Although he runs Liz Claiborne Inc. (LIZ), one of the largest apparel companies in the country, and although his office towers above New York's Seventh Avenue garment district, Paul R. Charron is no fashion plate. Favoring plain blue button-down shirts and silk ties, Charron, 61, is a wing-tip chief executive in a world of strappy high heels and $53 T-shirts.
It's his no-nonsense approach that has helped Charron turn Liz Claiborne into a model of pragmatism in the egocentric fashion business. Throughout the 1980s, the company succeeded by doing one thing well: catering to working women. The line offered a fashionable alternative to mannish suits, and women loved it. When founder Liz Claiborne retired in 1989, the company was the largest supplier to big department stores.
But by the time Charron joined in 1994, after years at Procter & Gamble Co., (PG)General Mills, (VFC), the company had become frayed around the edges. Rivals such as Tommy Hilfiger (TOM) and Jones Apparel Group (JNY) were coming up fast, and Claiborne had been slow to invest in the marketing and technology that would have improved its relationships with department stores. Those stores were in transition, too: Women were spending more money at specialty shops, and chains such as Macy's (FD) and Proffitt's were devoting more space to their own brands. Aside from its core line, the company had little to offer. Charron says the staff was always wondering: "What would Liz be doing?"
Charron had his own ideas. He wanted to apply the Procter & Gamble philosophy of brand management. "At P&G, I was struck by the power of positioning different brands just so," he says. "I've always viewed this as a consumer-products industry. My consumer product happens to be fashion, apparel, and accessories."
For fashionistas, it was a revolutionary concept. But there's no arguing with the results: In the past five years, sales and earnings have both grown an average of 11% a year, with net sales last year hitting $4.2 billion and net income $280 million. That's largely due to a series of acquisitions, mostly of still-entrepreneurial upstarts. Those higher-margin businesses have brought with them cost-cutting opportunities, which Charron credits with the company's increasing profitability: Operating profit margins rose from 9.6% three years ago to 11.1% in 2003. Says Arnold H. Aronson, managing director of retail strategies for Kurt Salmon Associates Inc.: "Liz Claiborne is really a model for brand-building and portfolio management."
Before Charron could bring in new brands, though, he had to improve the company's inner workings. In his first five years, Claiborne redesigned its distribution process and overhauled its computer systems. And Charron changed the measure of performance and the trigger for bonuses to one common metric. That yardstick -- direct operating profit -- is reinforced through quarterly performance reviews and is now imprinted on the Claiborne culture: Two of the company's celebrity designers, Pamela Skaist-Levy and Gela Nash-Taylor of Juicy Couture, call it "dope."
Phase Two -- acquisitions -- began in 1999, when Charron purchased luxury designer Sigrid Olsen's business and Lucky Brand Dungarees. Last year, Charron surprised many when he bought Juicy Couture, a hip-in-Hollywood line of velour track suits and logo T-shirts, for $53 million plus future payouts. In all, a half-dozen more purchases, combined with brands developed in-house, have reduced reliance on the Liz line from 70% of its $2.4 billion in sales in 1997 to 34% of its $4.2 billion in sales last year. Claiborne now has 35 brands, each aimed at slightly different -- still mostly female -- shoppers. It's expanding into retail, too: 20% of sales come from its own stores, including the Mexx chain, which offers trendy, moderately priced clothing.
Charron, who says he's "the ultimate consumerist," has long been fascinated by the question of why people buy what they do. Still, as a young man he thought he would be governor of Kentucky -- not a CEO. After a stint in the Navy, he planned to go to law school and then enter politics. But a longtime friend and current Claiborne board member, Paul E. Tierney, persuaded him to try Harvard Business School, so he packed up his motorcycle and drove north to Boston.
In dealmaking, though, it's not his MBA that matters most. Charron believes personal chemistry is essential to smart buying. When he closes a deal, he almost always wants the founders to stay on. He gives them considerable creative latitude while saving money on behind-the-scenes functions such as legal work and product sourcing. "When we met Mr. Charron, he said: 'Don't let us Liz Claibornize you,"' says Gene Montesano, co-founder of Lucky Brand Dungarees.
Initially, Claiborne wanted to handle shipping, but Montesano and partner Barry Perlman missed touching the clothes. An attempt to use Claiborne district supervisors for Lucky stores didn't work either. "We tried it. We didn't like it," says Montesano, who has taken on those roles again.
So far, Charron's deal-driven strategy seems to be working well, but there are dangers. Rivals are going after the same hot clothing lines, which has naturally upped their prices. And acquisition-fueled expansion is often hard to maintain.
The biggest challenge may be finding someone to take over this more complicated operation. Charron won't retire for several years, but the board is already discussing who could fill his wing tips. That will be key if his management legacy is to prove as lasting as Liz Claiborne's fashion heritage.
By Nanette Byrnes in New York