Washed Up At Warnaco?

You can call Warnaco boss Linda Wachner, 55, lots of things, and within New York City's viper-lipped rag trade many do--ruthless, cruel, abrasive, self-serving, vulgar. And then there are the people who don't like her. But no one ever accused her of being lazy.

As a junior buyer at Foley's Department Stores in Houston in 1968, Wachner would spend her downtime patrolling the streets to spot trends. Early in her career, she revolutionized the lingerie business by merchandising bras on racks rather than hiding them in boxes. In the 15 years since she won Warnaco in a hostile buyout, Wachner has used that aggressive style to remake the dowdy $600 million manufacturer of women's undergarments into a $2.5 billion apparel powerhouse, owner of a stylish collection of brand licenses that includes Calvin Klein, Speedo and Chaps by Ralph Lauren. All that hard work helped make Wachner one of the first women to run a FORTUNE 500 company and a top-paid CEO. Her cozy board of directors has regularly awarded her millions of dollars in annual salary and stock. Everything she has got, Wachner could argue, she has earned.

But last week, in the eyes of her many critics, she got what she really deserved: a very public complete dressing-down. Saddled with some $3 billion in debt and liabilities from Wachner's acquisition spree and stock buybacks, Warnaco filed for bankruptcy protection. Wachner's collection of fashion brands suddenly doesn't look too flattering. The fallout from a tabloid-headlined legal tussle with Calvin Klein, not to mention a slumping retail economy, adds another wrinkle.

Last year, as Warnaco's share of intimate apparel fell before the likes of Intimate Brands (Victoria's Secret), Banana Republic, VF Corp. (Vanity Fair) and Sara Lee (Playtex, Wonderbra), the company lost $338 million. Trading in Warnaco's stock, which reached $44 in 1998, was suspended last week after it tumbled to 39[cents] a share; Wachner resigned from the board of the New York Stock Exchange. Her personal stake in the company has plunged from around $200 million to $1.8 million.

"She got greedy," says a senior executive at one of the many department stores that became increasingly disenchanted with Wachner as she expanded her brands from the stores' exclusive environs to the warehouse floors of membership clubs like Costco, B.J.'s and Sam's Club.

Creditors want to get paid, shareholders want her out, and the SEC is looking into the company's accounting practices, but in defending her turf, Wachner could well redefine tenacious. And she'll have help. Her circle of support includes such corporate heavyweights as former American Express chairman Harvey Golub, a new Warnaco board member, and Citigroup boss Sanford Weill, whose Citibank, along with J.P. Morgan Chase, is part of a collection of banks that will provide Wachner with $600 million in debtor-in-possession financing. That will buy her a few months to try to clean things up. "Under my leadership over the past 15 years, Warnaco has built the best brands in the apparel industry; I do not believe our current circumstances are a reflection on that vision," Wachner said last week in a statement to TIME.

The complexities of manufacturing and distribution have proved too much for many fashion designers, Calvin Klein among them. Getting two legs on a pair of pants seems to be their limit. So Wachner came to the rescue. A master of fashion marketing, she became one of the principal licensees for Klein, making jeans and underwear and giving him 5% to 10% royalties in return. She practically invented the men's fashion-underwear business and grew Klein's total sales from $55 million to $340 million.

By pooling a number of smaller designer names, the theory goes, licensees can take advantage of manufacturing efficiencies and exert more leverage over retailers, leaving individual designers to do what they do best. But in recent years, fashion powers like Gucci, fearful that broad exposure was killing their cachet, have scaled back licensing. Growing a brand without cheapening it, says Liz Claiborne CEO Paul Charron, "can be a delicate balance. Once you go over that cliff, it's almost irretrievable."

And that, at least according to the suit Calvin Klein filed a year ago, is exactly what happened to Warnaco. In that case, settled earlier this year as a hungry New York City press corps waited for the trial to begin, Klein tried to recapture his license, claiming that Wachner was destroying his jeans brand, skimping on quality and flooding the discount bins at merchandise clubs. Of course, Klein didn't seem to have any such complaints until he had trouble finding a buyer--including negotiating with Warnaco--for his suddenly unfashionable company. Warnaco, in its view, was simply responding to market forces, as more consumers continued to bypass department stores and their not-so-exclusive brands. Warehouse clubs are the only thriving retail sector, with an increasingly upscale clientele that's hard to ignore.