the merchandise people. Everything that goes on in the business. There are many more facets of this business than meets the eye,” said Gallen. He said he never entertained thoughts about leaving the business once he had made his fortune. “It didn’t come up. I just keep on going.”
Gallen said he’s made money every year he’s been in business. “We’ve always had a profit, some small and some large.” But what he loves most about the business is “just the continuous work for 53 years.”
Although he ultimately plans to step away from the business, while he’s at the office, he’s still involved. Looking at sales reports from Bloomingdale’s the first week of October, Gallen noted that Company Ellen Tracy’s business was up 60 percent, and Ellen Tracy’s sales increased 20 percent. Told that he was up against difficult numbers following Sept. 11, 2001, he said, “It took two months to recover. We didn’t get any cancellations. We wouldn’t take it if they cancelled.”
Gallen has always dealt from a position of strength, however he believes the stores call the shots.
“The retailer has the upper hand these days, and as long as I can remember,” he said. “We do big business with these people. We handle it like a big business. We treat them the way we want to be treated, and they treat us the way they want to be treated.”
Stores only have the utmost praise for what Gallen has built.
“He’s the best,” said Michael Gould, president and ceo of Bloomingdale’s. “He’s a real mensch. His word is his word.
“A few years ago, I co-chaired a DIFFA dinner and got Federated to spend $50,000,” recalled Gould. “Then I asked Herb if I could see him. I gave him a whole speech. It takes a lot of chutzpa to ask, ‘Can you give me $50,000?’ He said ‘yes’ and I thought he said ‘yes, he’d think about it.’ But he said, ‘Who do I make the check out to?’ Then he asked me how much is the table, and I told him, ‘Herb, you get the table for 50 grand and the journal.’
“If it was that important that I would come to see him personally, he was there to help. He’s our largest ready-to-wear resource. He is the business. He personifies the integrity of that business and what it stands for. We have a very profitable business with him.”
Asked if he thinks the business will change under Claiborne, Gould said, “Paul knows the kind of brand he’s bought. Hopefully it will go from strength to strength. It has an enormous base.”
Told that on a recent visit to Bloomingdale’s the customers shopping the Ellen Tracy department seemed to be 45 and over, Gould said that with its three biggest bridge lines, Ellen Tracy, Elie Tahari and DKNY, “irrespective of where they want to position it, the core customer is 45 to 50 years old.” Gould also noted that Company Ellen Tracy is a good business. “We’re very pleased with our growth in both areas.”
Christina Johnson, president and ceo of Saks Fifth Avenue Enterprises, said: “In the four years I’ve been here and doing business with them, Ellen Tracy is Saks’ number one bridge resource. It ranks as one of our 10 top resources at our company. It is just constant, wonderful product with great execution and a great management team. It’s been so consistent.”
Johnson said the Ellen Tracy customer is 30 and up. “It certainly has evolved with the niche of women with careers and her casual needs,” she said. “It’s still always known for its appropriateness. Of all our resources, Linda [Allard] has been the most consistent in product design and colorations. Deliveries are very timely.”
Johnson believes Gallen and Allard are a terrific pair.
“I find him to be such a great fellow,” she added. “They really are a Renaissance couple. When he started the company, he designed it, shipped it and kept the books. She’s a gardener and she cooks beautifully.”
David Wolfe, creative director of the Doneger Group, the large buying office here, said, “The Ellen Tracy customer is a loyal customer because she can go back to the well time after time and get a consistent fit and consistent taste level. Linda has the courage of her convictions. She doesn’t blow with the winds of the next big trend. Ellen Tracy is always in fashion and not dangerously near the cutting edge. The quality is superb.
“I think Ellen Tracy has grown with the customer. We’ve got this huge boomer population who can’t dress like kids,” added Wolfe. “Ellen Tracy has a tremendous opportunity to grow even more. They are serving the boomer. Linda understands the boomer body. Her customer has a young attitude, but not necessarily a 16-year-old body.”