6040 Bandini Boulevard
A market leader in the swimwear industry, Authentic Fitness Corp. manufactures and sells swimwear through its own stores and to other retail operators, deriving the bulk of its sales from its widely recognized Speedo label. For years, Speedo was owned by women's lingerie maker Warnaco Group, but in 1990 Speedo and the rest of the Warnaco Group's activewear division was sold to Linda J. Wachner and other investors. The result was Authentic Fitness Corp., an offshoot company with Speedo at its core. Wachner, who also served as chief executive officer of Warnaco while she headed Authentic Fitness, transformed Speedo into a retail concept, opening a chain of stores throughout the United States and in selected foreign locations. As the number of Speedo stores proliferated, Wachner strengthened Authentic Fitness by acquiring other swimwear labels such as Cole, Catalina, Oscar de la Renta, and Anne Cole. By the late 1990s, Authentic Fitness operated roughly 150 Speedo stores.
Wachner and Authentic Fitness's Formation
The formation of Authentic Fitness represented one astute accomplishment in a long series of shrewd business moves effected by the company's creator, the lionized Linda J. Wachner, who made an indelible mark in an area of the business world predominantly populated by male executives. Wachner, in fact, was alone in the upper echelons of corporate America, standing as the only female CEO in the Fortune 500 and the only female to preside over two New York Stock Exchange companies. Not surprisingly, Wachner ascended to such lofty heights by acting aggressively, demonstrating a high degree of determination and decisiveness that sparked her unprecedented rise in the apparel industry. Her singular distinction in an exclusively male domain was a function of her will to win. She was a "savvy negotiator," pundits noted. A "shrewd operator," others remarked. "Wachner," one fashion consultant said, "is like Alexander the Great&mdash⁄e's chosen a very weak marketplace to become the big player."
Wachner, described by a member of the business press as the "diminutive, gray-haired apparel veteran," registered her first major coup in 1986 by taking over the floundering Warnaco Group. It was from this bold move that the foundation for Authentic Fitness's birth was gained. Wachner, who had started her career as an assistant department store buyer during the 1960s, held considerable sway by the 1980s, enough to launch a hostile takeover of the Warnaco Group. Warnaco, which manufactured, among other apparel products, women's lingerie and men's shirts, was in deep trouble at the time, staggering under the suffocating weight of $600 million of debt and sporting a balance sheet that translated into a negative net worth. Despite its myriad problems, Warnaco was Wachner's prize, and she took to her commanding position over the fortunes of the company firmly resolved to turn the struggling enterprise around. This she promptly did, orchestrating a turnaround that earned the accolades of industry analysts. Warnaco's debt was whittled down and its $425 million in sales were boosted up during the ensuing decade, transforming a beleaguered business into a billion-dollar corporation. Wachner achieved her remarkable results by expanding internationally and significantly broadening the distribution channels of Warnaco's business, thereby freeing the company from its dependence on department stores for sales and opening up avenues of growth in the mass market. As this push overseas and into new distribution channels was underway, Wachner also superintended a massive overhaul of Warnaco's many businesses, shedding those properties that were unprofitable and divesting those that could give the company much-needed cash. It was during this exodus of Warnaco businesses that the stage for Authentic Fitness's entrance into the business world was set.
As the 1990s began, the economic climate in the United States was beginning to display the anemic characteristics that would pock the early years of the decade as a time of economic recession. Credit was increasingly hard to come by, and Warnaco needed cash quickly to meet maturing debts. One by one, a procession of Warnaco businesses made their exit, but the company's board of directors and Wachner disagreed on the fate of one business, Warnaco's money-losing swimwear business. With Speedo swimwear at its core, Warnaco's swimwear business was grouped within Warnaco's activewear division, a facet of the overall Warnaco enterprise that the company's directors deemed dispensable. Wachner disagreed, deciding that the swimwear business still had enough potential to keep. Unable to convince Warnaco's directors to retain the swimwear business, Wachner enlisted the financial support of General Electric Credit Corp. and venture capitalists Pentland Ventures Ltd. and in 1990 purchased Warnaco's entire activewear division for $85 million.
The activewear division, which included Speedo and White Stag skiwear, was christened Authentic Fitness Corp. in 1990. Wachner served as CEO of both the newly formed Authentic Fitness and its former parent Warnaco, guiding each toward recovery in distinct directions. For Warnaco, Wachner's panacea was geographic expansion and a headlong move into the mass market; for Authentic Fitness, Wachner's prescription was different, its essence revealed when she took the activewear manufacturer public one year after taking Warnaco public. Authentic Fitness debuted on the New York Stock Exchange at $7 per share in June 1992, when Wachner announced her plans to transform the widely recognized Speedo label into a retail concept. Initially, Wachner's plans for opening Speedo retail outlets were relatively modest. Five stores were to be opened during a six-month span that began in November 1992 when the first Speedo store opened. Wachner's plans quickly escalated after initial success, however, and the ensuing years would witness a prodigious spate of Speedo store openings throughout the United States and on foreign soil.
Speedo Retail Begins in 1992
The first Speedo outlet opened in Los Angeles, an 1,800-square-foot store that featured a complete line of Speedo swimwear and Speedo Authentic Fitness, a new line of activewear designed to be worn in or out of water. Inside, diving mannequins, a seven-foot cascading waterfall, and ceiling decor that replicated an upside-down swimming pool--complete with pool markings, ladders, and tile--lent an aquatic theme to the store. Patrons quickly lined up in front of the Los Angeles Speedo store, the first of five units to be opened by June 1993. Each of these five units were to serve as, in the company's words, "merchandising laboratories" for Authentic Fitness's wholesale division, providing executives with up-to-date information on the buying patterns of the public.
As work was underway to establish five Speedo stores during the first half of 1993, Wachner displayed her talents as a dealmaker by adding important new lines of apparel to dilute Authentic Fitness's overwhelming dependence on the Speedo label to drive sales. The company by this point derived roughly 80 percent of its sales from the sale of Speedo swimwear through its handful of retail outlets and to department stores, but by the end of 1993 the company could also look to other well-known labels for sales support. In August 1993, Wachner signed a licensing agreement with Oscar de la Renta Ltd. for a line of swimwear bearing the designer's label. The following month, Wachner added three strong properties, acquiring the Cole, Catalina, and Anne Cole swimwear labels, each at bargain prices obtained out of bankruptcy court. Also in September Wachner signed an exclusive licensing agreement to be the official sponsor at the 1996 Summer Olympics in Atlanta, rounding out a highly productive month for the 46-year-old CEO.
The string of momentous events in September 1993 did not come to end with the announcement of the Summer Olympics deal, however. While new labels were being added to Authentic Fitness's portfolio during the month, Wachner developed decidedly more ambitious expansion plans for Speedo specialty shops, resolving to open 100 mall-based retail stores during the ensuing two years. The expansion plans called for 10 new stores by the end of October 1993, 40 more stores by the end of 1994, and another 50 stores by the end of 1995, which was expected to provide additional sales of more than $100 million on top of the $133 million collected in 1993.
Month by month, new Speedo stores opened, each adorned with the same decor as the company's first store in Los Angeles. As planned, the increased exposure of the Speedo name through store openings breathed new life into the venerable yet struggling Speedo brand Wachner took charge of in 1990. By the spring of 1994, when there were 15 Speedo stores in operation, the Speedo swimwear line held a hefty 50 percent share of the market for competitive swimwear and its men's water shorts garments held 30 percent of the department store market, up from the 20 percent market share held in 1990. Wachner's strategy was working. She was gaining a dominant position in what characteristically had been a weak marketplace through resolute expansion, and Authentic Fitness was the instrument she used to establish jurisdiction. As the company entered the mid-1990s, it was growing by leaps and bounds.
Between 1993 and 1995, when the frenzied rush to open 100 Speedo stores was underway, Authentic Fitness's revenues doubled as Wachner displayed the qualities that elicited her comparison to Alexander the Great. She was stealing market share from smaller competitors in the fragmented swimwear market by assembling a broad collection of brands that covered nearly every segment of the market. By early 1996, there were 100 Speedo stores in operation, fulfilling the objective Wachner had laid out in late 1993, but she did not stop there. The expansion of Speedo stores continued after the 100th unit was opened. Meanwhile, Wachner set herself to the task of completing her next bold maneuver, and that was the reunion of Warnaco and Authentic Fitness into one corporation.
Failed 1996 Merger
Separated since 1990, Warnaco and Authentic Fitness had each recorded meaningful growth under the stewardship of Wachner, blossoming into vibrant enterprises that were textbook examples of the strength of astute marketing. By early 1996, Wachner wanted to reunite her two success projects under one corporate banner, declaring that the merger would put together "two powerful growth stories and provide the benefits to shareholders." In June 1996, the first step toward the merger was taken when Warnaco proposed an exchange of stock worth an estimated $500 million for Authentic Fitness. The following month, the board of directors of each company agreed to the proposal and a merger agreement was signed that designated Authentic Fitness as a future wholly owned subsidiary of Warnaco. Before the month of July was through, however, the merger was terminated, shelved indefinitely as Authentic Fitness was forced to deal with an unexpected problem.
The merger agreement was terminated because of financial difficulties experienced by Authentic Fitness during the summer of 1996. The company's largest customer, Herman's Sporting Goods, had declared bankruptcy in May 1996 and consequently tarnished the luster Authentic Fitness exuded. As the merger grew imminent, it became clear that Authentic fitness was headed for a financial loss for the fourth fiscal quarter, and the merger was aborted as a result. Although the loss of the company's largest customer was sufficient to scrub the plans for the merger, the financial loss was only a hitch in Authentic Fitness's otherwise glowing record of growth. As the company plotted its course for the late 1990s, with Wachner at the helm, moving past the temporary setback caused by Herman's Sporting Goods' failure occupied the attention of Authentic Fitness executives. The expansion of Speedo stores continued on and the company's commanding market share remained intact, fueling confidence for the years ahead.
Principal Subsidiaries: Speedo Authentic Fitness, Inc.
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