As if transforming a $2 billion apparel company into a multi-channel, $4.85 billion conglomerate in 12 years weren’t enough, Paul Charron still needs some reassurance that he is doing a good job.
Although he announced he would retire on Dec. 31 when his contract expires, there are no signs of him moving out just yet. In his brightly lit corner office in New York’s Garment District, the chairman and chief executive officer of Liz Claiborne Inc. is surrounded by reminders of proud moments and successes — family portraits are placed on almost every counter, awards from his time in the U.S. Navy hang along a wall and a framed photo of him with Bill Clinton sits near a window. There’s even a bright yellow ceramic cereal bowl printed with phrases like “You’re the Man!” across the top that sits on his desk.
“When a company experiences great success, a lot of times there is a certain arrogance that develops…if it’s not arrogance, then it is beyond overconfidence,” Charron explained. “When I came here in 1994, that was the feeling at Liz Claiborne. People thought: ‘We are Liz Claiborne.’ In my experience, that is an unhealthy attitude to have.”
It’s clear that those tokens in his office are reminders of what Charron has become over the years — a strong business leader who has turned around a company that probably would not exist in today’s environment had it remained the way it was when he joined as as vice chairman and chief operating officer in 1994. He is clear about what he is capable of and what he is not. He acknowledged he does not have a creative mind, but rather one with a clear vision of how the business needs to run in order to be ready for the changing face of retail.
It is an attitude he has maintained ever since he joined Claiborne after many years at VF Corp. and Procter & Gamble. He knew he had a lot of learning to do.
“When I came in, this company was run the way Liz ran it back in 1985,” he said. “I knew this was not the way to run a business in 1995. I’ve always been an agent of change and I came here to work with [then chairman and ceo] Jerry Chazen to get the company to a better place. I knew it wasn’t going to be easy and there were going to be big changes that some would be able to adjust to, and some wouldn’t.”
During his first few months at the firm, Charron took the time to stand back and look at how the company ran. He met with employees, board members, consultants, advisers and a variety of people that could help him learn more about this company. He said that his conclusion was that they needed technological advancements, marketing budgets and management structures in place. While he is known as someone who has revamped the company through a number of acquisitions, Charron insists that is not the secret of its success.
“People think I came up with this acquisition strategy when I walked in the door. I wish I was that smart,” he said. “But it’s just not true at all. In fact, for the first five years, I didn’t even utter the word ‘acquisition.’ We built this company based on brands that we developed ourselves first.”
When the acquisition strategy began to take shape, Charron said he didn’t rely on his own instincts. When Claiborne decided to look into acquiring the Juicy Couture brand in 2003, for example, the decision was aided by those closest to him.
“Angela Ahrendts [Claiborne’s executive vice president at the time] came to me one day and told me I had to meet with these women on the West Coast. They had this brand called Juicy Couture,” he said. “I thought she was nuts and I said: ‘Angela, this is a tracksuit.’ She said, ‘No, it’s a brand.’”
Charron went home that night and mentioned the brand to his family. He said his “aggressive-shopper” wife, Cathy, knew of the label and his teenage daughter, Ashley, said how it was “so cool.” He then began to examine Juicy’s potential.
“When I think about something in business and it resonates with me at home, I know I am on to something. After speaking with my wife and daughter, I went to Los Angeles to meet with Pam [Skaist-Levy] and Gela [Taylor] and within 30 minutes, I knew Angela was right,” he said. “They have such strong passion for what they do. You cannot be fooled by this Valley Girl stuff. These are two very smart women and they have really proven themselves over these few years that we have been in business with them.”
Charron said that, since his first acquisition at Claiborne, this has been the formula for a great business relationship. He said his strategy of acquiring smaller brands has been a good one to help Claiborne increase its bottom line.
“If you have someone looking to make money on a deal with us, we do not want to do business with you,” he said. “Those are just not the people we are interested in dealing with. They have to have that passion and authenticity with the potential for growth. We are there to take a lot of the back-end business to make it easier for them to grow and help them avoid a lot of the mistakes that so many small companies end up making.”
Charron also knows that there is plenty to do before he exits in nine months. The company is going through a restructuring, which recently called for the firing of 500 employees, 4 percent of the group’s work force.
“In the face of a challenging market environment, we are continuing to focus on those things we can control,” he said in a conference call with analysts this month. “We’re taking significant steps to take costs out of the business and streamline our operations to more efficiently manage our brand portfolio and more closely align our business with the rapidly changing customer and consumer needs.”
He said he is also still very interested in specialty retail. He said that, while many of his brands have their own stores, there is room for plenty more. He also said the potential for overseas expansion is in the works, firstly in Canada, Mexico and Europe, with aggressive plans for expansion in Asia in place. And, of course, there is always the possibility of more acquisitions. Although the company has been said to have been interested in purchasing Vera Wang, Charron said he has little interest in luxury brands and “no interest in becoming an American LVMH.”
“We are interested in commercial fashion brands,” he explained. “While there are brands that interest us, luxury is a very small segment of the industry and not our highest priority. We are, however, very interested in finding new brands. That is a high priority.”
Today, Liz Claiborne Inc. is a true powerhouse with 46 brands in its diverse portfolio ranging from Ellen Tracy and Juicy Couture to Monet to Tapemeasure. The Liz Claiborne brand accounted for 90 percent of the company’s sales in 1994 — which were about $2 billion — when Charron joined. At the time, the company had about seven other brands: Claiborne men’s wear, First Issue, Dana Buchman and Elisabeth brands, as well as the trademarks for Crazy Horse, Villager and Russ. Today, as one of 46 labels, the Liz Claiborne moniker delivers 24 percent, or nearly $1.2 billion, in sales.
“In our view, Liz Claiborne has the strongest portfolio of brands in the apparel industry and the company remains fundamentally solid. Furthermore, its diversified portfolio enables the company to better weather uncontrollable environmental factors that cause extreme duress on some of its key competitors, particularly those that have more exposure to one consumer segment,” wrote analyst Jennifer Black of Jennifer Black & Associates.
The changes Charron made to the portfolio were all for good reason.
“I knew that the Liz Claiborne brand could not be all things to all people,” Charron explained. “There was a time when we considered adding names like Lizzie, for a more contemporary line, but really, it wouldn’t have worked that way.”
In 2004, Lord & Taylor dropped the better-priced sportswear Liz Claiborne brand, and Charron has said that growth of the Liz Claiborne brand has slowed overall. But, he added, that does not mean it isn’t still dynamic. The brand still generates a significant chunk of corporate volume and executives believe it has staying power — as long as it continues to change with the customer.
“Liz Claiborne is the most fully developed of our power brands,” he told shareholders in May. “Products sold under the Liz Claiborne name have retail sales in excess of $2.3 billion — this is what we define as brand reach — and are available in 19 product classifications ranging from sportswear and swimwear to flooring and luggage and everything in between. Liz Claiborne is sold in 34 countries around the world including an exciting relaunch in Europe.”
Marshal Cohen, chief industry analyst at NPD Group, said he believes the Liz Claiborne brand is still a strong one on the better floor.
“There is so much more competition on the floor now and there really has been a shift in buying power,” Cohen said. “We used to pay a lot of attention to the junior shopper. Now, in the past year, that shift has headed toward the Baby Boomer. She is the one with the spending power and part of the growing segment of the women out there spending on apparel. The Liz Claiborne brand needs to keep in mind that this is an aging customer who is not aging in her mind. She may be 55 years old, but she wants to look like she’s 35. As long as they keep changing with the consumer — which is something they have always been good at — they are on the right track.”
In fact, the Liz Claiborne brand is going through a transformation for fall 2006. With an eye on increased competition from labels such as Lauren Ralph Lauren, Michael Michael Kors and Calvin Klein, Claiborne executives knew they had to offer product that was fashionable but value-conscious to stay on the better floor. They began by hiring a new creative director, Richard Ostell, in March 2005. His design background includes a stint at Nicole Farhi and a partnership in Flyte Ostell, a London-based fashion house, and he brings a more style-conscious eye to the Liz Claiborne collection. In addition to bumping up the appearance of the core line, Ostell designed a collection of limited-edition garments that will only retail in 40 top-selling doors throughout the country. This collection includes a shearling jacket, which, at $499 retail, is the most expensive piece in the line.
Charron said he knew there was a lot of change ahead when he started as ceo. Since the company held the trademarks for a handful of brands, he began kicking them into gear and aiming at specific stores: Villager exclusively for Kohl’s, Crazy Horse for J.C. Penney and First Issue for Sears. Then he began to take in licenses, first in 1998 with DKNY Jeans, Juniors, Active, City DKNY (which is now defunct) and Kenneth Cole women’s apparel (which now licenses the Kenneth Cole Reaction women’s line to Bernard Chaus).
“Our first logical acquisition would have been Donna Karan, and we wanted it. But it was a brand we could never buy,” he said. “Donna wanted champagne and we were beer.”
Charron said the company is no longer in the business of licensing, even though it still holds the license for DKNY Jeans, Juniors and Active until at least 2012.
“The DKNY businesses are doing very well, but in general, licensing just isn’t the business we are in. The returns are less attractive and the control of the brand is in the hands of the licensor,” he said. “I really don’t see that as a good thing.”
It wasn’t until 1999 that Charron began his acquisition strategy of picking up smaller brands that would bring the company into markets it was not already in. He started with Sigrid Olsen that year and then moved quickly to pick up some others. He said the company purchased Ellen Tracy in 2002 because he thought it would be a nice complement to the Dana Buchman brand.
“We always lusted after Ellen Tracy,” he said. “And I’ve learned that it’s a good thing to buy your competition.”
At the end of 2005, the company acquired Prana, a yoga and climbing apparel firm. That was Claiborne’s first entrance into the activewear segment.
“That acquisition gets us into great retailers like REI and Eastern Mountain Sports, places we weren’t currently in,” he said.
Paul Altman, vice president at the investment banking firm The Sage Group, has sold four companies to Liz Claiborne, including Westcoast Contempo. The other three were Skylark Sports Marketing (Prana), Juicy Couture and C&C California.
“It is clear to see why Liz is interested in all of them, but for different reasons. Mac & Jac gives Liz a stronger presence in its offering of contemporary apparel to the younger consumer,” Altman said, noting that his client also provides Liz Claiborne with an expanded international presence in Canada and China.
“Liz is very focused on the brand, not necessarily [just on] distribution. For Liz, it is always the brand, such as where it is sold as well as the strength of the brand,” the banker said. “The acquisition strategy at Liz is very disciplined and well thought out. The four companies [that we sold to them] all contribute different things to Liz’s business, either a new brand or new distribution channel.”
Now Claiborne is facing life in the post-Charron era. Industry sources agree that, while Charron will be a hard act to follow when he steps down as ceo, there are people out there who are qualified to take his place. Roger Farah from Polo Ralph Lauren, Mindy Grossman from Nike and Rose Marie Bravo at Burberry are a few of the many names some have mentioned as good candidates.
“In terms of experience, Roger is the best-equipped guy out there,” said Allan Ellinger, senior managing director of Marketing Management Group, a consulting firm. “I think that Paul has done an amazing job of diversifying the business from what was a department store brand to a multidimensional vendor. He has recognized talent in some of the smaller companies — Juicy Couture, for example — and his company has really benefited from that. Paul’s background wasn’t in fashion, and historically, when people like him come into a fashion company, it doesn’t work out. He has proved to our industry that you don’t have to be an insider to be a success.”
Elaine Hughes, president of E.A. Hughes & Co., a headhunting firm in New York that has worked with Liz Claiborne on several occasions, said the search for a new ceo will be a rough one.
“I know there is a replacement for the ceo position at Liz Claiborne; however, there is no replacement for Paul Charron,” Hughes said. “As an individual, he is as unique as his own DNA, and trying to duplicate that in another individual is a waste of time. Paul should be remembered and appreciated for his contribution to the Liz Claiborne Corporation during his tenure as ceo.
“As the search concluded with the hire of Paul in 1994 as a successor for one of the founders of Liz Claiborne, Jerome Chazen, so should this search conclude with the hiring of an executive who understands the complexities of the wholesale/retail model for 2006 forward,” she continued. “The wholesale model in the fashion consumer products business today is very different from what it was 10 to 15 years ago. In order to succeed, this individual must not only possess the standard requirements of a ceo, but also an understanding of the challenges facing wholesalers today. [This is] a rapidly changing environment that is influenced not only by the consumer, but by the channels reaching out to distribute to them.”
And what are Charron’s plans come Jan. 1?
“I’m not sure yet,” he said. “But I will find something else. I’m really not retiring in the traditional way. I just thought that after 12 years in the company, it was time to turn the baton over to someone new. But as long as I have this job, I will be sure to leave the company in a better place on Dec. 31 than it is right now.”