Washed Up At Warnaco?

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As long as Wachner kept growing the brands, her flaws were easy to overlook. Her reputation as a taskmistress who demanded perfection from her employees--and torched them if she didn't get it--is legendary. Her friends say it's exaggerated. "I know she's a loyal and caring person. She asks nothing of her people that she doesn't ask of herself," says Richard Grasso, CEO of the New York Stock Exchange.

But below a cadre of long-serving top lieutenants, there has been an unusually high level of staff turnover during her watch. Warnaco insists that it's no different from the usual number of revolving doors on Seventh Avenue, but last week, in the first of many expected defections, the head of Warnaco's Authentic Fitness division, Christopher Staff, jumped ship.

Shareholders find it harder to ignore some of Wachner's more complicated dealings--like her dual role as chairman of both Warnaco and Authentic Fitness for much of the past decade. Wachner and a group of investors bought Warnaco's Speedo swimwear division in 1990 and took it public two years later as Authentic Fitness, only to bring it back to the corporate fold in 1999--a bit of financial gymnastics that helped prop up Wachner's bank account but ultimately loaded Warnaco's balance sheet with an extra $600 million in debt.

When the Calvin Klein underwear business, which Wachner bought outright in 1994, began to mature in the late '90s, Wachner's aggressiveness started to look like a liability. In an attempt to make quarterly numbers, many, including Klein, believe she flooded stores with steeply marked-down merchandise. The eroding economy did the rest.

Despite being pummeled into bankruptcy, Warnaco's brands still have great value. That--and the fact that they are already in deep--is one of the reasons the banks have loaned Warnaco even more money. But if the bankruptcy court decides to sell off assets, rivals such as VF Corp., Kellwood, Jones Apparel and Sara Lee would be potential buyers. Although technically abrogated by the Chapter 11 filing, the Calvin Klein license, at least for the moment, will probably stay with Warnaco until the judge rules on it. So too, most likely, will Wachner. Her contract includes an estimated $25 million golden parachute. Which only goes to show that while fashions may come and go, some things in corporate America never go out of style.