CHAPTER 11

Negotiating for Anne Klein

As I mentioned briefly in the previous chapter, I hired Bob Oliver to negotiate a partnership agreement with Anne Klein and Gunther Oppenheim for equity in the Anne Klein Company. These conversations went on for about a year before we were able to close the deal and confirm my position as president on behalf of Takihyo Company Ltd. in October 1973. The transaction left Anne and Gunther each with 25 percent of the Anne Klein Company. I held a 50 percent stake, giving Takihyo Company Ltd. majority equity and freeing me as a manager to implement any necessary changes quickly and effectively. Although the Anne Klein Company had a solid customer base and was earning a fair amount, there were also gross inefficiencies. After completing an analysis during the process of purchasing Takihyo’s stake, I knew the different areas in which I had to streamline and tone the Anne Klein Company.

When I get involved in a new endeavor, I want to know how information traverses the corporate structure. I enjoy digging up inconsistencies and finding solutions. Therefore, I wanted to learn more about the nuts and bolts of the business when I first arrived in the United States and began my conversations with Anne and Gunther. I wanted to see how everything in the company worked: from the way that management treated subordinates to how distribution and warehousing functioned. Even if Anne Klein was on its way to becoming a name brand in the field, I did not want to take on debt—or a company that I couldn’t grow. I knew that I would probably need to make significant changes to the organization; however, I wanted to know where, how, and how long it would probably take before signing the final agreements. These points helped also in amassing a list that Oliver could use as ammunition when negotiating price.

In some instances, problems arose that I had never anticipated. For example, I had never before encountered the “not-my-job” syndrome. One of my first visits to Anne Klein’s packing and shipping division opened my eyes and allowed me to see how different Japanese and American companies are. Although I like to believe people are more similar than different, cultural differences are incredibly acute in some areas. There are no unions in Japan, nor is there a significant division between the importance of the sales associate and the executive manager. Of course, there is something of a top-down structure that includes incentive and pay differences, but most of the decisions are made by middle management. Companies, however, act more like unions rather than divisions. Japanese employees have an allegiance to the company and endeavor to find ways to make it better—because the company’s profitability is directly tied to employee performance. If a company prospers, managers and subordinates do too.

However, unions in the United States have rooted themselves in nearly every industry. The Anne Klein distribution center had pickers and packers. The packers would take goods from one side of the warehouse to the other for processing; the pickers would select the garments off the rack, then give them to the packers for shipping. The packers were represented by one workers’ union, and the pickers were considered a separate arm of that union. As per union negotiations, there were to be a certain number of pickers and packers in the warehouse during operating hours.

Although I had previously read about how labor unions worked in the United States, I didn’t quite grasp the union-worker mentality. After making general observations of the warehousing operation at Anne Klein for about 5 minutes, I asked one of the workers why he was sitting around, listening to music and drinking coffee, watching others hard at work. To my chagrin, he commented, “Shippers move the inventory after the packers pack it”—then went back to doing nothing. In this case, the separate unions offered no incentive for building a sense of collaboration in the workplace. The shippers were members of a different union than the packers—and neither had an allegiance to the company that employed them. These people cared only about their unions. Even if the company paid the bills, the union had alienated this worker from the very task at hand. This example illustrates how performance does not necessarily have a tight-knit relationship with compensation. Aside from the complacency that these unions had institutionalized at Anne Klein, an us versus them dichotomy had emerged. One union’s workers did only one job, while another union’s workers did only another. There was no cooperation; therefore, two different tasks or projects—in this particular case, packing and shipping—took more time and cost more money than if everyone were working together, for the company and not for the union. This “it’s-not-my-job” attitude harms so many companies.

While the shipper exemplified this attitude, implicit rifts had emerged in the communication and commitment to the company’s greater aim—conflicts that I felt compelled to address. Larger companies have found ways to change the union mentality more recently. Toyota, for example, continued to hire employees; but instead of hiring task-specific workers from a car painting union or an assembly union (these particular unions may not actually exist, but I use them for illustrative purposes), the company would assign a group of employees to produce a certain number of cars. Many American auto companies have endured slow and unprofitable production processes because cars cannot be shipped without doors or bumpers if that particular group goes on strike. I applaud Toyota for taking the approach it has; the company has brought once-unionized employees one step closer to having an allegiance to their company.

There was little I could do to change labor unions in the fashion industry, but there were many flaws in the original incarnation of the Anne Klein Company that I could address. The company was doing well, but there were unnecessary divisions that needed to be consolidated. A company cannot run without open communication. In this case, merchandising needed financial management. Any and every choice that the design team makes has repercussions in the company’s financial planning and vice versa. Even if the company’s designers are the most brilliant in the world, if they are given free rein to spend for each and every line, the company will end up bankrupt. Therefore, although Anne Klein had a positive bottom line, there were inefficiencies bleeding the company of capital because of a lack of communication.

At times, fashion companies’ financial arms make executive decisions that infringe upon the design team’s preferences—and these misunderstandings can unravel fashion companies. Nothing gets accomplished if these two groups cannot work together. Therefore, the first change I made to Anne Klein was to integrate financial management and accounting divisions with the design and merchandising teams. I felt very strongly about the fact that everyone needed to be on the same page. These groups endured the same kind of division that the shippers and packers did, and they also disregarded the organization that supported their livelihoods. I wanted to reduce these misunderstandings by highlighting how success in the fashion industry necessitates constant attention and collaboration across disciplines rather than against one another. I wanted every one of my employees to work together; I wanted the budgeting department to keep merchandising’s needs in mind and the design team to consider the accounting team’s preferences.

For instance, sometimes certain garments would not reach the department stores at the same time as others from the same collection. Moreover, the department stores try to sell the clothing at discount at the end of every season—thereby hurting their profitability and decreasing the size of the next season’s order. Although it’s nearly impossible to sell an entire season’s worth of clothing, I wanted to find a working solution to increase sales for goods that were not the first to leave the racks and for those that came later in the season.

Designer fashion covers four seasons of clothing over the course of the year: transitions between spring/summer, summer/fall, fall/winter, and a holiday line and/or a resort line of clothing. I wanted to coordinate the tail end of the previous season with the upcoming season at Anne Klein so that we could sell both seasons simultaneously. Department stores return goods that aren’t sold at the end of the season—a practice I wanted to limit. Displaying new goods next to those from the previous season—and selling them in a coordinated fashion—would not only allow consumers to have a greater choice in the look they wished to achieve but also give the manufacturer, distributor, and department stores more opportunity to sell the goods. After all, no one likes to take 5 percent when 15 percent net margin is possible.

Anne Klein’s marketing team didn’t like this idea, though; they wanted each season to have a stark change from one to the other. They had a point; the changeover lines give consumers a perspective on seasons. However, the majority of the garments produced were of weights suitable for only two seasons (fall and spring), and marketing didn’t realize how much this crisp change was costing the company. The methods they were employing also put the department stores in a bad position; they then had to sell at a discount to the recommended retail price. Selling at clearance then came back to hurt us. It caused us to receive a smaller order the following season or year or prompted department stores to offer us our percentage of the goods sold at clearance and not retail prices. Either scenario hurt our bottom line.

My approach challenged the way in which buyers and suppliers treated clothing at the department stores. Although it was unconventional, coordinating design of the ends and beginnings of each season’s line kept merchandise in stores longer and gave consumers more choices to mix and match garments. Not only did Anne Klein increase its profitability as a result, but the department stores did as well. Consumers were also happier because of the increased opportunity to match pieces from last season with the current season’s offerings, which offered new, coordinated looks. If, for example, a consumer found only a top that she liked, but no bottom, she might not buy the top. However, if she came back at the beginning of the following season to find that the top she liked was still available along with a new bottom that she preferred over previous offerings, the department store might then have a sale.

Although it might be easier to form a business partnership than to launch a company from scratch, an existing business also has its challenges. I have made a point in each of my new partnerships to seek out any existing flaws and make all attempts to ensure that the organization doesn’t repeat these mistakes in the future. Missteps will inevitably happen; however, when an issue arises, I want everyone to convene and come up with the right solutions—in unison. Emphasizing the need for lateral communication from one department to another can also open doors for employees. Accounting specialists can become creative with merchandising to find new, economical means by which to sell/show products. Financial planners and executives can home in on some of the decisions made by the design team to manufacture fewer samples and be more selective with materials to limit creative costs (which can skyrocket if left unchecked). Managing a company requires that one use the conflicts and questions of one division to attempt to solve the conflicts and questions of another’s.