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Tuesday, 12 June, 2001, 14:59 GMT 15:59 UK
Warnaco files for bankruptcy
Models wearing Ralph Lauren clothes
Warnaco has not pleased some of its upmarket clients
A maker of clothing for such prestigious labels as Calvin Klein, Speedo and Chaps by Ralph Lauren has filed for bankruptcy protection.

Warnaco Group, which made its announcement on Monday, blamed a slowing US economy, a soft retail sector and increased competition for its filing.

The bankruptcy court approved $600m in fresh financing from a consortium of banks including Citibank, J P Morgan Chase and Bank of Nova Scotia to allow the multinational firm to continue its operations.

"With this new financing, we now have the elements in place to put Warnaco back on track toward financial stability," said chairman and chief executive Linda Wachner.

Failed strategy

Analysts blamed Ms Wachner for her strategy of marketing the products Warnaco manufactured to department stores, which during the late 1990s fell out of favour with the American public.

"There's definitely a problem for Warnaco that needs to be understood as a failure of department stores," said analyst Richard Hastings of credit-rating firm Global Credit Services.

Despite a then buoyant US economy, Americans in the late 1990s gravitated toward mass merchandisers and discounters, such as Wal-Mart and Target, where Warnaco saw increasingly smaller profits.

The company has also faced increased competition from manufacturers with more experience in dealing with mass merchandisers and discounters.

Companies such as Sara Lee, Russell and VF also compete for the same discount-store pie. Critics also charge that Warnaco, by focusing on the lower end, including chains such as J C Penney and Federated Department Stores, cheapened the image of the high-end products it was making and marketing.

Calvin Klein row

By turning away from higher-end retail stores, Warnaco alienated some key players in the high-end market, said Kurt Barnard, president of Barnard's Retail Consulting Group.

"It became less interesting to carry those lines because every Tom, Dick and Harry could carry them," Mr Barnard said.

Warnaco's decision to move downmarket was one reason designer Calvin Klein filed a lawsuit against the company and Ms Wachner.

Calvin Klein objected to the selling of products with its name on them at such retailers as Costco Wholesale, a large warehouse-club chain that deeply discounts merchandise to its members.

The case was settled out of court in January. But, according to Ed Nardoza, editor-in-chief at Women's Wear Daily, "The Calvin Klein suit took an emotional toll on the company. It was not good for the public image of Warnaco."

Share trading halted

Warnaco woes come amid an industry-wide slowdown in textile manufacturing for the US market. Underwear-maker Fruit of the Loom filed for bankruptcy protection in December 1999 while Russell has been among those hurt by overcapacity within the industry.

Both companies are undergoing restructuring to allow them to compete more effectively in a tougher trading environment.

Trading in Warnaco shares on the New York Stock Exchange was halted following the filing with the court.

The shares closed at 39 cents on Friday, down from a high of $27 just two years ago.

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01 Jun 01 | Business
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