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NEW YORK — After flirting with potential suitors for more than a decade, Ellen Tracy has finally accepted a proposal from Liz Claiborne Inc., giving the company a firm grasp on the bridge category in the process.
This story first appeared in the October 1, 2002 issue of WWD. Subscribe Today.
Liz Claiborne said Monday it has bought 100 percent of the stock of Ellen Tracy Inc., one of the longest-standing and most successful American bridge companies, for about $180 million. The move gives the apparel giant control of two of the largest core bridge players in department stores, including its own Dana Buchman division.
“The timing is right,” said Herbert Gallen, chairman and chief executive officer of Ellen Tracy, the company he founded in 1949. “There are certain times in your life when you have to do certain things. This is something that had to be done sooner or later, and Liz Claiborne came along and I thought it would be a wonderful combination. They did, too, so it worked out pretty well.”
At the Ellen Tracy showroom at 1441 Broadway, the building that also houses Liz Claiborne’s $3.4 billion operation spanning 20 floors, Gallen said factors like age — both the company’s, which is 53 years old, and his, 87 — influenced his decision to sell after years of unsuccessful negotiations with other companies, including a failed deal with Bain Capital of Boston in 1995.
But make no mistake: Gallen’s legendary grip on the Ellen Tracy franchise, with net sales of about $171 million in 2001 between its Linda Allard Ellen Tracy and Company Ellen Tracy collections, isn’t about to slip. He has no plans to retire and will continue to serve as chairman of the firm where his wife, Linda Allard, design director, celebrated her 40th anniversary of employment on Friday.
“I don’t have a date for retirement, where would I go?” Gallen said with a customary laugh at anyone who questions his commitment to remaining on the job. “I’ve been here for 53 years and you just don’t quit unless you’ve got a good reason and I don’t have a good reason. I enjoy it and now that we’ve done this, it’s like a test. How’s it going to be and how’s it going to work? I have to be here. We’ve had occasions where we’ve almost sold and this one worked out. I think it’s a good match.”
Equally content, Paul Charron, chairman and ceo of Liz Claiborne, called the transaction akin to buying “beachfront property.”
“I’m a brand builder and if there’s a better brand than Ellen Tracy that we don’t already own, I’d like to know what it is,” Charron said.
“It’s a pristine brand with tremendous opportunity in casual offerings, and there’s the ability to extend into nonapparel categories, its legs for select specialty retail expansion and the potential to expand outside the U.S.”
“Plus, it was in the same building,” he quipped. (Ellen Tracy is Liz Claiborne’s second acquisition at 1441 Broadway, following the 1999 purchase of Sigrid Olsen.)
Not one to miss a beat, Gallen leaned toward his wife and interjected, “After listening to him, I think we could have got more money.”
While many retailers and apparel consultants had speculated that the long-running negotiations to sell Ellen Tracy were rooted in Gallen’s ultimate desire to retire, Charron insisted the deal was structured with the expectation that Gallen and Allard would remain as integral parts of the company, managing its business and design, respectively.
“We wouldn’t have bought the company if they hadn’t stayed on,” Charron said. “Ellen Tracy is a highly respected brand and this is a highly respected couple, and it’s good for us to be associated with them. We’re good for each other. We’ve talked philosophically and we’ve talked personally. There’s a deep respect base.”
As part of the deal, Charron said there will be no visible changes to the organization, as the company wants to maintain Ellen Tracy’s distinctive brand personality, while maintaining a distance from its Dana Buchman division, also a career-oriented bridge collection. However, the company named a new president of Ellen Tracy Monday, appointing Glenn McMahon, formerly president of Kenneth Cole women’s sportswear at Liz Claiborne, to oversee day-to-day management. He will report to Gail Cook, group president at Liz Claiborne who oversees Ellen Tracy, Dana Buchman and Sigrid Olsen. McMahon and Cook worked in management positions at Ellen Tracy earlier in their careers.
Ellen Tracy will become the fourth bridge company under Liz Claiborne’s management, joining Dana Buchman, Sigrid Olsen and the contemporary-styled Laundry by Shelli Segal, with the bridge segment representing about $400 million to $500 million in annual revenue, Charron said. The deal also brings the number of brands in its portfolio — with the addition of Linda Allard Ellen Tracy and Company Ellen Tracy — to 29, with other recent acquisitions including Mexx, Mexx Canada and Monet.
“Bridge is the third-largest area after Liz Claiborne and Mexx,” Charron said. “But every one of our brands is distinctive and different and we don’t homogenize them. The consumer should see no difference than what has been for years under Linda’s design eye and Herb’s management eye.”
While some analysts and competitors initially questioned the obvious similarities and a potential for overlap between Dana Buchman and Ellen Tracy — two of the more traditional players in the now widely fragmented bridge category — group president Cook said they are actually quite different and will remain that way.
“Ellen Tracy is a little more classic and Dana is a little more novel,” Cook said. “They have different customers. The bottom line to consumers and retailers is that Ellen Tracy should not look different at all.”
“The bridge market is so diversified today,” added Allard, who is 62. “What Ellen Tracy has done is to develop and attract different customers. I don’t really think there is an overlap.”
Following a sizeable downturn for the overall bridge category in the late-Nineties, when more casual dressing attitudes at work bore into sales and many customers gravitated toward slightly higher-priced designer collections, the category has drawn renewed interest during the latest economic turmoil in America, since consumers are once again more value-conscious in their shopping patterns. It has also been helped by several notable additions to the category, with designer-themed collections like Kors, Marc by Marc Jacobs and Ralph Lauren’s Blue label, that are less like their traditional predecessors except in terms of price.
Some of Ellen Tracy’s former competitors, like Adrienne Vittadini, Andrea Jovine and Emanuel/Emanuel Ungaro, didn’t survive the category’s earlier troubles, leading some vendors to reconsider the viability of bridge, particularly since none of them ever seemed to be able to break through a barrier of sales of about $300 million. That has led some analysts to wonder whether Liz Claiborne’s latest pursuit was already a “mature” brand, but Charron said it is actually one ripe for growth opportunities, despite its age.
“We don’t believe in business maturity,” Charron said. “When you start talking about a business that’s matured, you start saying that it lacks growth. The only way a brand doesn’t have room for growth is if it lacks inspiration. In many cases, a cathartic event like this will take a brand in new areas of growth, possibly in areas we hadn’t thought of. This can be good news in terms of challenging and stimulating each other.”
Gilbert Harrison, chairman of New York-based Financo Inc., an investment bank that represented Ellen Tracy in the deal, said negotiations had been taking place since spring.
“It was evident that the combination of these two companies made a tremendous amount of sense for both firms,” Harrison said. “Herb wanted a proper home for his company and the fit with Liz Claiborne was extremely good.”
Charron said priorities will be placed on the expansion of casual apparel, nonapparel-brand extension opportunities, opening Ellen Tracy flagships and expanding internationally. Ellen Tracy does not have its own full-price stores, but Charron pointed out that Dana Buchman, for instance, currently has four.
“Herb has been very disciplined about the marketing, distribution and licensing of Ellen Tracy,” Charron said.
There are six existing Ellen Tracy licenses for fragrance, shoes, eyewear, hosiery, belts and scarves. In terms of potential categories the brand could also reach, Charron said possibilities include costume jewelry, handbags and fashion accessories, but added, “Whatever we do will be done with Linda’s eye because she’s the soul of the company.”
In response, Allard said, “I don’t think either one of us would be here if there was going to be a dramatic change in our business or our roles here.” During a conference call, Charron said Allard and Gallen have entered into employment contracts with Liz Claiborne that included some stock options.
One area that has been somewhat weak for Ellen Tracy has been the management of its 15 outlet stores, which Charron said would be addressed by Liz Claiborne’s own retail experts.
Charron said the Ellen Tracy buy follows the company’s acquisition strategy, and the company’s challenge is to grow the brand and become more important to select specialty stores and upscale department stores, such as Bloomingdale’s, Nordstrom, Marshall Field’s, Parisian, Neiman Marcus and Lord & Taylor.
“People have shown they can sell more expensive products to a more discerning consumer,” he said. “[The brand] is highly profitable.”
Since 1989, Ellen Tracy has seen a 5 percent comparative growth rate and projections are set to continue in the midsingle digits, Charron said. He noted that Ellen Tracy’s wholesale business is above the average profitability for Liz Claiborne’s other companies, and that the brands are also “nicely profitable” for their retail partners.
“This is a logical strategy,” he added. “We know how to run these businesses. The obvious concern is what’s going to change. I don’t expect any changes at all. The feedback we’ve gotten is that it’s a positive, logical step.”
Charron did not specify whether there would be any staff reductions, but noted that the two companies would look for ways to “share competencies and capture synergies.” There are 490 staff members at Ellen Tracy and 11,000 at Liz Claiborne, including its retail operations.
“This company will remain distinctive…but whenever you have a change of this magnitude, there’s also uncertainty,” Charron said.