Healthtex, Inc.

views updated

Healthtex, Inc.

2303 West Meadowview Road
P.O. Box 21488
Greensboro, North Carolina 27420-1488
U.S.A.
(910) 316-1000
Fax: (910) 316-1022

Division of VF Corporation
Incorporated: 1921 as the Standard Romper Co.
Employees: 1,400
Sales: $80 million (1995 est.)
SICs: 2321 men’s/Boys’ Shirts; 2325 Men’s/Boys’ Trousers & Slacks; 2361 Girls’ /Children’s Dresses & Blouses; 2369 Girls’ /Children’s Outerwear, Not Elsewhere Classified

Healthtex, Inc., a division of the VF Corporation, is one of the leading manufacturers of children’s play wear in the United States. In business since 1921, the company has undergone a number of changes in ownership and management style over the years but has maintained a reputation for producing durable, versatile clothing for children from birth to adolescence.

Company Origins

Healthtex was founded in 1921 by Louis Russek as the Standard Romper Company. Russek had worked previously as a salesman in the children’s garment industry, and company tradition holds that it was his personal charisma and skill as a salesman that created and maintained Standard Romper’s success for almost half a century. Russek ran his small manufacturing concern from a warehouse in Manhattan, producing flannel pajamas, creepers and rompers for infants and toddlers. He sold his products, marketed under the brand name “Stantogs,” directly to small apparel stores in the Northeast.

By the 1930s Standard Romper had expanded their market with a line of sturdy, practical play clothes for children up to age seven and had leased showrooms in Chicago and San Francisco to establish a national presence for the growing firm. The Health-tex brand name was introduced in 1937 in order to emphasize the “healthy” cotton and wool textiles that the company used in their clothing. Health-tex quickly became the dominant brand name for Standard Romper although the label “Health-tex Stantogs” continued to be used through the 1970s. Standard Romper had begun advertising their children’s apparel line in trade publications in the 1930s, but in the 1940s the company extended this campaign directly to consumers through advertisements in such journals as Good Housekeeping and McCall’s. The promotion of the Health-tex brand name directly to the public would prove to be crucial to the long term success of the apparel company.

Growth in the 1950s and 1960s

Standard Romper and the Health-tex brand continued to expand through the 1950s and 1960s. By 1960 Health-tex had become the country’s best known brand of young children’s clothing. Louis Russek, who was responsible for leading the company throughout this period, maintained a policy of avoiding selling to large discount stores which he felt would cheapen the Health-tex brand. Instead, Health-tex clothes were marketed to smaller children’s specialty stores and middle market department stores. By 1967 sales had reached $34 million and the company was operating five manufacturing facilities in Rhode Island, Maine, Alabama and Virginia in addition to the company offices in New York City and showrooms in Dallas, Los Angeles and Chicago.

In 1966, Health-tex launched what would prove to be one of the most successful advertising campaigns ever for a children’s branded clothing line. Called “The Handy Answers to Hard Questions Asked by Children in the Health-tex Years,” the campaign featured colorful print ads which provided concise answers to some of the questions commonly asked by preschool age children. The ads, put together by the AC& R agency, were illustrated with sweet cartoon-like drawings of children dressed in Health-tex clothes and included a postscript which highlighted the versatility and durability of the Healthtex line. Every time a new ad in the series appeared, Standard Romper was deluged with requests for reprints from parents and teachers who were impressed with the clear but cute answers. This ad campaign, which continued through the early 1980s, was largely responsible for making the orange Health-tex logo one of the most recognizable children’s clothing labels in the United States.

The 1970s: The Chesebrough-Pond’s Years

In 1971 Standard Romper officially changed its name to Health-tex, Inc. in acknowledgement of the well established public recognition of the brand name. By this time the Healthtex brand had become so popular that the company was having trouble meeting the demand for its products. The apparel maker was forced to limit the number of retail outlets which could be offered Health-tex goods and to institute a tight allocation program to ensure that each regular customer received a fair share of Health-tex clothing to sell. In the late 1960s the growing Standard Romper went public in order to finance further expansion of manufacturing facilities, and by 1972 annual sales had soared to $64 million.

By the early 1970s, the success of Health-tex began to attract the attention of other corporations in search of profitable acquisitions, and in 1973 Chesebrough-Pond’s, Inc. reached an agreement to acquire the apparel company for a stock swap worth $229 million. Formed in 1955 by the merger of Chese-brough Manufacturing Co. and Pond’s Extract Co., Chesebrough-Pond’s had traditionally been a health and beauty aids company with a number of long standing successful brands like Vaseline, Q-tips and Pond’s. In the late 1960s, under the leadership of CEO Ralph Ward, the company had begun a program of acquisitions which would eventually extend its product range to include such diverse goods as spaghetti sauce, shoes and hospital supplies. Ward sought out Health-tex as a prime acquisition candidate because of the company’s high level of brand recognition combined with its great potential for further growth.

Chesebrough-Pond’s first move on acquiring Health-tex was to build new manufacturing facilities to increase production of the sought after children’s clothing line. Four new plants were added within the first year of the company’s new ownership, and by 1975 production had been increased by 50 percent, allowing the tight allocation program on Health-tex clothes to be relaxed. While new supplies meant that Health-tex sales and earnings rose dramatically, increased costs associated with the start up of new facilities saw profit margins fall. By the mid-1970s the company had run into serious problems with distribution and inventory controls on the rapidly expanding production line. Bottlenecks developed at manufacturing plants, and retailers ended up with long waits for promised merchandise. Although sales climbed to over $150 million in 1978, Health-tex earnings declined for the first time in decades, dropping a dramatic 24 percent over the previous year. Chesebrough-Pond’s brought in a new management team led by Chesebrough Vice-President Robert Breakstone to help straighten out the struggling company.

Breakstone had no previous experience in the children’s apparel industry, but CEO Ward felt that what was needed to improve profits was organization rather than innovation. Breakstone, who had a background in data processing, immediately brought in a team of systems engineers to restructure the company’s inventory control systems and by the end of the decade production and distribution problems had largely been overcome. In addition to the reorganization of management controls, under Breakstone Health-tex introduced a successful line of clothing for children age 7-14 as well as a line of activewear including swimsuits and windbreakers. During the late 1970s and early 1980s department and specialty stores began to look to more fashion-oriented children’s clothing in order to differentiate their merchandise from the mass-produced inexpensive clothes being offered by competitive discounters. Health-tex responded by revamping their design process to include a high level of vertical integration between their knit textile production facilities, which manufactured two-thirds of the fabric used in Health-tex clothing, and their New York based fashion designers. This allowed the company to produce a line of original print and solid coordinates that could be combined in a wide variety of ways. The ability to mix and match Health-tex clothing encouraged brand loyalty on the part of consumers and became a major selling point for the company.

Breakstone’s reorganization and line extensions of the late 1970s proved successful, and by 1983 Health-tex sales had surpassed $300 million with operating profits near $40 million, a more than 30 percent rise in two years. Sales in the new lines for older children and in fashion-oriented clothing were particularly strong. By this time, Health-tex’s share of the once fragmented children’s apparel market had grown to an impressive 35 percent, putting the company well ahead of their closest competitor, the William Carter Company. In 1984, Chesebrough-Pond’s purchased the Imperial Reading Corporation a maker of children’s apparel under the Britannia brand name. This acquisition was incorporated into the company’s Healthtex division and helped increase sales still further. In addition to strong growth in the American market, in 1983 Health-tex won approval from the Canadian Foreign Investment Review Board to open a Canadian subsidiary which would operate Health-tex retail outlets, selling the company’s merchandise directly to consumers.

Company Perspectives:

As Healthtex introduces new products and continues to build its brand, it is quite clear that the company will continue working towards one mission: To be the most responsive kidswear company in understanding and meeting the needs of the consumers and retailers with durable branded everyday playwear while aggressively understanding and attacking competitors for share in our marketplace.

Decline in the 1980s

In spite of the success of their Health-tex subsidiary, parent company Chesebrough-Pond’s ran into difficulties in the mid-1980s. Rising debt and management turnover led to fears of a hostile takeover, and in 1985 CEO Ward made the controversial decision to purchase the ailing Stauffer Chemical Company for $1.25 billion in order to fend off a possible takeover. This purchase increased ChesebroughPond’s debt to a daunting 73 percent of capital, forcing the sale of other assets. A group of investors led by Health-tex president Robert Breakstone had already made an offer to acquire the children’s apparel division from Chesebrough, and in June 1985, a deal was reached between Chesebrough and Breakstone’s management group. Health-tex, which by this time had grown to employ 9,000 workers in 16 plants, was taken private by Breakstone and his fellow investors by means of a leveraged buyout financed largely by heavy borrowing.

Although Breakstone was confident that the burdensome debt caused by the buyout could be repaid from the company’s operating profits, it quickly became clear that Health-tex would be forced to sell assets and close plants. Even before the buyout, profits had declined by ten percent from the peak reached in 1983 because of a failure to keep pace with quickly changing fashions. Now, with no capital to invest in innovative product design, Health-tex’s market share dropped still further. By 1988, the struggling firm had closed all but five of its manufacturing plants and had laid off over half of its workers. Sales fell by more than 50 percent to an estimated $150 million. Unable to make interest payments on its leveraged buyout loan, the Health-tex management group undertook a major reorganization in order to appease worried lenders and avoid bankruptcy. CEO Robert Breakstone resigned and a turnaround specialist, Gilbert C. Osmos, was appointed to replace him. Osmos’s first move was to reduce the number of styles in the Health-tex line and concentrate instead on “fashion basics.” The company also began to look for distribution to the large discount retail outlets like Kids ‘R’ Us that had traditionally been avoided by the image-conscious Health-tex. Most significantly, Osmos retained an agency to look for a buyer for the financially troubled firm.

Revival in the 1990s under VF Corp.

In 1991 Osmos successfully reached an agreement with the VF Corporation to purchase substantially all of the operating assets of Health-tex, Inc. for an estimated $29 million, a fraction of the price paid to Chesebrough-Pond’s by Breakstone’s group only six years earlier. VF Corp. was a Fortune 500 apparel conglomerate whose stable of brands included Lee, Wrangler, Girbaud, Jantzen and Vanity Fair. The new parent moved immediately to replace and reorganize the management of Health-tex, consolidating all management functions into new headquarters in Greensboro, North Carolina. The new management team then undertook a major campaign to revitalize the somewhat tarnished Health-tex brand image. Finding that consumers sometimes mistook Health-tex for a health care firm, VF removed the hyphen from the division name to de-emphasize the “health” component of the brand name. The new Healthtex was also given a new, brighter, logo and a $3 million ad campaign to reintroduce the brand to consumers was launched. In addition to the renewal of the brand, Healthtex management moved to revamp the Healthtex product line after mothers in focus groups complained that the quality and design of Healthtex clothing did not match their expectations for the brand. A new design team using a Computer Aided Design system was put in place to add “cute” to Healthtex basics, and all stages of the manufacturing process were reviewed to determine the source of quality slips. The “mix-and-matchability” of Healthtex clothes, which had been a feature of the line since the late 1970s, was now emphasized at the retail level with displays highlighting possible clothing combinations.

The new, improved Healthtex was an almost immediate success. By 1993 sales were up by almost 80 percent since the acquisition, and the division was able to report “solidly profitable” results for the first time in years. Market share for Healthtex, which had dropped to a dismal 3.5 percent during the nadir of the late 1980s, was also once more steadily gaining ground. Although the 75-year-old brand could no longer boast of the leading position in the children’s branded apparel market, Healthtex clothes were among the top sellers in the industry. By the mid-1990s, under the leadership of division president, Gary Simmons, Healthtex seemed poised to enter another period of prosperity and growth.