101 North Wacker Drive
Hartmarx is a manufacturer and marketer of apparel products created to meet the dress and casual needs of consumers. The Company is focused on providing competitive values through cost effective sourcing. Providing a wide variety of apparel products, Hartmarx markets its brands through an extensive range of retail channels.
Hartmarx Corporation is a holding company for a number of clothing companies, including its flagship brands of men's tailored clothing (suits, sportcoats, and slacks): Hart Schaffner & Marx and Hickey-Freeman. From its tailored beginnings, Hartmarx expanded into men's and women's sportswear--including golfwear, shirts and ties, and women's career apparel. A maker and marketer but no longer a retailer of apparel, Hartmarx owns other brands such as Sansabelt and Racquet Club and offers products under such licensed brands as Jack Nicklaus, Bobby Jones, Tommy Hilfiger, Burberry, Perry Ellis, Evan-Picone, and Pierre Cardin. The history of Hartmarx was, in large part, noneventful until the 1960s, when wise merchandising decisions brought the venerable Hart Schaffner & Marx name to a broader market. This was followed by strong internal growth in the 1970s and an initially successful acquisition campaign in the 1980s. But by 1990 the once profitable company was deeply in debt and losing money, primarily because of its massive network of clothing shops located mostly in shopping malls. In response, Hartmarx's management began a massive restructuring of the business, including the divestment of all of its retail operations by 1995.
Hartmarx traces its history to 1872 when, immediately after the great Chicago Fire, brothers Harry and Max Hart pooled their life savings of $2,700 and opened a small men's clothing store on Chicago's State Street. 'Harry Hart and Brother' opened a second store a few blocks south in 1875. Max Hart became fascinated with labeling after working as a delivery boy for his father's butcher shop. His job, applying labels to delivery packages, taught him the importance of branded products. At the clothing store, he pursued this interest by asking tailors to affix Hart brand labels to the clothes they sold. A short time later, a downstate Illinois merchant expressed an interest in the label and asked to sell Hart suits.
In 1879 the Harts' brothers-in-law, Levi Abt and Marcus Marx, joined the partnership, which was renamed Hart, Abt and Marx. The small shop continued to prosper on sales to businessmen in Chicago's Loop financial district.
At the same time, however, the wholesale business began to grow, overtaking the retail operations. On the strength of wholesale production, Hart, Abt and Marx won contracts to produce clothing for the U.S. military. This introduced the partners to prefabricated off-the-rack clothing and marked their entry into the ready-made suit trade.
Marx and Abt left the business in 1887. A cousin named Joseph Schaffner took their place, however, whereupon the company was renamed Hart Schaffner & Marx. Schaffner was an excellent businessman who oversaw much of the early growth of the small firm.
The industrial revolution added newer, more efficient tailoring methods that reduced the time to make a suit. With such favorable economics, many suit manufacturers entered the catalog business, introducing their own brands. Hart Schaffner & Marx responded in 1897 by running national advertisements for its products and began selling off-the-rack suits through a variety of distributors. Hart Schaffner & Marx commissioned well-known illustrators to paint pictures for style books and retail posters. These ads portrayed the company's latest fashions in rich surroundings, establishing Hart Schaffner & Marx as a premium brand.
By 1906 the company had branched into sizes for men who were unusually tall, short, or overweight. Hart Schaffner & Marx thus became a mass-market brand, enabling virtually any man to have a fine quality suit at a lower price than a custom tailored suit. On May 10, 1911, after years of steady growth, the partnership was incorporated.
In 1917 the company introduced the first tropical worsted suits. Hart Schaffner & Marx's production facilities also were pressed into service during World War I making uniforms.
Although it operated a number of small retail outlets of its own in 1926, the company expanded its retail presence considerably with the acquisition of Wallach's, a large clothing chain. Hart Schaffner & Marx continued its expansion over the next 30 years by taking over the operations of numerous other smaller retailers, opening new stores, and placing a strong emphasis on advertising.
Postwar Acquisition Spree Followed by Internal, Brand-Focused Growth
After producing a large quantity of uniforms for the government again during World War II, Hart Schaffner & Marx began making bolder acquisitions. In 1954 the company took over Society Brand, a major manufacturing house. Ten years later Hart Schaffner & Marx added Hickey-Freeman, a premium brand. The company acquired Jaymar-Ruby in 1967 and, in 1969, added M. Wile. In fact, Hart Schaffner & Marx made so many acquisitions between 1966 and 1969 that the U.S. Justice Department became involved. The government filed suit against the company on antitrust grounds, complaining that Hart Schaffner & Marx had established an anticompetitive domination of the clothing market. The company settled with Justice Department lawyers by signing a consent decree in which Hart Schaffner & Marx was obliged to sell off several recent acquisitions and promised to purchase no more companies, without court approval, for a period of ten years. This agreement took effect in June 1970.
The consent decree was not a serious setback for Hart Schaffner & Marx. Instead of external growth, the company merely changed its emphasis to internal growth. This was actually a better strategy because the company had launched several successful lines during the 1960s that required attention.
One night in 1966, television host Johnny Carson walked on stage to deliver his nightly 'Tonight Show' monologue wearing a turtleneck sweater and a collarless Nehru jacket. Within a week the nation's stores had been depleted of both items, and Carson had unwittingly established himself as a fashion trendsetter. Celebrity endorsements were not new, but the episode demonstrated to many the value of using stars to introduce new styles. The idea was not lost upon Hart Schaffner & Marx, which got an agreement to market a new casual line of suits under the Johnny Carson name and, later, under Jack Nicklaus's name.
Hart Schaffner & Marx introduced the Austin Reed brand name during the 1960s. In 1974 the company rolled out a line of tailored clothing under the Christian Dior name, followed by Nino Cerruti, Allyn St. George, and Playboy. These new lines were created under contract to their designer namesakes and proved highly successful as fashion leaders.
Also in 1974, as part of its divestiture, Hart Schaffner & Marx sold 20 stores to Hughes & Hatcher, a rival chain of shopping mall clothing stores. In September 1979, nearly a year before the expiration of the consent decree, Hart Schaffner & Marx acquired Intercontinental Apparel under special agreement for $2.9 million. Intercontinental was the U.S. licensee of the Pierre Cardin line and brand name. With strong brand names and a wide variety of styles available, Hart Schaffner & Marx had built a very solid position in the market.
When the terms of the consent decree expired in June 1980, Hart Schaffner & Marx, with 275 retail outlets, immediately embarked on an acquisition binge. The company took over Bishop's men's shops in September 1980 and branched into women's clothing by taking over the Country Miss chain for $12.5 million in January 1981.
While Hart Schaffner & Marx had registered strong gains of six percent annually, the market was growing at twice that rate. Despite the strength of its Hickey-Freeman and Christian Dior lines, the company was being ravaged by discount brands, which had become especially popular during the recessions of the 1970s. The company's own Playboy line flopped because 'men didn't want bunnies on their buttons' and may have regarded the logo as tired and pretentious.
Thus, on December 1, 1982, after losing out significantly to discount brands, Hart Schaffner & Marx acquired the Kuppenheimer Manufacturing Company for $25.8 million. Kuppenheimer, a major factory retail operation with 41 outlets, dominated the market of inexpensive suits, defined as those costing $200 or less, and had been a strong competitor of Hart Schaffner & Marx. The acquisition gave Hart Schaffner & Marx a greater piece of the $4 billion suit market, 80 percent of which was controlled by discount brands such as Kuppenheimer. It also enabled the company to avoid diluting its premium brands with the lower-scale Kuppenheimer line.
The company acquired Briar Neckwear in July 1985 and in December 1986 acquired the casual suit jacket manufacturer H. Ortisky. The following year Hart Schaffner & Marx took over the nine-store Detroit retail chain Anton's, and in 1988 purchased Boyd's, a small retail chain in St. Louis, and the Washington, D.C.-based upscale retailer Raleigh's. In February 1989 the company also added the Biltwell Company, a clothing manufacturer.
Along with the strong external expansion carried out during the 1980s, Hart Schaffner & Marx carried out a large modernization campaign aimed at updating equipment and processes. The company also underwent a profound restructuring. The business of Hart Schaffner & Marx had grown so large that the flagship company in the organization was unable to run it efficiently. In effect, Hart Schaffner & Marx had become an enterprise consisting of more than a dozen separate little companies, each with its own administrative structure. To better coordinate the activities of these independent little operations, the company decided to create a new parent organization.
In keeping with voguish corporate names such as Navistar, Unisys, Ameritech, and Primerica, a team of senior executives led by John R. Meinert settled upon the truncated name Hartmarx Corporation, which allowed the company to preserve the exclusivity of its Hart Schaffner & Marx name. When the name change was made official on April 13, 1983, the new holding company took possession of Hart Schaffner & Marx and its numerous subsidiary companies. Along with the creation of Hartmarx came a reorganization plan aimed at eliminating 23 redundant administrative functions within the company (roughly 800 jobs) and a campaign to redecorate the Kuppenheimer outlets. These efforts, which ate up more than $41 million in earnings by 1987, went $10 million over budget and yielded far less than the projected $12 million annual savings.
Amidst this crisis, on October 27, 1986, Chairman and CEO Richard P. Hamilton resigned suddenly and without official explanation. The company was stunned by Hamilton's immediate departure and analysts speculated that Hamilton's disagreements over the company's strategy compelled him to leave.
He was replaced by a troika consisting of Meinert, Harvey Weinberg, a former head of the retailing group, and Elbert Hand, who headed the company's manufacturing group. The new leadership team pressed ahead with the consolidation effort, centralizing purchasing, payroll, credit, and distribution at offices in Chicago, Dallas, and Columbus, Ohio. Having increased operating efficiency, the company now had only to increase its sales volume.
Meanwhile, Hartmarx struggled to expand Kuppenheimer and began advertising promotions with a fictional 'Mr. Kuppenheimer' character. The timing could not have been worse. As the nation emerged from the 1982-85 recession, consumers' tastes went back to more expensive name brands. Despite Kuppenheimer's facelift, men avoided the stores.
Generally, however, sales from all 440 of the company's retail outlets were up, in large part because of the success of the conservatively tailored Hickey-Freeman and Hart Schaffner & Marx lines, as well as new brands such as Racquet Club and Henry Grethel, which Hartmarx purchased from Manhattan Industries. This enabled the company to obtain and service financing necessary to acquire the companies it had. But, while the balance sheet remained strong, debt remained high. When sales began to lag, profits fell quickly. By 1990 impatient investors had begun to abandon Hartmarx, beating its share price to 18, about half of what it had been only three years earlier.
Major 1990s Restructuring
Weinberg attempted to stem losses by bringing on John Eyler, a former CEO of Kohl's Main Street chain. Eyler recommended price decreases on several high-end suit lines and pressed for greater utilization of the computer network. In 1991 Hartmarx borrowed the superstore ploy from The Limited, opening as many as three retail stores in a single, larger space. This brought down rent fees and allowed the company to run a single back office. Still, Hartmarx proved unable to take advantage of the economies it had set up. The manufacturing and licensing operations remained strong, but the retail business incurred heavy losses. In January 1992 the company suspended dividends for the first time in 53 years.
Faced with a fifth consecutive year of lowered returns, Hartmarx finally took action on September 18, 1992. On that day, the company announced that it had sold its HSSI retail stores subsidiary for $43 million, basically exiting the retail store business. The Kuppenheimer operation, however, with its 120 retail operations, remained intact. Then, on September 21, the company announced the issue of $30 million in new shares to raise cash, and on October 10 it announced the closure of its Old Mill/Country Miss outlet stores. Hartmarx also began negotiations with its creditors to gain more favorable terms on its outstanding obligations.
The $30 million capital infusion came from a single company called Traco International N.V., controlled by Saudi businessman Abdullah Taha Bakhsh. Traco (the name is a conglomeration of "trading and construction") thus emerged with a 22 percent stake in Hartmarx. Little was known about Bakhsh or his company, and Hartmarx directors voiced concern over his motives but were content that he had helped the company avoid bankruptcy. An additional 21.4 percent of Hartmarx shares were controlled by Taiba Corporation, owned by Abdel Mohsen Y Abu Shukhaiden, another Middle Eastern businessman about whom little was known. Taiba authorized Traco to vote its shares, giving that company nearly 44 percent voting rights.
The decision to exit the retail business was necessary and long overdue. As long as Hartmarx was in the retail business, it could not sell its products to hundreds of other retailers. In effect, it was in competition with potential customers. Now just a marketing and manufacturing company, Hartmarx counted on high cash flow from these profitable businesses to offset investor concern with its high debt. Under the direction of Hand, as chairman and CEO, and Homi Patel, president and chief operating officer, Hartmarx also strategically refocused its business on apparel other than suits and boldly expanded its promising sportswear lines, particularly golfwear. Hartmarx's Bobby Jones upscale golfwear line, which made its national debut in 1991, had proved almost immediately successful. The company soon added a second golfwear line under the Jack Nicklaus label, with these items selling at more affordable prices than those carrying the Bobby Jones label. Both lines were sold mostly through pro shops. By the mid-1990s Hartmarx was selling $50 million of golfwear per year.
Meanwhile, several more operations were sold off, including the company's 14 Sansabelt outlets and its 37.5 percent interest in Robert's, a retail chain in Mexico City. Hartmarx completed its exit from the retail sector in 1995 when it sold its 91-store Kuppenheimer unit and two tailored clothing factories to a private investment group headed by Gene Kosack, former president and chief executive of NBO Stores Inc. The company also made major changes in its sourcing system, closing ten domestic factories and shifting production to the Far East, Mexico, and Costa Rica. By this time, Hartmarx had returned to profitability, reduced its debt by 40 percent, and increased shareholder equity by 82 percent. Although the company's turnaround was far from complete, its move to expand its sportswear lines was a case of nearly perfect timing, as the 1990s were marked by increasingly casual dress, especially in the workplace. Hartmarx found particular success with its Tommy Hilfiger line of casual businesswear. Despite the attention placed on the sportswear area, tailored clothing was not being ignored. Two new lines, Perry Ellis and Daniel Hechter, were introduced; the latter was positioned within the popular-priced segment and the former resided within the moderate sector. Still, by the mid-1990s, approximately one-quarter of sales came from outside the tailored clothing lines.
Over the course of its three-year restructuring, Hartmarx's revenues were cut by more than half, dropping from $1.22 billion in 1991 to $595.3 million in 1995. Growth returned to the company agenda, and in late 1996 Hartmarx paid about $27 million to acquire the bankrupt Plaid Clothing Group, Inc., a maker and marketer of men's tailored suits, sportcoats, and slacks under the licensed brands Burberry, Claiborne, and Evan-Picone, as well as under such brands as Palm Beach and Brannoch, which it owned. In November 1998 Hartmarx acquired the wholesale apparel business of Pusser's Ltd., including the Pusser's of the West Indies line of nautical and tropical sportswear and outerwear. Through a December 1998 purchase, Hartmarx gained Coppley, Noyes and Randall Limited, a leading Canadian maker of men's tailored clothing. In August of the following year, the company acquired Royal Shirt Company, a Canadian maker of women's and men's dress and sports shirts.
Hartmarx also made a return of sorts to retailing in late 1998. The company earlier that year reached an agreement with licensee David Johnson, president of Rancho Santa Fe, California-based Golf Specialty Retail Stores Inc., whereby Johnson would launch a chain of Bobby Jones upscale golfwear boutiques. Johnson was the owner and operator of the chain, which debuted in November 1998 with the first Bobby Jones store in Beverly Hills, California. Hartmarx hoped to gain brand recognition and increased sales volume out of the endeavor and had plans for a similarly structured Jack Nicklaus chain. In addition, the company successfully launched a third golfwear brand in the late 1990s: Desert Classic, a popular-priced private label available exclusively at Sears, Roebuck & Co. stores.
With the men's suit industry likely to remain stagnant into the early 21st century, Hartmarx was maintaining its strategy of beefing up its casual clothing offerings. Toward a goal of increasing sales of sportswear to one-third of overall sales, Hartmarx was even considering adding jeans to its ever more diverse product portfolio. During 1999 the company announced that it would cut back its presence in the moderate-priced $200 to $300 suit sector, while emphasizing its upper-end tailored clothing, which was more profitable. The bottom line was clearly a major concern of Hand and Patel, as evidenced by their setting a goal of recording earnings-per-share increases of 20 percent per year starting in 2000. Summarizing Hartmarx's future direction, Hand told shareholders at the 1999 annual meeting: "This company has to be known as an apparel enterprise, not as a suit company."
Principal Subsidiaries: Coppley Apparel Group Limited (Canada); Direct Route Marketing Corporation; Hart Schaffner & Marx; American Apparel Brands, Inc.; National Clothing Company, Inc.; Winchester Clothing Company; Hickey-Freeman Co., Inc.; International Women's Apparel, Inc.; Jaymar-Ruby, Inc. (dba Trans-Apparel Group); Anniston Sportswear Corporation; E-Town Sportswear Corporation; Rector Sportswear Corporation; Biltwell Company, Inc.; Men's Quality Brands, Inc.; M. Wile & Company, Inc. (dba Intercontinental Branded Apparel); Intercontinental Apparel, Inc.; Novapparel, Inc.; Plaid Clothing Company, Inc.; Pusser's of the West Indies Apparel Company; Royal Shirt Company (Canada); Universal Design Group, Ltd.
Principal Operating Units: Men's Apparel Group; Women's Apparel Group.
Principal Competitors: Ashworth, Inc.; Brooks Brothers; The Gap, Inc.; Haggar Corp.; Lands' End, Inc.; Levi Strauss & Co.; Nautica Enterprises, Inc.; Oxford Industries, Inc.; Perry Ellis International, Inc.; Phillips-Van Heusen Corporation; The Pietrafesa Corporation; Polo Ralph Lauren Corporation; Tropical Sportswear Int'l Corporation.