The Power of Focus in Turnarounds

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While Warren Buffett aptly pointed out that turnarounds rarely turn, the rare exceptions often are founded on a basic principle: refocus on the fundamentals.

Let’s look at a less familiar turnaround, Warner Brothers Co. - later Warnaco Group, to see the power of focus to rightsize an organization.

Entrepreneurial Start

DeVer and brother Lucien Warner would transition from doctors in the late 1800s to wellness lecturers. They believed that it was a better idea not be reactive to health problems, but focus on preventing health issues from developing, a novel idea for the time. Their lectures, part P.T. Barnum museum spectacles and self-help rallies, were successes drawing in sizable crowds throughout small towns in New York, Pennsylvania, and Ohio.

As the stress of traveling wore on the brothers, they chose to return to medicine. DeVer would move back to Cortlandville, NY and Lucien to New York City.

Still unsatisfied with life as a doctor, Lucien noticed another opportunity. Women of the day wore corsets made of whalebone and were extremely restrictive. It was not uncommon for women to have misshapen, broken ribs, kidney and other organ problems, which all could be directly tied to wearing corsets. He thought those problems could vanish with loose fitting clothes.

Since no one was creating a less restrictive corset, the brothers decided to create their own. Without any clothing making experience the two brothers would invent an improved corset design that was less restrictive. The first three dozen corsets were quickly sold out on a trip to Ohio and the two knew they were onto something.

The brothers would invest $2,550 ($50k inflation adj.) of their lecture money and start The Warner Brothers Corset Co. The first corset unfortunately named Dr. Warner’s Sanitary Corset was a hit.

Founding Vision

The new design was well ahead of competitors and led to quick growth in a very short period of time. The brother’s competitive edge was frequently tweaking designs, a focus on a small assortment of corsets and quality working conditions.

Workers, seventy percent poor women, were paid above average wages and had the Seaside Institute built for them. There they had access to meals at cost, and other amenities like a library, music room and quality lavatories. Local newspapers and other publications praised the Warners for treating their women workers so well.

By the 1920s, with 4,000 employees, workers were working 55 hour weeks, much less than other factories. Ventilation and sanitation at the factories were industry leading and the company employed inspectors to keep working conditions as safe and clean as possible. There were doctors and nurses on staff for all employees.

Poor Adaptation & Bloat

Lucien and DeVer Warner proved to be astute entrepreneurs. They were fanatics, but, after they left, leadership lost focus. D.H. Warner, DeVer’s son, was a poor leader. D.H. had numerous obligations running more than five companies at once and was on numerous boards. The corset business would suffer.

Changing fashion and the Great Depression wiped out the corset business. Fortunately, the company would eventually be led by D.H.'s son-in-law John Fields.

A focus on new products, namely the new brassiere and ABC cup system, and a highly frugal operation allowed the company to survive. The company prided itself on design innovation, which they were industry leader, and by the 1950s was producing a huge number of products from girdles and bras to menswear and sportswear. Warner Brothers product offering became bloated.

Turnaround

John Fields was not open to new ideas nor did he want to invest in the future. The culture of the organization was poor. The post World War II boom temporarily helped the company, but the boost was ephemeral.

John’s son, John W. Fields and other young executives within the business felt that John Sr.'s management was restricting progress. The board, composed of Warner family members agreed. John W. Fields was appointed CEO in 1958.

John W. Fields cut the fat in their product line and focused on the high end clientele. John said:

“Gone would be the long lines with too many styles. Instead we would present sharply focused lines with a few, highly promotable items appealing to a targeted market. We would become experts at moving our products through, not just into, stores, so that Warner’s would become the most profitable intimate apparel line for the nations retailers."

Notice the similarities with Steve Jobs's return speech to Apple in 1997. Apple got back to the basics. The company went from 350 products to 10.

Warner Brothers restricted its products to upscale department and specialty stores. The focus was on those who would understand and appreciate their design leadership and quality products. John W. Fields was fine with the short-term pain, "If this meant temporary loss of volume, so be it."

The turn in strategy got Warner Brothers employees to get excited in the new direction of the company.

As a result of the new focus on selling differentiated high end products, Warner Brothers could hold average prices. Their design department would be the best in the business. The small number of products allowed Warner Brothers to respond quickly to customer demands. To respond to better comfort Warner Brothers would develop the Lycra fiber in partnership with DuPont.

Warner Brothers focused product line allowed them to adopted modern marketing and heavily targeted their market. The company also focused on helping the sales force employed by retailers who were to sell Warner Brothers products to the public. This was a highly unconventional strategy at the time.

At Warner Brothers the first year of the turnaround was dismal. Sales were down 9% and profits down 28%. The short-term pain was worth it; Warner Brothers (later Warnaco Group), in conjunction with a calculated acquisition strategy, would grow revenues from $27 million in 1958 to $150 million in 1966 when Warnaco Group became publicly traded. The company would be sold in 1986 for $474.5 million.

Conclusion

Turnarounds are hard, but as Warner Brothers Co. shows us, a sharp refocus on the fundamentals is one necessary component to turnarounds. Fanatical focus can increase the odds a company is one of the exceptions to the turnaround rule.

What happened to Warnaco after 1986? It went bankrupt in 2001, and there are many lessons to learn from that failure. That is a story for another day.

Another great example of a turnaround in focus is DaVita Health Partners found here.


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Resources:

Fig Leaves and Fortunes

Warnaco Wikipedia