Warnaco's Linda Wachner has been toppled by hubris and poor governance as much as by changes in the fashion industry.

For a woman who is used to wearing the trousers as well as making and selling them, these must be hard times. On June 11 Linda Wachner had to watch Warnaco, the clothing group that she has run for the past 15 years, file for bankruptcy protection with debts of $3.1bn, some 30 per cent more than the value of its assets. The company, famous for making Calvin Klein jeans, Speedo swimwear and lingerie, is now in the hands of a "chief restructuring officer" and a banking consortium that has provided $600m of new money.

The first female boss of a Fortune 500 company, Ms Wachner was lionised in 1992 by Fortune magazine as America's most successful businesswoman. She soon became not just one of fashion's most powerful executives but also a leading Manhattan socialite.

Soon, however, she may be looking for a job. With Warnaco's shares down from $44 in 1998 to 39 cents, her 22 per cent stake in the company could turn out to be worthless. On June 12, with Warnaco facing delisting, she resigned as a director of the New York Stock Exchange - bizarrely, only a week after she had been re-elected.

This bitter end belies Ms Wachner's early promise. A native New Yorker who attributes her toughness to an attack of scoliosis that put her in a bodycast for a year when she was 11, Ms Wachner started as a bra buyer at Macy's and later helped to rescue Max Factor, a cosmetics group. In 1986, three years after the death of her much older clothing executive husband, she led a hostile buy-out of Warnaco, a struggling clothing firm.

Adding licensed ranges from Calvin Klein and Ralph Lauren, she brought designer clothes to the masses. In 1991 she took Warnaco public. Six years later she bought the company that makes Calvin Klein jeans, putting her in charge of a third of the designer's goods. At the time Mr Klein was happy enough, as annual sales of his stable's underwear shot up sevenfold to $340m.

Warnaco's revenues, boosted by its acquisitions, grew from $590m in 1986 to $2.25bn last year. Over the past couple of years, however, the company has lost market share. In a flat market, Warnaco's sales of underwear dived by 18 per cent in the first quarter of this year; those of Sara Lee, a big rival, grew by six per cent.


"Warnaco's revenues, boosted by its acquisitions, grew from $590m
in 1986 to $2.25bn last year."

This loss of business is largely down to serious strategic errors. Ms Wachner initially underestimated the importance of big discount stores such as Wal-Mart, only to woo them frantically when it was too late, dumping inventory on them at knock-down prices to hit financial targets. This alienated traditional department-store customers and angered Warnaco's licensors.

Mr Klein, whose clothing accounts for about 40 per cent of Warnaco's sales, sued both the company and Ms Wachner, alleging that selling through discounters had cheapened the brand. The two managed to make up in January with a public kiss minutes before the trial was set to open, but the lawsuit was a public-relations disaster for Warnaco.

Empress Linda
Ms Wachner has compounded these mistakes with a personal style that is most kindly described as imperious. During their battle, Mr Klein called her "a cancer" and her language "disgusting". Industry executives recount tales of her dressing down staff. One says unkindly that the only employees who last at Warnaco are those "who were abused as children".

Staff turnover has certainly been high. Over the past five years, Ms Wachner has had three chief financial officers at Authentic Fitness, one of her purchases; there have been five presidents of Calvin Klein Kids in three years. The problem, says one leading American pension-fund manager, is that she has a poor understanding of the business. Kurt Barnard, a retail consultant, goes further: "She led this firm into the mud. Her conduct and miscalculations have been deplorable."

Nor has there been much financial prudence. Warnaco's liquidity problems are partly the result of an over-ambitious acquisition spree. Attempts at "channel-stuffing" (pushing more merchandise on to customers and distributors than they can sell) have also backfired. This combination pushed the group into a net loss of $338m for 2000, against a $98m profit the previous year. It has also unleashed a series of lawsuits from disgruntled shareholders.


"There has not been much financial prudence... Warnaco's liquidity problems are partly the result of an
over-ambitious acquisition spree."

Greed has played a part too. Ms Wachner has always ensured that she was paid well. In 1994, admittedly when Warnaco was doing rather better, she collected $10m - more than Jack Welch, General Electric's legendary boss. Even last year, with Warnaco already in trouble, Ms Wachner was paid $2.8m and continued to enjoy the trappings of success, such as helicopter commutes from her Long Island home. To top it all, she negotiated a massive "golden parachute" worth as much as $44m - four times the firm's current cash - which has in effect made her unsackable.

Warnaco's board, recently voted one of America's worst (by Fortune, ironically), has been unwilling to restrain these excesses. One reason, according to an industry source, is that many of its members depend on Ms Wachner's social connections for lucrative board positions elsewhere. Even the appointment this year of some heavyweights - notably Harvey Golub, former chairman of American Express, and Frank Olson, boss of Hertz -cannot disguise the board's "complete failure of corporate governance", fumes Ted White at CalPERS, America's largest public pension fund.

As for Warnaco, its future looks grim. Whether Ms Wachner clings on or not, her empire is most likely to be broken up into its constituent brands, with shareholders, including her, losing their entire investment. It would, perhaps, be a fitting end to such a tale - but one that, unfortunately, will only hinder the cause of those female executives whose brightest role model she once was.