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Leadership: Clear Channels

Farah, Rubel, Bekenstein: Effective communication enhances the organization.

Matthew Rubel, Roger Farah and Joshua Bekenstein.
Appeared In
Special Issue
WWD/DNR CEO Summit issue 11/11/2008

Bob Dylan might have warned against following leaders, but the iconoclastic troubadour wasn’t trying to navigate a fashion company though the worst economy in a generation.

This story first appeared in the November 11, 2008 issue of WWD.  Subscribe Today.

Leaders are important. And the success or failure of fashion companies might now rest more squarely on the shoulders of their top executives than ever before. A steady hand on the purse  strings, a clear strategy and the ability to communicate successfully with directors, employees and suppliers makes all the difference in the world.

Given volatility in stock markets and the shrinking economy, it was little surprise that making every penny count was a recurring theme in the panel discussion on leadership, moderated by Susan Hart, coleader of Spencer Stuart’s global retail, apparel and luxury goods practice.

“You can have all the ideas in the world you want, but if you don’t have the balance sheet or the cash flow to reinvest, you really can’t go anywhere,” Roger Farah, president and chief operating officer of Polo Ralph Lauren Corp., said.

In addition to penny-pinching tips, Farah and Matthew Rubel, chairman and chief executive officer at footwear firm Collective Brands Inc., each offered glimpses of their own management philosophy and described how they helped reinvent their respective companies. And Joshua Bekenstein, managing director at Bain Capital, offered up the private equity view on how to spot leadership stars.

Both Farah and Rubel stressed the importance of being able to effectively articulate ideas and goals in steering large companies with thousands of employees.

“One of the hallmarks of great leadership is communication and the ability to make complicated
subjects easy to understand depending on the audience,” Farah said.

Employees, directors, bondholders and other people involved in the business each need to be spoken to in their own language.

“Your ability to adjust the level of detail and complexity for the audience is critical,” Farah said. “At the board level, it’s particularly important in today’s world because you may only see your board officially four to six times a year.”

If the success of Polo is any guide, Farah can both talk the talk and walk the walk.

But that’s not to say it was easy.

Farah helped transform Polo from primarily a men’s wear manufacturer to a vendor-retailer hybrid that sells everything from women’s wear and kids fashions to accessories.

The job took a to-do list of about 100 items and Farah said he simply worked his way down the list taking three or four on at once.

One of the first items was the business’ financial underpinning, which in 2000 had a lot of debt and little free cash flow.

To focus on fiscal efficiency, Farah zeroed in on the cash-to-cash cycle — how long it took the money Polo invested in the products to come back to the company in the form of cash from the customer.

“Nine years later, we’ve cut the cash-to-cash cycle in half,” Farah said. “Our free cash flow has become enormous.”

In turn, that cash flow was used to fund reinvestment into Polo’s operations. “We have not borrowed one penny,” Farah said.

A solid financial base is especially important when taking on new challenges and came in handy when Polo took over the Lauren by Ralph Lauren women’s better sportswear license from Jones Apparel Group Inc.

Beginning in June 2003, the company put together a staff of 180 that had enough hustle to bring the line to market in three months and deliver to stores in another three months.

In addition to boosting wholesale sales by $500 million, the dramatic Lauren move was a confidence builder.

“When we did that, our company developed a certain sense of pride that we could do almost anything, because most people were betting against us,” Farah said.

Now the company is using its balance sheet and confidence to diversify further through the massive launch this year of 50 merchandise categories of American Living in J.C. Penney Co. Inc., via the new Polo subsidiary Global Brand Concepts, and aspirations of continuing global expansion.

American Living had the misfortune of launching into one of the toughest consumer economies in years, but both Penney’s and Polo are standing behind the brand.

Farah’s hope is to one day see Polo’s business divided evenly between the U.S., Europe and Asia. But that doesn’t mean it will be easy.

“The customer has accepted the product,” Farah said. “We just have to figure out how to market and message ourselves, and we have to figure out how to build up the infrastructure and supply chain to manufacture in 45 countries and deliver to 42 other countries within a one-week window.”

Polo’s development over the last eight years is a case study on how management decisions can build up certain strengths and lead to opportunities down the line. Had Farah and ceo Ralph Lauren taken other paths, turning Polo in to a portfolio company à la Jones or Liz Claiborne Inc., for instance, the company could be in a radically different place right now.

When Rubel became ceo of Payless ShoeSource in 2005, he faced a very different management challenge from Farah’s.

Payless’ strategy had been developed by consultants and didn’t reflect the thoughts and experience of the employees carrying through the effort.

Employees didn’t have confidence in the business model. “Reinvestment in the company was $1 billion in share buybacks and yet they had 15-year-old carpet in 30 percent of the stores,” Rubel said.

“It was a very male-oriented company,” he continued. “Their version of communicating to one another was dropping a memo on somebody’s desk or sending an e-mail — no cross-functional team work.”

Rubel set out to understand who Payless’ customer was and what the company was really good at and then focus the firm’s energies.

Payless had 4,000 U.S. stores, some international growth opportunities and cash flow. Rubel evaluated the company, kept in close contact with his board to avoid any surprises and ultimately decided the company should continue to expand beyond the U.S. and do it with brands.

“We didn’t want to go after being a reseller in the United States of other people’s goods,” he said. “We wanted to capture full margin, take the competencies of footwear and build it out into a global footprint.”

With that end in mind, the firm moved quickly last year and snatched up Stride Rite, which includes the Stride Rite, Keds, Saucony, Sperry and Robeez brands, for $800 million, and Collective Licensing International for $91 million.

Payless was then renamed Collective Brands, which now operates in 81 countries and does 16 percent of its business internationally.

Stalwart leadership need not only show itself via dramatic corporate reinvention, however.

For Bekenstein, spotting corner office talent is a matter of serious consideration. Bain has more than $80 billion in assets under management and Bekenstein serves as a director at Toys ‘R’ Us and Burlington Coat Factory, among other companies.

When a ceo is truly setting the direction at a company, everybody knows what they’re doing,
Bekenstein said.

It sounds simple, but can be a key difference in an organization.

The quality of other executives at a company can also reflect back on their leader.

“If you interview the second layer of management, you’ll find out how good the ceo is,” Bekenstein said. “Great ceo’s typically have great people who work for them.”

Ceo’s of retailers need to have a particularly even-handed approach. Retail ceo’s have to be closer to the business and spend time in their stores, while still being able to delegate, Bekenstein said.

Although not on the panel, Saks Inc. chairman and chief executive officer Stephen I. Sadove couldn’t help but to jump into the fray and asked during the Q&A session, “How do you plan for ’09?”

Given the shifting market, that’s just the kind of impossible questions ceo’s are forced to ask, even if answers are not so forthcoming.

“Long-term planning in times like these, it really takes a back seat to short-term contingency planning,” Bekenstein said. “How can we do things that are not going to effect the customer…yet be ready for what could be a really rough time.”