Back in the 1980s, every well-dressed yuppie baby wore tiny work clothes from OshKosh B'Gosh Inc. At Hansen's Childrens Shop in posh Lake Forest, Ill., moms snapped up the trademark bib overalls and matching embroidered tops despite prices that hit $60 per outfit. These days, however, store owner Fran Hansen's orders come to less than $500 a season, down from $5,000 in the brand's heyday. "For the newer mother, OshKosh doesn't have the same appeal," she says. "They're going to The Gap."

That isn't news to OshKosh CEO Douglas W. Hyde, who admits the Wisconsin company was "slow to react to consumer changes." Profits plunged from $29.5 million in 1990 to only $7 million last year. Analysts expect a rebound this year, but earnings will still be well below the level reached five years ago.

60-INCH WAISTLAND. What went wrong? First, department stores--OshKosh's biggest distribution channel--cut back on children's clothes in the face of competition from Gap Kids, Kids `R' Us, Lands' End, and others. Then, discounters started imitating OshKosh styles at far lower prices. Says Carolyn Smith, a Columbia (Md.) mother of 10: "You can get good-quality children's clothing at Kmart for $5 and sometimes even less. It was senseless to me to put money into OshKosh."

OshKosh wasn't always so dependent on toddlers. The 100-year-old company got its start making work clothes--in waist sizes up to 60 inches. Children's wear comprised only 5% of sales in 1974. Then came the "echo boom" of the 1980s, and the baby bib took off. Children's sales grew more than eightfold, to $340 million, by 1990, up from $40 million a decade earlier. "This brand just became magic. Our biggest problem was keeping up with demand," says Michael G. Donabauer, director of corporate marketing and planning.

But that magic had a downside. The children's line came to so define OshKosh's image that the company couldn't sell clothes to anyone else. A line of older kids' clothes flopped because 8-year-olds didn't want to wear baby clothes. Attempts to extend the OshKosh name to women's casual clothes and maternity wear also failed. Sears, Roebuck & Co. started a line of OshKosh men's casual clothes under license in 1989 but abandoned it three years later. Even the company's original work wear was in danger of extinction. Despite gains, it still only represents 5% of OshKosh's sales.

But OshKosh is fighting back. Chastened and wiser, the company now accepts that it's in the children's-wear business. Instead of trying to make a comeback in clothes for grown-ups, managers are staying close to the playpen. They're expanding a kids' shoe business and have licensing agreements for children's eyewear and stuffed animals. And Baby B'Gosh, for infants, was added two years ago.

OshKosh is also working to reduce its dependence on department stores. It now has 68 outlet stores carrying first-quality, in-season merchandise and is expanding its recently launched catalog. But it still hasn't figured out a way to tap the growing discount-store market, which has captured an estimated 45% of unit sales of children's clothes. OshKosh can't sell its premium brand there without alienating its longtime department- and specialty-store retailers. After it began selling to Sears and J.C. Penney in the early 1990s, OshKosh lost R.H. Macy's business for a year, and Dillard Department Stores still isn't ordering.

Rival Healthtex Inc. solved the problem by creating a second line for discounters. "With kids'-wear brands, you have to differentiate channels," says President Gary F. Simmons. OshKosh says it has considered similar moves.

Recent news at OshKosh has been more upbeat. New managers have juiced up fashion appeal. Moving more production to the Far East has cut $2.50 off the $10 wholesale price of a bib overall. Department stores in the first quarter reported strong OshKosh sales gains. If it keeps up the momentum, you won't catch OshKosh with its overalls down a second time.

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