By  on March 27, 2006

When Jerome Chazen’s grandson recently asked whether he was ever on the cover of Fortune, the answer was a resounding “yes.”

During his time as chairman, Chazen, a partner in Liz Claiborne Inc., made Fortune magazine’s list of top 10 most admired companies not once but twice: in 1992, when the company was ranked number four, and in 1993, when the apparel giant was ranked number eight. (The company has made the list numerous other times in the past three decades.) Chazen retired in 1996 at age 69, and is currently chairman of Chazen Capital Partners, an investment firm.

Chazen and Art Ortenberg have a long history between them. They were in the military together and were college roommates. Chazen said that he, Ortenberg and Claiborne in 1975 discussed the idea of forming Liz Claiborne, a plan that came to fruition in 1976. Chazen, who couldn’t immediately leave his job at a sportswear firm at the time, joined in 1977.

“I never doubted that we would be successful. We had four partners. Everyone was very important in building the company,” Chazen said.

While Chazen focused on sales, Ortenberg was responsible for obtaining financing. Claiborne focused on design, and Leonard Boxer, who subsequently joined the fledgling firm, led the production team.

“We used to each do our job all day long and have dinner together at night to communicate what was going on so we all knew each other’s area. The company grew very rapidly. Liz’s designs were right on target, and the consumer that we thought was out there was [definitely] out there. She responded to the clothes, which were well-made and affordable,” Chazen said.

The former chairman attributed the early success of the company in part to the presence of an actual designer, Claiborne, whose name was on the label. Competitors included the labels Evan-Picone, Ellen Tracy and Susan Bristol, all of which were made-up names. Having a real person behind the name enabled the company to distinguish itself as a designer firm that also provided apparel at affordable prices.

He emphasized that Liz Claiborne was the first to get retailers to change the merchandising model at the department store and allow for in-store shops, a move that also made it easier for consumers to put together entire outfits, since all the pieces in the collection were now in one place and the brand became a destination. Before then, major stores sold by classification, and a consumer who wanted an entire outfit by one label had to go from the sweater department to the jacket department, and so forth.Another early challenge was trying to make enough of an item to satisfy orders, a problem that Chazen recalled fondly when he discussed the decision to use velour on women’s sportswear in late 1976 and 1977.

“Saks loved the velour top and ran a tiny item advertisement on the top for the New York store in the New York Times. The top sold out in 15 minutes. We sold them at $25 [each at retail] in three or four dark colors. Saks initially bought 36 pieces and called to reorder, but we didn’t have any more because we couldn’t get any more velour. We called around and got very friendly with the robe [manufacturers], but they didn’t have the colors that we wanted. The spring season was coming up, and all they had was pink, peach and lavender,” Chazen said.

In the end, the company picked up whatever velour they could get their hands on, selling orders with the understanding that the colors would be “assorted.” The buzz created by the velour tops helped put Liz Claiborne on the retail matrix, Chazen noted.

The requests were also flowing in by retailers wanting Claiborne to visit the different stores and to do fashion presentations. “I was getting bombarded with requests. Liz was like a rock star. All the crowds wanted to see her, touch her. It was scary.…Liz was a true designer, making clothes people could afford,” Chazen said.

Boxer, reached at his home in Jupiter, Fla., described the early days at Liz as a “wonderful time.”

“I loved it. We were all garmento people....It was almost like show business.”

Boxer retired in 1986 at the age of 63. He recalled his first trip to Hong Kong in 1979, looking to move some production overseas to get the quality that designer Claiborne wanted for her product.

“We were one of the first pioneers getting over there. The costs were lower [and] women got quality stuff at half the price than it would have been if it had been produced in New York,” Boxer noted.

“When we started our company, the failure rate was 90 percent. It was the same as opening a restaurant or a Broadway show. Looking back, maybe it was easier than what it is today, but it was never easy. I knew we would be right because of the background of the principals of the company,” Chazen said.Still, there were some challenging moments. Like the time when apparel stored in a warehouse in New Jersey sold for far less than wholesale — skirts that were normally $16 instead went for $2 — because the fluorescent lights faded the fabrics. The firm sued the fabric company and recovered partial costs. Then there was the break-in at the warehouse.

“Art and I got a call. It turned out they chopped a hole in the stones on the side of the warehouse. We tried to figure out what they got. It wasn’t a lot, but it was scary. Here we were at 3 a.m., wondering what kind of business we got ourselves into. Of course, we got over it. Then several years later we were a more popular company and our trucks were being hijacked. We had on average 35,000 units per truck [and] we never found out what happened to those garments.…We ended up changing trucking companies, and, luckily, our insurance paid [for

the losses],” Chazen recalled.

At one point, the company grew so fast that it oversold its production and had to deal with delivery problems.

“I couldn’t believe how much business we were doing. The running joke was, ‘You could place an order with Liz Claiborne, but you’re never going to get it.’ When a retailer [finally] got the goods, [they] sold at full price. There were no chargebacks or markdowns for us. I can’t say we were immune to that — when I left the company, chargebacks and markdowns were [starting] to go around and we had to deal with it.”

In the decade between 1984 and 1994, the Liz Claiborne brand was the single largest supplier for department stores, according to Chazen, who noted that back then, retailers knew their life depended on selling merchandise at regular price.

With all the sales and promotions at retail in the last several years, Chazen isn’t sure if retailers can ever move back toward the focus on full-price selling.

If Chazen were to run a start-up in today’s environment, his role model would be Polo Ralph Lauren. “They’ve cut back on department store distribution and control to a greater degree what the shops do. They’re in branches where they can sell the goods,” he explained.One of the more exciting times for Claiborne was the decision to go public, Chazen reminisced. The buzz surrounding the company generated much interest in the still relatively young firm.

According to Chazen, the company received an offer in 1979 at some “ridiculous price” from the late Carl Rosen, chairman and chief executive of Puritan Fashions. That was followed by a “more serious offer from Hart Schaffner & Marx,” which wanted to add women’s wear to its men’s collection and have the founding partners run Claiborne.

The partners nixed the offers and then started undertaking a serious review of their operations. Since Liz by then, around 1980, was hitting about $80 million in annual volume, estate planning became a concern. The possibility of going public was intriguing, but Wall Street firms turned them down, not wanting to take any risk after seeing companies such as Jonathan Logan, Genesco and Leslie Fay go from boom to bust. According to Chazen, the company got lucky when a young banker at Merrill Lynch — who didn’t know much about apparel and consequently didn’t have a typical ingrown bias against fashion firms — helped Claiborne with its initial public offering.

In June 1981, Liz Claiborne went public, priced at $19 a share. According to Chazen, the company “for more than 10 years occupied the number-one slot for most successful IPO in the history of Merrill Lynch.”

The partners went to La Grenouille with their spouses for dinner to celebrate.

“We never spent that much for dinner, but we figured this was special. We had a nice bottle of wine and then asked for the check. We were told that a [certain] gentleman had paid for our dinner,” Chazen said, adding that the individual was Joe Gaumont, one of Liz Claiborne’s initial investors who made a fortune when the company went public.

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