Listen to the podcast:
Jerome Chazen, a founder and former chairman of Liz Claiborne, Inc., recently wrote a book titled, My Life at Liz Claiborne: How We Broke the Rules and Built the Largest Fashion Company in the World. Indeed, Liz Claiborne — now known as Fifth & Pacific Cos. — grew from revenues of $7 million in 1977 to more than $2 billion during Chazen’s tenure. It was named a Fortune 500 Company in 1986 and listed on the New York Stock Exchange in 1991. Knowledge@Wharton asked Chazen, who stepped down as CEO in 1996, to discuss the highs and lows of running a successful fashion business in a highly competitive industry.
Below is an edited transcript of the conversation.
Knowledge@Wharton: Jerome Chazen, thank you for speaking with us. In your book, and indeed in the title of your book, you talk about breaking the rules of running a business. What rules did you break?
Jerome Chazen: We broke a lot of rules. When we started our company, we [were] determined to distribute the merchandise primarily through department stores. That was largely due to my background in [this area] and to just thinking that this was the right way to go.
The department stores at that time — in 1976 — did not have any [way] to handle coordinated separates. As a matter of fact, there were no coordinated separates in the market. We initiated that type of clothing…. The department stores didn’t have a place to put our merchandise. They were set up so that they had a separate blouse department and they had a skirt department and they had a sweater department and so on, none of which were coordinated, all of which were bought by separate buyers.
Aside from not having a space on the floor for coordinated separates, they didn’t have a buyer who was capable of buying them. We had to get them over that. We had to break that rule of, “This is the way we do business in our store.” We said, “Well, this is the way we do business, and I think you’re going to have to accommodate us.” We did get a few [takers]. It sounds a little arrogant; it wasn’t. It was a lot of begging and pleading that went along with it. But we did get some stores to agree to at least test the concept. It was extremely successful. The consumers loved it.
Once that happened, the word got around very quickly in the retail world, and shortly thereafter, the momentum of our growth started. We went through a period of a number of years where our biggest problem was producing enough merchandise. But we had to get it started.
Knowledge@Wharton: Was it Liz Claiborne herself who came up with this idea or was it a company decision?
Chazen: I think it was my idea. I was always very interested in the consumer…. Virtually my entire career was in the fashion business. And I just felt this very strongly. It was an idea taking place at a time when Liz and her husband, but especially Liz, were looking for something else to do. Liz had just been told that the company where she had worked for 15 years was closing. She had been a dress designer, and she just didn’t want to keep doing what she had been doing. So we discussed this idea, she liked it and we discussed the consumer who fit the mold of that [idea]. Liz’s comment was, “You know, I think I am that woman.”
Knowledge@Wharton: Liz was a terrific designer and clearly had great ideas. Yet as you point out in your book, she was also very shy, a person who disliked public appearances. Was that hard to get around, given that the company was named after her and she was no doubt asked to do a lot of interviews and public speaking?
Chazen: Right. In terms of corporate events, with analysts or people like that, of course we were a private company for the first five years we were in business. So there wasn’t very much of that involved. But Liz never participated in that. She was the head of the company in name only, in a sense. This was done for a variety of reasons, partly because we thought it was a good idea and it would get us a lot of publicity.
One of the things we were trying to do was position ourselves as a designer company at affordable prices. In those years, it was only designer companies that had a true designer at the head of their company, like Oscar de la Renta or Calvin Klein or Anne Klein and so on. There were no companies at lower price levels that did that. One of our competitors at the time was a company called Ellen Tracy. There was no Ellen Tracy; it was just a name. That’s the way most of these companies were. They sometimes had a woman’s name, but it wasn’t a real woman.
In the case of Liz, we had a real woman. In terms of her appearances at stores and things like that, she understood that it was important [so] she reluctantly went along with it. We didn’t do a lot of those things. She could have been busy every week with another appearance someplace if she had had the time to do it. But we did them several times a year, and she was terrific.
Knowledge@Wharton: The company was officially launched in 1976. Today’s economic and retailing climates are clearly much different from what they were 35 years ago. What are the one or two main differences? And do they make it harder or easier to launch a fashion business?
Chazen: It’s much harder, I think.
Chazen: If, like us, you decide you would like to sell department stores, you have a really tough problem because the 800-pound gorilla is Macy’s, which has 900 stores. How is a newcomer going to go into Macy’s and expect to do business with them? I mean you couldn’t make enough goods, if, in fact, Macy’s wanted to buy them. And Macy’s, you know, you’re not going to move the needle from Macy’s. Why would Macy’s want to get involved with somebody new?
It would have to be the case where a particular company or designers made their reputation somewhere else, either by selling specialty stores or maybe they are a celebrity company, that kind of thing. But for a normal person to try to get into department stores is virtually impossible. So now you’re left with the independent specialty stores. That’s a small market. The largest specialty stores are the chains. All the chains do their own manufacturing. They just don’t buy goods in the market. Whether it’s Abercrombie or the Gap or Limited or any of those companies, they all do their own manufacturing today. So you can’t sell those people.
As far as the independent specialty stores, there are many of them. They’re mostly small, and there are probably hundreds, maybe even thousands, of companies out there that manage to make a living selling small, independent specialty stores.
Knowledge@Wharton: As a business man who was involved for so long with Liz Claiborne, how smart, or not, was it for the company to sign that deal in 2009 whereby J.C. Penney would become the exclusive retailer for the brand, a deal that ultimately led it to buy the whole company last year?
Chazen: They didn’t buy the whole company. They bought the Liz Claiborne entity, which was the intellectual property and the name. That’s all there was to buy. I wasn’t directly involved with the company, but in conversations that I’ve had in the past about why it happened, it happened because the company was hemorrhaging cash like crazy. There was a concern they might even go bankrupt. They had to make some kind of a decision. What I’ve heard is that the company approached Macy’s and said, “You know, we’ll do anything. Let us just see what we can work out. If we have to give you the line exclusively, if we do this, that or the other thing…” And Macy’s just said, “No.”
So really there was no place else for them to go. Now what had happened prior to that — which you didn’t bring up but which was critical to this whole second thing that took place — is several years before that, the management in the company had made a decision to take one of the Liz Claiborne labels, called Liz & Co., and give that label to J.C. Penney. Macy’s went berserk when that happened. The Macy’s organization said, “You know, we’re not going to stay in business with one of our largest suppliers and face J.C. Penney for the business. That’s not where we want to be.” It’s a little bit like the Martha Stewart thing now. So Macy’s, little by little, cut back on its purchasing of Liz Claiborne.
Knowledge@Wharton: Yes, I have noticed that.
Chazen: Exactly. So when the final thing happened and when management, new management at this time because they had replaced the CEO, went to Macy’s, Macy’s was, “Sorry guys.” So it was not just the one thing; it was a couple of things.
Knowledge@Wharton: How do you feel about [the] decision to change the name of the company to Fifth & Pacific?
Chazen: The Liz Claiborne company today basically consists of three major brands.
Knowledge@Wharton: Juicy Couture, Kate Spade and Lucky Brand?
Chazen: Exactly. That’s the Liz company today. Since there’s no Liz [Liz Claiborne died in 2007], it didn’t seem to make sense to keep the Liz name. That’s why they changed it. Fifth & Pacific. I think they went out and hired branding geniuses to help them come up with a name, and that’s the name they came up with.
Knowledge@Wharton: What do you think of it?
Chazen: I don’t know…. We’ll see what happens…. They don’t care, or they don’t seem to care; they just wanted some sort of generic name because their strategy now is for each of the brands to operate almost autonomously and to build each of them. So Juicy Couture will be built and Kate Spade and Lucky and so on. If in the future, they make another acquisition or develop a new company, they would do the same thing there. So the Fifth & Pacific name is strictly like … PVH or VF [or some company] that owns a million brands.
Knowledge@Wharton: In your book, you talk about the succession issue that you faced. It sounds like it was a challenging one at Liz Claiborne. What advice would you give companies faced with replacing a highly successful CEO?
Chazen: I think to some degree it depends upon the industry, and it depends upon how critical the board of directors feels that industry expertise is to the success of whatever CEO they bring in. I felt that way. I really wanted to get somebody directly out of the fashion industry who could come and run our company. The problem was, we were a one-of-a-kind company. We were a fashion company, but at the same time, we were a multi-billion-dollar company, which was kind of unheard of in that industry.
So it’s not only being in the fashion business; it’s also being, okay, can we find someone who’s capable of running a multi-billion-dollar company with 10,000 employees and manufacturing products in 40 some odd countries around the world — with all of the complications and logistics and so on and so forth? We couldn’t find anybody.
When the head hunters we were using brought Paul Charron to our attention, he had just a little bit of a power background. At the time we hired him, he was working for VF Corporation. Although he had a little something to do with one of their intimate apparel divisions, he wasn’t a real garment center person. But he had a good business school background…. His major background was Procter & Gamble, so he came out of consumer goods. I and the rest of the board, we figured, well, we’ll just make it happen.
At the time we hired him, I told the board that we would also have to hire a partner. I talk about that in the book. We did hire a garment center person to be his partner. And I left. That person stuck around for the length of her contract, which was two years. Then, for a whole bunch of reasons, it just wasn’t working, and she left. They never really developed this partnership strategy, which I thought would be important for the company.
Knowledge@Wharton: I know that Liz Claiborne herself never graduated from high school. If you were asked to give advice to today’s high school students interested in fashion, what would it be?
Chazen: The advice would be for them to learn about the entire industry. If you’re a fashion person, if you want to be a designer of some kind and that’s your talent and that’s where you want to spend your life, it’s also important to understand the consumer, understand all of the elements that go into running a business. Because it’s not enough to just design something and hope that it’s going to electrify the world. It doesn’t work that way. These kids watch programs like Project Runway and get all excited and think, well, if I design this one thing and make it, everybody will love it and I’ll become a millionaire overnight.
The other thing I suggest — and I had a meeting recently with a couple of young women who were just graduating from design school — is the importance of becoming apprentices. They might think they’re designers, but they’re really not. I said, you have to go to work for a company and learn what it is to be a designer, how to make a garment, the problems of fabric and trim and all of the things that go into garments, the manufacturing problems and why you can’t design a certain way because [you can’t] turn a garment like that out in any kind of quantity — everything that’s necessary to put together fashion and business.
Knowledge@Wharton: You obviously need a good design sense and an imagination and all that. Do you have to have good leadership abilities?
Chazen: As a designer?
Chazen: I would say you need a good partner or partners. You do what you do best and, hopefully, you have people in the company who are experts in what they do, which is pretty much what happened at Liz Claiborne.
Knowledge@Wharton: What would you say your biggest mistake was running the company, or even before you became CEO, during that whole 30-year tenure?
Chazen: Well, with the benefit of hindsight, I would have worked harder to moderate our growth. I think we allowed the growth potential to overtake the company instead of us being in charge of it. It’s a hard thing to explain. But you know, it was so exciting, for me anyway, to report better and better numbers, especially after we went public. I mean I loved it. I loved those quarterly [numbers] that were up 20% or 40%, whatever.
I think, looking back now, that I got carried away, that we should have done things more moderately. I very much appreciate, and I do mention in the book a couple of times, that the Ralph Lauren model was a much better model long range. He’s still around and still cooking, and things are going well. Now of course he’s primarily in the men’s business, which is a much different business and in many ways a much easier business. But he balanced out. I wanted our company to eventually become very important in our own retail business. Unfortunately, we had grown so fast with the department stores and we were so locked in and dependent upon those people — not only for the clothing we made, but for every other division in the company, including jewelry and fragrance and accessories and so on and so forth — that we just couldn’t move anymore. We couldn’t make any moves.
Knowledge@Wharton: Too big, too fast.
Chazen: We did open some stores, but we were never able to be successful because, at that time, we were getting caught in the whole sale mentality of the department stores, which is another thing…. I tried very, very hard to stay out of those messes with the department stores, but it just became impossible.
Knowledge@Wharton: I have one last question and that is about customer service, which you write about in several places in your book. It was clearly a mantra for you and other retailers during those years. You spent a lot of times visiting stores, talking to customers and sales people, trying to understand the market. These days, companies continue to give lip service to customer service, but if you were to poll customers, I’m not sure they would say that service, in industries ranging from retail to telecom to health care, is all that great. How has customer service evolved? Are people, indeed, just paying lip service to it? Is it really a core goal of companies?
Chazen: I think if you go to the top levels of management, they think it’s important and they talk a good game, but they’re not willing to pay for it. So they would like it to happen, but they’re not putting the assets to work to make it happen. In many cases, it’s people, and they don’t want to pay for people. It’s the training of the people; it’s all the things that go into it. I mean talking about the department stores today, once upon a time your mother enjoyed shopping In the department store. It was a nice thing to do. It was a lot of fun. It’s not that way anymore. People — well, they hate it. They say, “I go because I have to,” or words to that effect. There’s nothing nice about it.
A few stores — Neiman Marcus and Saks and, to some degree, Nordstrom — do a reasonably good job. Bloomingdale’s would follow just behind them. But beyond that, there’s nobody. They can’t afford it. The whole infrastructure of what stores used to do, and the staff of people they had to make all of that work, are gone, all of them. So it’s not even just the salespeople, although they’re the most important, the closest to the consumer. But there was a whole infrastructure built around the salespeople. So I guess my answer to your question is, every CEO would like to have terrific service. None of them, or very few, are willing to pay for it.
Knowledge@Wharton: Great, well this has been wonderful. Thank you so much for talking with us about your book.
Chazen: I appreciate it.