6040 Bandini Boulevard
Authentic Fitness leverages the strength of its brand names and reputation for quality to continue to develop its core business, expand its product offerings into new categories, and enter new channels of distribution.
A market leader in the swimwear industry, Authentic Fitness Corporation manufactures and sells swimwear through approximately 75 Speedo Authentic Fitness stores in the United States and Canada via the Speedo Web site and through various other retail outlets. The company markets its products under the Speedo, Speedo Authentic Fitness, Catalina, Anne Cole, Cole of California, Ralph Lauren, Polo Sport, Oscar de la Renta, Sunset Beach, Sandcastle, and Sporting Life brand names. 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. Authentic Fitness then reunited with Warnaco in 1999 after failed attempts to do so four years earlier. Warnaco, struggling under a huge debt load, declared bankruptcy in 2001. Shortly thereafter, Wachner was ousted from the company.
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, Linda J. Wachner, who made an indelible mark in an area of the business world dominated 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 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--she'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 Corporation 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 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 ten 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. The company plotted its course for the late 1990s with Wachner at the helm. Authentic Fitness executives were focused on moving past the temporary setback caused by Herman's Sporting Goods' failure.
A Reunion in 1999
Indeed, the company recovered well from the 1996 blunder. By 1999, it had grown at a compounded annual growth rate of 21.7 percent over the past nine years and there were over 145 Speedo retail locations. The firm also operated and sold swimwear and accessories through the Speedo Web site. That year, company sales reached $410.8 million while net income was $21.9 million. With Authentic Fitness performing solidly, Wachner once again set plans in motion to join with Warnaco.
Unlike Authentic Fitness, however, Warnaco's financial situation was showing signs of weakness. During the previous year, the company had posted a lost of $32.2 million. Despite the warning signals--including slowing sales at department stores--Wachner and company shareholders rallied behind the merger efforts. Finally in December 1999, Warnaco and Authentic Fitness were reunited in a $540 million deal.
Warnaco's faltering financial position continued to worsen as the company entered the new millennium. During 2000, Warnaco secured revenues of $2.2 billion but also shored up losses to the tune of $338 million. Its debt load had increased to $1.84 billion, while company filings indicated that it had just $11 million in cash reserves. Speculation rose that the firm's major business units--its Calvin Klein line, the Authentic Fitness unit, and its Warner's and Olga bra line--would be sold in order to fend off bankruptcy.
By June 2001, however, Warnaco was forced to declare Chapter 11 bankruptcy. The firm maintained that its Authentic Fitness unit would stay intact but that expansion would be curtailed and various store locations closed. Wachner's future, on the other hand, was a different story. In November, the industry veteran was relieved from her duties.
Roger Williams was named president of Authentic Fitness in December 2001. While Warnaco's original reorganization plans included the possible sale of the swimwear business, Williams and Warnaco's new CEO Tony Alvarez instead eyed the company for its potential to pull Warnaco out of bankruptcy. As such, Authentic Fitness launched an intense branding campaign. The company revamped its junior swimwear division and began forming strategic partnerships, including one with cosmetics firm Hard Candy to manufacture the Hard Candy Bikini. Authentic Fitness also began manufacturing swimsuits under a private label for Victoria's Secret.
Authentic Fitness, which had posted losses in 2001, appeared to be back on track during 2002. Warnaco continued to struggle financially, however, and had yet to emerge from Chapter 11 by mid-2002. Because of Warnaco's financial instability, the swimwear company's future was indeed up in the air. Nevertheless, as the sole licensee for the Speedo brand in North America, it held tight to its market position in competitive swimwear and would no doubt continue to do so despite its parent company's woes.
Principal Competitors: NIKE Inc.; Quiksilver Inc.; VF Corporation.
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