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Hartmarx Corporation

Hartmarx Corporation

101 North Wacker Drive
Chicago, Illinois 60606
U.S.A.
Telephone: (312) 372-6300
Fax: (312) 444-2695
Web site: http://www.hartmarx.com

Public Company
Incorporated:
1911 as Hart Schaffner & Marx
Employees: 9,200
Sales: $725.0 million (1998)
Stock Exchanges: New York Chicago
Ticker Symbol: HMX
NAIC: 315222 Mens and Boys Cut and Sew Suit, Coat, and Overcoat Manufacturing; Mens and Boys Cut and Sew Shirt (Except Work Shirt) Manufacturing; Mens and Boys Cut and Sew Trouser, Slack, and Jean Manufacturing; 315228 Mens and Boys Cut and Sew Other Outerwear Manufacturing; 315232 Womens and Girls Cut and Sew Blouse and Shirt Manufacturing; 315233 Womens and Girls Cut and Sew Dress Manufacturing; 315234 Womens and Girls Cut and Sew Suit, Coat, Tailored Jacket, and Skirt Manufacturing; 454110 Electronic Shopping and Mail-Order Houses; 551112 Offices of Other Holding Companies

Hartmarx Corporation is a holding company for a number of clothing companies, including its flagship brands of mens tailored clothing (suits, sportcoats, and slacks): Hart Schaffner & Marx and Hickey-Freeman. From its tailored beginnings, Hartmarx expanded into mens and womens sportswearincluding golfwear, shirts and ties, and womens career apparel. A maker and marketer but no longer a retailer of apparel, Hartmarx owns other brands such as Sansabelt and Racquet Club and offers products under such licensed brands as Jack Nicklaus, Bobby Jones, Tommy Hilfiger, Burberry, Perry Ellis, Evan-Picone, and Pierre Cardin. The history of Hartmarx was, in large part, noneventful until the 1960s, when wise merchandising decisions brought the venerable Hart Schaffner & Marx name to a broader market. This was followed by strong internal growth in the 1970s and an initially successful acquisition campaign in the 1980s. But by 1990 the once profitable company was deeply in debt and losing money, primarily because of its massive network of clothing shops located mostly in shopping malls. In response, Hartmarxs management began a massive restructuring of the business, including the divestment of all of its retail operations by 1995.

Early Decades

Hartmarx traces its history to 1872 when, immediately after the great Chicago Fire, brothers Harry and Max Hart pooled their life savings of $2,700 and opened a small mens clothing store on Chicagos State Street. Harry Hart and Brother opened a second store a few blocks south in 1875. Max Hart became fascinated with labeling after working as a delivery boy for his fathers butcher shop. His job, applying labels to delivery packages, taught him the importance of branded products. At the clothing store, he pursued this interest by asking tailors to affix Hart brand labels to the clothes they sold. A short time later, a downstate Illinois merchant expressed an interest in the label and asked to sell Hart suits.

In 1879 the Harts brothers-in-law, Levi Abt and Marcus Marx, joined the partnership, which was renamed Hart, Abt and Marx. The small shop continued to prosper on sales to businessmen in Chicagos Loop financial district.

At the same time, however, the wholesale business began to grow, overtaking the retail operations. On the strength of wholesale production, Hart, Abt and Marx won contracts to produce clothing for the U.S. military. This introduced the partners to prefabricated off-the-rack clothing and marked their entry into the ready-made suit trade.

Marx and Abt left the business in 1887. A cousin named Joseph Schaffner took their place, however, whereupon the company was renamed Hart Schaffner & Marx. Schaffner was an excellent businessman who oversaw much of the early growth of the small firm.

The industrial revolution added newer, more efficient tailoring methods that reduced the time to make a suit. With such favorable economics, many suit manufacturers entered the catalog business, introducing their own brands. Hart Schaffner & Marx responded in 1897 by running national advertisements for its products and began selling off-the-rack suits through a variety of distributors. Hart Schaffner & Marx commissioned well-known illustrators to paint pictures for style books and retail posters. These ads portrayed the companys latest fashions in rich surroundings, establishing Hart Schaffner & Marx as a premium brand.

By 1906 the company had branched into sizes for men who were unusually tall, short, or overweight. Hart Schaffner & Marx thus became a mass-market brand, enabling virtually any man to have a fine quality suit at a lower price than a custom tailored suit. On May 10,1911, after years of steady growth, the partnership was incorporated.

In 1917 the company introduced the first tropical worsted suits. Hart Schaffner & Marxs production facilities also were pressed into service during World War I making uniforms.

Although it operated a number of small retail outlets of its own in 1926, the company expanded its retail presence considerably with the acquisition of Wallachs, a large clothing chain. Hart Schaffner & Marx continued its expansion over the next 30 years by taking over the operations of numerous other smaller retailers, opening new stores, and placing a strong emphasis on advertising.

Postwar Acquisition Spree Followed by Internal, Brand-Focused Growth

After producing a large quantity of uniforms for the government again during World War II, Hart Schaffner & Marx began making bolder acquisitions. In 1954 the company took over Society Brand, a major manufacturing house. Ten years later Hart Schaffner & Marx added Hickey-Freeman, a premium brand. The company acquired Jaymar-Ruby in 1967 and, in 1969, added M. Wile. In fact, Hart Schaffner & Marx made so many acquisitions between 1966 and 1969 that the U.S. Justice Department became involved. The government filed suit against the company on antitrust grounds, complaining that Hart Schaffner & Marx had established an anticompetitive domination of the clothing market. The company settled with Justice Department lawyers by signing a consent decree in which Hart Schaffner & Marx was obliged to sell off several recent acquisitions and promised to purchase no more companies, without court approval, for a period of ten years. This agreement took effect in June 1970.

The consent decree was not a serious setback for Hart Schaffner & Marx. Instead of external growth, the company merely changed its emphasis to internal growth. This was actually a better strategy because the company had launched several successful lines during the 1960s that required attention.

One night in 1966, television host Johnny Carson walked on stage to deliver his nightly Tonight Show monologue wearing a turtleneck sweater and a collarless Nehru jacket. Within a week the nations stores had been depleted of both items, and Carson had unwittingly established himself as a fashion trendsetter. Celebrity endorsements were not new, but the episode demonstrated to many the value of using stars to introduce new styles. The idea was not lost upon Hart Schaffner & Marx, which got an agreement to market a new casual line of suits under the Johnny Carson name and, later, under Jack Nicklauss name.

Hart Schaffner & Marx introduced the Austin Reed brand name during the 1960s. In 1974 the company rolled out a line of tailored clothing under the Christian Dior name, followed by Nino Cerruti, Allyn St. George, and Playboy. These new lines were created under contract to their designer namesakes and proved highly successful as fashion leaders.

Also in 1974, as part of its divestiture, Hart Schaffner & Marx sold 20 stores to Hughes & Hatcher, a rival chain of shopping mall clothing stores. In September 1979, nearly a year before the expiration of the consent decree, Hart Schaffner & Marx acquired Intercontinental Apparel under special agreement for $2.9 million. Intercontinental was the U.S. licensee of the Pierre Cardin line and brand name. With strong brand names and a wide variety of styles available, Hart Schaffner & Marx had built a very solid position in the market.

Acquisitive 1980s

When the terms of the consent decree expired in June 1980, Hart Schaffner & Marx, with 275 retail outlets, immediately embarked on an acquisition binge. The company took over Bishops mens shops in September 1980 and branched into womens clothing by taking over the Country Miss chain for $12.5 million in January 1981.

While Hart Schaffner & Marx had registered strong gains of six percent annually, the market was growing at twice that rate. Despite the strength of its Hickey-Freeman and Christian Dior lines, the company was being ravaged by discount brands, which had become especially popular during the recessions of the 1970s. The companys own Playboy line flopped because men didnt want bunnies on their buttons and may have regarded the logo as tired and pretentious.

Company Perspectives:

Hartmarx is a manufacturer and marketer of apparel products created to meet the dress and casual needs of consumers. The Company is focused on providing competitive values through cost effective sourcing. Providing a wide variety of apparel products, Hartmarx markets its brands through an extensive range of retail channels.

Thus, on December 1, 1982, after losing out significantly to discount brands, Hart Schaffner & Marx acquired the Kuppenheimer Manufacturing Company for $25.8 million. Kuppenheimer, a major factory retail operation with 41 outlets, dominated the market of inexpensive suits, defined as those costing $200 or less, and had been a strong competitor of Hart Schaffner & Marx. The acquisition gave Hart Schaffner & Marx a greater piece of the $4 billion suit market, 80 percent of which was controlled by discount brands such as Kuppenheimer. It also enabled the company to avoid diluting its premium brands with the lower-scale Kuppenheimer line.

The company acquired Briar Neckwear in July 1985 and in December 1986 acquired the casual suit jacket manufacturer H. Ortisky. The following year Hart Schaffner & Marx took over the nine-store Detroit retail chain Antons, and in 1988 purchased Boyds, a small retail chain in St. Louis, and the Washington, D.C.-based upscale retailer Raleighs. In February 1989 the company also added the Biltwell Company, a clothing manufacturer.

Along with the strong external expansion carried out during the 1980s, Hart Schaffner & Marx carried out a large modernization campaign aimed at updating equipment and processes. The company also underwent a profound restructuring. The business of Hart Schaffner & Marx had grown so large that the flagship company in the organization was unable to run it efficiently. In effect, Hart Schaffner & Marx had become an enterprise consisting of more than a dozen separate little companies, each with its own administrative structure. To better coordinate the activities of these independent little operations, the company decided to create a new parent organization.

In keeping with voguish corporate names such as Navistar, Unisys, Ameritech, and Primerica, a team of senior executives led by John R. Meinert settled upon the truncated name Hartmarx Corporation, which allowed the company to preserve the exclusivity of its Hart Schaffner & Marx name. When the name change was made official on April 13, 1983, the new holding company took possession of Hart Schaffner & Marx and its numerous subsidiary companies. Along with the creation of Hartmarx came a reorganization plan aimed at eliminating 23 redundant administrative functions within the company (roughly 800 jobs) and a campaign to redecorate the Kuppenheimer outlets. These efforts, which ate up more than $41 million in earnings by 1987, went $10 million over budget and yielded far less than the projected $12 million annual savings.

Amidst this crisis, on October 27, 1986, Chairman and CEO Richard P. Hamilton resigned suddenly and without official explanation. The company was stunned by Hamiltons immediate departure and analysts speculated that Hamiltons disagreements over the companys strategy compelled him to leave.

He was replaced by a troika consisting of Meinert, Harvey Weinberg, a former head of the retailing group, and Elbert Hand, who headed the companys manufacturing group. The new leadership team pressed ahead with the consolidation effort, centralizing purchasing, payroll, credit, and distribution at offices in Chicago, Dallas, and Columbus, Ohio. Having increased operating efficiency, the company now had only to increase its sales volume.

Meanwhile, Hartmarx struggled to expand Kuppenheimer and began advertising promotions with a fictional Mr. Kuppenheimer character. The timing could not have been worse. As the nation emerged from the 198285 recession, consumers tastes went back to more expensive name brands. Despite Kuppenheimers facelift, men avoided the stores.

Generally, however, sales from all 440 of the companys retail outlets were up, in large part because of the success of the conservatively tailored Hickey-Freeman and Hart Schaffner & Marx lines, as well as new brands such as Racquet Club and Henry Grethel, which Hartmarx purchased from Manhattan Industries. This enabled the company to obtain and service financing necessary to acquire the companies it had. But, while the balance sheet remained strong, debt remained high. When sales began to lag, profits fell quickly. By 1990 impatient investors had begun to abandon Hartmarx, beating its share price to 18, about half of what it had been only three years earlier.

Key Dates:

1872:
Brothers Harry and Max Hart open small mens clothing store on Chicagos State Street, called Harry Hart and Brother.
1879:
The Harts brothers-in-law, Levi Abt and Marcus Marx, join the partnership, which is renamed Hart, Abt and Marx.
1887:
Marx and Abt leave the business and are replaced by a cousin, Joseph Schaffner; the firm is renamed Hart Schaffner & Marx.
1911:
The partnership is incorporated.
1926:
Wallachs, a large New York-based clothing chain, is acquired.
1927:
Chicago retail clothier Baskin is acquired.
1954:
Company takes over Society Brand, a major manufacturing house.
1964:
Hickey-Freeman, a premier mens clothing brand and retailer, is acquired.
1967:
Jaymar-Ruby is acquired.
1970:
Antitrust suit against company leads to consent degree barring any further acquisitions, without court approval, for ten years.
1979:
Firm acquires Intercontinental Apparel, U.S. licensee of the Pierre Cardin brand.
1981:
Country Miss chain is purchased, extending the company into womens clothing.
1982:
Kuppenheimer Manufacturing Company, retailer of inexpensive suits, is acquired for $25.8 million.
1983:
Company changes its name to Hartmarx Corporation, with the new parent acting as a holding company for various subsidiaries.
1992:
Continued losses leads to the divestment of all retail outlets, except the Kuppenheimer chain.
1996:
Plaid Clothing Group, Inc., is acquired, adding such brands as Burberry, Claiborne, Evan-Picone, Palm Beach, and Brannoch.

Major 1990s Restructuring

Weinberg attempted to stem losses by bringing on John Eyler, a former CEO of Kohls Main Street chain. Eyler recommended price decreases on several high-end suit lines and pressed for greater utilization of the computer network. In 1991 Hartmarx borrowed the superstore ploy from The Limited, opening as many as three retail stores in a single, larger space. This brought down rent fees and allowed the company to run a single back office. Still, Hartmarx proved unable to take advantage of the economies it had set up. The manufacturing and licensing operations remained strong, but the retail business incurred heavy losses. In January 1992 the company suspended dividends for the first time in 53 years.

Faced with a fifth consecutive year of lowered returns, Hartmarx finally took action on September 18, 1992. On that day, the company announced that it had sold its HSSI retail stores subsidiary for $43 million, basically exiting the retail store business. The Kuppenheimer operation, however, with its 120 retail operations, remained intact. Then, on September 21, the company announced the issue of $30 million in new shares to raise cash, and on October 10 it announced the closure of its Old Mill/Country Miss outlet stores. Hartmarx also began negotiations with its creditors to gain more favorable terms on its outstanding obligations.

The $30 million capital infusion came from a single company called Traco International N.V., controlled by Saudi businessman Abdullah Taha Bakhsh. Traco (the name is a conglomeration of trading and construction) thus emerged with a 22 percent stake in Hartmarx. Little was known about Bakhsh or his company, and Hartmarx directors voiced concern over his motives but were content that he had helped the company avoid bankruptcy. An additional 21.4 percent of Hartmarx shares were controlled by Taiba Corporation, owned by Abdel Mohsen Y Abu Shukhaiden, another Middle Eastern businessman about whom little was known. Taiba authorized Traco to vote its shares, giving that company nearly 44 percent voting rights.

The decision to exit the retail business was necessary and long overdue. As long as Hartmarx was in the retail business, it could not sell its products to hundreds of other retailers. In effect, it was in competition with potential customers. Now just a marketing and manufacturing company, Hartmarx counted on high cash flow from these profitable businesses to offset investor concern with its high debt. Under the direction of Hand, as chairman and CEO, and Homi Patel, president and chief operating officer, Hartmarx also strategically refocused its business on apparel other than suits and boldly expanded its promising sportswear lines, particularly golfwear. Hartmarxs Bobby Jones upscale golfwear line, which made its national debut in 1991, had proved almost immediately successful. The company soon added a second golfwear line under the Jack Nicklaus label, with these items selling at more affordable prices than those carrying the Bobby Jones label. Both lines were sold mostly through pro shops. By the mid-1990s Hartmarx was selling $50 million of golfwear per year.

Meanwhile, several more operations were sold off, including the companys 14 Sansabelt outlets and its 37.5 percent interest in Roberts, a retail chain in Mexico City. Hartmarx completed its exit from the retail sector in 1995 when it sold its 91-store Kuppenheimer unit and two tailored clothing factories to a private investment group headed by Gene Kosack, former president and chief executive of NBO Stores Inc. The company also made major changes in its sourcing system, closing ten domestic factories and shifting production to the Far East, Mexico, and Costa Rica. By this time, Hartmarx had returned to profitability, reduced its debt by 40 percent, and increased shareholder equity by 82 percent. Although the companys turnaround was far from complete, its move to expand its sportswear lines was a case of nearly perfect timing, as the 1990s were marked by increasingly casual dress, especially in the workplace. Hartmarx found particular success with its Tommy Hilfiger line of casual businesswear. Despite the attention placed on the sportswear area, tailored clothing was not being ignored. Two new lines, Perry Ellis and Daniel Hechter, were introduced; the latter was positioned within the popular-priced segment and the former resided within the moderate sector. Still, by the mid-1990s, approximately one-quarter of sales came from outside the tailored clothing lines.

Over the course of its three-year restructuring, Hartmarxs revenues were cut by more than half, dropping from $1.22 billion in 1991 to $595.3 million in 1995. Growth returned to the company agenda, and in late 1996 Hartmarx paid about $27 million to acquire the bankrupt Plaid Clothing Group, Inc., a maker and marketer of mens tailored suits, sportcoats, and slacks under the licensed brands Burberry, Claiborne, and Evan-Picone, as well as under such brands as Palm Beach and Brannoch, which it owned. In November 1998 Hartmarx acquired the wholesale apparel business of Pussers Ltd., including the Pussers of the West Indies line of nautical and tropical sportswear and outerwear. Through a December 1998 purchase, Hartmarx gained Coppley, Noyes and Randall Limited, a leading Canadian maker of mens tailored clothing. In August of the following year, the company acquired Royal Shirt Company, a Canadian maker of womens and mens dress and sports shirts.

Hartmarx also made a return of sorts to retailing in late 1998. The company earlier that year reached an agreement with licensee David Johnson, president of Rancho Santa Fe, California-based Golf Specialty Retail Stores Inc., whereby Johnson would launch a chain of Bobby Jones upscale golfwear boutiques. Johnson was the owner and operator of the chain, which debuted in November 1998 with the first Bobby Jones store in Beverly Hills, California. Hartmarx hoped to gain brand recognition and increased sales volume out of the endeavor and had plans for a similarly structured Jack Nicklaus chain. In addition, the company successfully launched a third golfwear brand in the late 1990s: Desert Classic, a popular-priced private label available exclusively at Sears, Roebuck & Co. stores.

With the mens suit industry likely to remain stagnant into the early 21st century, Hartmarx was maintaining its strategy of beefing up its casual clothing offerings. Toward a goal of increasing sales of sportswear to one-third of overall sales, Hartmarx was even considering adding jeans to its ever more diverse product portfolio. During 1999 the company announced that it would cut back its presence in the moderate-priced $200 to $300 suit sector, while emphasizing its upper-end tailored clothing, which was more profitable. The bottom line was clearly a major concern of Hand and Patel, as evidenced by their setting a goal of recording earnings-per-share increases of 20 percent per year starting in 2000. Summarizing Hartmarxs future direction, Hand told shareholders at the 1999 annual meeting: This company has to be known as an apparel enterprise, not as a suit company.

Principal Subsidiaries

Coppley Apparel Group Limited (Canada); Direct Route Marketing Corporation; Hart Schaffner & Marx; American Apparel Brands, Inc.; National Clothing Company, Inc.; Winchester Clothing Company; Hickey-Freeman Co., Inc.; International Womens Apparel, Inc.; Jaymar-Ruby, Inc. (dba Trans-Apparel Group); Anniston Sportswear Corporation; E-Town Sportswear Corporation; Rector Sportswear Corporation; Biltwell Company, Inc.; Mens Quality Brands, Inc.; M. Wile & Company, Inc. (dba Intercontinental Branded Apparel); Intercontinental Apparel, Inc.; Novapparel, Inc.; Plaid Clothing Company, Inc.; Pussers of the West Indies Apparel Company; Royal Shirt Company (Canada); Universal Design Group, Ltd.

Principal Operating Units

Mens Apparel Group; Womens Apparel Group.

Principal Competitors

Ash worth, Inc.; Brooks Brothers; The Gap, Inc.; Haggar Corp.; Lands End, Inc.; Levi Strauss & Co.; Nautica Enterprises, Inc.; Oxford Industries, Inc.; Perry Ellis International, Inc.; Phillips-Van Heusen Corporation; The Pietrafesa Corporation; Polo Ralph Lauren Corporation; Tropical Sportswear Intl. Corporation.

Further Reading

Brumback, Nancy, Hartmarx Deemphasizing $200 to $300 Suits, Revving Up Sportswear, Daily News Record, April 16, 1999.

Fox, Bruce, For Hartmarx, Hard Times Fuel Ingenuity, Chain Store Age Executive, September 1993, p. 59.

Gellers, Stan, Hartmarx Spotlights Four Top Designer Labels in New Bottoms Unit, Daily News Record, September 21, 1998, p. 7.

, Reinventing Hartmarx: Sportswear to Fuel the Future, Daily News Record, January 30, 1995, p. 12.

George, Melissa, Hartmarx Teeing Up for New Retail Push: Apparel Maker Links with Licensee to Open Bobby Jones Golf Chain, Crains Chicago Business, May 4, 1998, p. 3.

Hartmarx: Cashing in on Discount Suits Without Losing Its Upscale Image, Business Week, May 14, 1984, p. 200.

Hartmarx Corp., Moodys Industrial Manual, 1992.

Hartmarx Is Suddenly Looking Threadbare, Business Week, January 29, 1990, p. 40.

Hartmarx: Restoring the Specialty Group, Daily News Record, February 11, 1991, pp. 1011.

Hartmarx Unveils Its Game Plan, Daily News Record, October 15, 1992, pp. 15.

Hart, Schaffner & Marx: Expanding Boldly from Class to Mass Markets, Business Week, October 20, 1980, pp. 7475.

Hart, Schaffner & Marx: Suiting up for the Eighties, Duns Business Review, September 1, 1980, pp. 2021.

Has Anyone Seen This Man?, Chicago Tribune, April 16, 1993, Sec. 3, p. 3.

How Hartmarx Plans to Recapture Its Youth, Adweeks Marketing Week, May 1, 1989, pp. 3438.

A New Cut for the Gray Flannel, Forbes, December 28, 1987, pp. 6164.

Palmieri, Jean E., Gene Kosack Group Buying Kuppenheimer from Hartmarx, Daily News Record, May 10, 1995, p. 1.

Patterson, Gregory A., Hartmarx, Having Restyled Itself, Sees Robust Profits, Wall Street Journal, May 31, 1995, p. B4.

Pauly, Heather, Hartmarx Tailors Plan: Apparel Firm Aims to Reverse Its Fortunes in the Stock Market, Chicago Sun-Times, September 2, 1999, p. 48.

Podmolik, Mary Ellen, Hartmarx Executives Find Jean Idea Riveting, Chicago Sun-Times, April 15, 1999, p. 56.

A Retailored Hartmarx Still Needs Some Altering, Business Week, March 9, 1987, p. 109.

Rose, Barbara, Elusive Saudi Investor Ups Local Stakes, Crains Chicago Business, January 11, 1993, p. 1.

Sharoff, Robert, Hartmarx Sees Its Growth in Sportswear, CEO Bert Hand Tells Stockholders, Daily News Record, April 17,1995, p. 2.

Stern, William, Brave Beginnings, Financial World, April 25, 1995, pp. 4647.

Tailored Growth, Barrons, December 4, 1984, pp. 5556.

Veverka, Mark, Hartmarx Hitting Sportswear Links, Crains Chicago Business, April 19, 1993, p. 3.

, Restructuring, Focus on Casual Dress Up Hartmarx Bottom Line, Crains Chicago Business, May 29, 1995, p. 60.

Whole Cloth, Barrons, April 4, 1983, p. 59.

John Simley

updated by David E. Salamie

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Hartmarx Corporation

Hartmarx Corporation

101 North Wacker Drive
Chicago, Illinois 60606
U.S.A.
(312) 372-6300
Fax: (312) 444-2695

Public Company
Incorporated: May 10, 1911, as Hart, Schaffner & Marx
Employees: 20,000
Sales: $1.05 billion
Stock Exchanges: New York, Chicago
SICs: 2311 Mens/Boys Suits & Coats; 2337 Womens/ Misses Suits & Coats; 2325 Mens/Boys Trousers & Slacks; 6719 Holding Companies Nec

Hartmarx is the parent company of Hart, Schaffner & Marx, a well-known apparel manufacturer, and several other clothing companies. The companys primary line of business is designing, assembling, and marketing premium quality suits for men and women. The company also manufactures and sells sportswear and has begun licensing its products for manufacture in new growth markets in Asia. Until recently, Hartmarx was also a major retail company, maintaining a massive network of clothing shops located mostly in shopping malls. The operation was growing considerably burdensome in recent years, serving only to sap the companys profits from manufacturing. In 1992 Hartmarx divested all of its retail operations, with the exception of those belonging to its Kuppenheimer discount division.

The history of Hartmarx was largely noneventful until the 1960s, when wise merchandising decisions brought the venerable Hart, Schaffner & Marx name to a broader market. This was followed by strong internal growth in the 1970s, and an initially successful acquisition campaign in the 1980s. But by 1990 the once profitable company was deeply in debt and losing money. In response, Hartmarxs management began a massive restructuring of the business that may take years to turn the company around. The success of the campaign is likely to determine whether Hartmarx survives.

Hartmarx traces its history to 1872 when, immediately after the great Chicago Fire, brothers Harry and Max Hart pooled their life savings of $2,700 and opened a small mens clothing store on Chicagos State Street. Harry Hart and Brother opened a second store a few blocks south in 1875. Max Hart became fascinated with labelling after working as a delivery boy for his fathers butcher shop. His job, applying labels to delivery packages, taught him the importance of branded products. At the clothing store, he pursued this interest by asking tailors to affix Hart brand labels to the clothes they sold. A short time later, a downstate Illinois merchant expressed an interest in the label and asked to sell Hart suits.

In 1879 the Harts brothers-in-law, Levi Abt and Marcus Marx, joined the partnership, which was renamed Hart, Abt and Marx. The small shop continued to prosper on sales to businessmen in Chicagos Loop financial district.

At the same time, however, the wholesale business began to grow, overtaking the retail operations. On the strength of wholesale production, Hart Abt and Marx won contracts to produce clothing for the United States military. This introduced the partners to prefabricated off-the-rack clothing, and marked their entry into the ready-made suit trade.

Marx and Abt left the business in 1887. However, a cousin named Joseph Schaffner took their place. Schaffner was an excellent businessman who oversaw much of the early growth of the small firm, which had been renamed Hart, Schaffner & Marx.

The industrial revolution added newer, more efficient tailoring methods that reduced the time to make a suit. With such favorable economics, many suit manufacturers entered the catalog business, introducing their own brands. Hart, Schaffner & Marx responded in 1897 by running national advertisements for its products and began selling off-the-rack suits through a variety of distributors. Hart, Schaffner & Marx commissioned well-known illustrators to paint pictures for style books and retail posters. These ads portrayed the companys latest fashions in rich surroundings, establishing Hart, Schaffner & Marx as a premium brand.

By 1906 the company had branched into unusual sizes for men who were unusually tall, short, or overweight. Hart, Schaffner & Marx thus became a mass-market brand, enabling virtually any man to have a fine quality suit at a lower price than a custom tailored suit. On May 10, 1911, after years of steady growth, the partnership was incorporated.

In 1917 the company introduced the first tropical worsted suits. Hart, Schaffner & Marxs production facilities were also pressed into service during World War I making uniforms.

While it operated a number of small retail outlets of its own in 1926, the company expanded its retail presence considerably with the acquisition of Wallachs, a large clothing chain. Hart, Schaffner & Marx continued its expansion over the next 30 years by taking over the operations of numerous other smaller retailers, opening new stores, and placing a strong emphasis on advertising.

After producing a large quantity of uniforms for the government again during World War II, Hart, Schaffner & Marx began making bolder acquisitions. In 1954 the company took over Society Brand, a major manufacturing house. Ten years later Hart, Schaffner & Marx added Hickey-Freeman, a premium brand. The company acquired Jaymar-Ruby in 1967 and, in 1969, added M. Wile. In fact, Hart, Schaffner & Marx made so many acquisitions between 1966 and 1969, that the U.S. Justice Department became involved. The government filed suit against the company on anti-trust grounds, complaining that Hart, Schaffner & Marx had established an anti-competitive domination of the clothing market. The company settled with Justice Department lawyers by signing a consent decree in which Hart, Schaffner & Marx was obliged to sell off several recent acquisitions and promised to purchase no more companies for a period of 10 years. This agreement took effect in June of 1970.

The consent decree was not a serious setback for Hart, Schaffner & Marx. Instead of external growth, the company merely changed its emphasis to internal growth. This was actually a better strategy because the company had launched several successful lines during the 1960s that required attention.

One night in 1966, television host Johnny Carson walked on stage to deliver his nightly Tonight Show monologue wearing a turtle neck sweater and a collarless Nehru jacket. Within a week the nations stores had been depleted of both items, and Carson had unwittingly established himself as a fashion trend setter. Celebrity endorsements were not new, but the episode demonstrated to many the value of using stars to introduce new styles. The idea was not lost upon Hart, Schaffner & Marx, which got an agreement to market a new casual line of suits under the Johnny Carson name and, later, Jack Nicklauss name.

Hart, Schaffner & Marx introduced the Austin Reed brand name during the 1960s. In 1974 the company rolled out a line of tailored clothing under the Christian Dior name, followed by Nino Cerruti, Allyn St. George, and Playboy. These new lines were created under contract to their designer namesakes and proved highly successful as fashion leaders.

Also in 1974, as part of its divestiture, Hart, Schaffner & Marx sold 20 stores to Hughes & Hatcher, a rival chain of shopping mall clothing stores. In September of 1979, nearly a year before the expiration of the consent decree, Hart, Schaffner & Marx acquired Intercontinental Apparel under special agreement for $2.9 million. Intercontinental was the U.S. licensee of the Pierre Cardin line and brand name. With strong brand names and a wide variety of styles available, Hart, Schaffner & Marx had built a very solid position in the market.

When the terms of the consent decree expired in June of 1980, Hart, Schaffner & Marx, with 275 retail outlets, immediately embarked on an acquisition binge. The company took over Bishops men shops in September of 1980 and branched into womens clothing by taking over the Country Miss chain for $12.5 million in January, 1981.

While Hart, Schaffner & Marx had registered strong gains of six percent annually, the market was growing at twice that rate. Despite the strength of its Hickey-Freeman and Christian Dior lines, the company was being ravaged by discount brands, which had become especially popular during the recessions of the 1970s. The companys own Playboy line flopped because men didnt want bunnies on their buttons, and may have regarded the logo as tired and pretentious.

Thus, on December 1, 1982, after losing out significantly to discount brands, Hart, Schaffner & Marx acquired the Kuppenheimer Manufacturing Company for $25.8 million. Kuppen-heimer, a major factory retail operation with 41 outlets, dominated the market of inexpensive suits, defined as those costing $200 or less, and had been a strong competitor of Hart, Schaffner & Marx. The acquisition gave Hart, Schaffner & Marx a greater piece of the $4 billion suit market, 80 percent of which is controlled by discount brands such as Kuppenheimer. It also enabled the company to avoid diluting its premium brands with the lower scale Kuppenheimer line.

The company acquired Briar Neckwear in July, 1985 and, in December of 1986, acquired the casual suit jacket manufacturer H. Ortisky. The following year Hart, Schaffner & Marx took over the nine-store Detroit retail chain Antons, and in 1988 purchased Boyds, a small retail chain in St. Louis, and the Washington, D.C.-based upscale retailer Raleighs. In February of 1989 the company also added the Biltwell Company, a clothing manufacturer.

Along with the strong external expansion carried out during the 1980s, Hart, Schaffner & Marx carried out a large modernization campaign aimed at updating equipment and processes. The company also underwent a profound restructuring. The business of Hart, Schaffner & Marx had grown so large that the flagship company in the organization was unable to run it efficiently. In effect, Hart, Schaffner & Marx had become an enterprise consisting of more than a dozen separate little companies, each with its own administrative structure. In order to better coordinate the activities of these independent little operations, the company decided to create a new parent organization.

In keeping with voguish corporate names such as Navistar, Unisys, Ameritech, and Primerica, a team of senior executives led by John R. Meinert settled upon the truncated name Hartmarx, which allowed the company to preserve the exclusivity of its Hart, Schaffner & Marx name. When the name change was made official on April 13, 1983, the new holding company took possession of Hart, Schaffner & Marx and its numerous subsidiary companies. Along with the creation of Hartmarx came a reorganization plan aimed at eliminating 23 redundant administrative functions within the company (eliminating 800 jobs) and a campaign to redecorate the Kuppenheimer outlets. These efforts, which ate up more than $41 million in earnings by 1987, went $10 million over budget and yielded far less than the projected $12 million annual savings.

Amid this crisis, on October 27, 1986, Hartmarxs chair and chief executive officer Richard P. Hamilton resigned suddenly and without official explanation. The company was stunned by Hamiltons immediate departure and, while it offered no explanations of its own, analysts speculated that Hamiltons disagreements over the companys strategy compelled him to leave.

He was replaced by a troika consisting of Meinert, Harvey Weinberg, a former head of the retailing group, and Elbert Hand, who headed the companys manufacturing group. The new leadership team pressed ahead with the consolidation effort, centralizing purchasing, payroll, credit, and distribution at offices in Chicago, Dallas, and Columbus, Ohio. Having increased operating efficiency, the company now had only to increase its sales volume.

Meanwhile, Hartmarx struggled to expand Kuppenheimer and began advertising promotions with a fictional Mr. Kuppenheimer character. The timing could not have been worse. As the nation emerged from the 1982-85 recession, consumers tastes went back to more expensive name brands. Despite Kuppenheimers facelift, men avoided the stores.

Generally, however, sales from all 440 of the companys retail outlets were up, largely due to the success of the conservatively tailored Rickey-Freeman and Hart, Schaffner & Marx lines, as well as new brands such as Racquet Club and Henry Grethel, which Hartmarx purchased from Manhattan Industries. This enabled the company to obtain and service financing necessary to acquire the companies it had. But, while the balance sheet remained strong, debt remained high. When sales began to lag, profits fell quickly. By 1990 impatient investors had begun to abandon Hartmarx, beating its share price to 18, about half of what it had been only three years earlier.

Weinberg attempted to stem losses by bringing on John Eyler, a former CEO of Kohls Main Street chain. Eyler recommended price decreases on several high-end suit lines and pressed for greater utilization of the computer network. In 1991 Hartmarx borrowed the superstore ploy from The Limited, opening as many as three retail stores in a single, larger space. This brought down rent fees and allowed the company to run a single back office. Still, Hartmarx proved unable to take advantage of the economies it had set up. The manufacturing and licensing operations remained strong, but the retail business incurred heavy losses. In January 1992 the company suspended dividends for the first time in 53 years.

Faced with a fifth consecutive year of lowered returns, Hartmarx finally took action on September 18, 1992. On that day, the company announced that it had sold its HSSI retail stores subsidiary for $43 million, basically exiting the retail store business. However, the Kuppenheimer operation, with its 120 retail operations, remained intact. Then, on September 21, the company announced the issue of $30 million in new shares to raise cash, and on October 10 announced the closure of its Old Mill/Country Miss outlet stores. Hartmarx also began negotiations with its creditors to gain more favorable terms on its outstanding obligations.

The $30 million capital infusion came from a single company called Traco International N.V., controlled by Saudi businessman Abdullah Taha Bakhsh. Traco (the name is a conglomeration of trading and construction) thus emerged with a 22 percent stake in Hartmarx. While little is known about Bakhsh or his company, Hartmarx directors voiced concern over his motives but were content that he had helped the company avoid bankruptcy. An additional 21.4 percent of Hartmarx shares were controlled by Taiba Corporation, owned by Abdel Mohsen Y Abu Shukhaiden, another Middle Eastern businessman about whom little is known. Taiba authorized Traco to vote its shares, giving that company nearly 44 percent voting rights.

Now just a marketing and manufacturing company, Hartmarx counted on high cash flow from these profitable businesses to offset investor concern with its high debt. Strategically, the company also refocused its business on apparel other than suits, and made bold plans to expand its promising sportswear (mainly golfwear) lines. The decision to exit the retail business was necessary and long overdue. As long as Hartmarx was in the retail business, it could not sell its products to hundreds of other retailers. In effect, it was in competition with potential customers.

Several more operations were sold off, including the companys 14 Sansabelt outlets and its 37.5 percent interest in Roberts, a retail chain in Mexico City. The remaining task was to protect and ensure viable identities for each of its brands; venerable Hartmarx brands could not be sold at thrift department stores.

Hartmarx thus emerged from a very difficult period properly structured, but not yet out of the woods. Its ability to recover from its debt crisis will most likely depend on a wider economic upswing that will return consumers to stores and an aggressive advertising campaign that will boost sales of Hartmarx brands.

Principal Subsidiaries

Hart Schaffner & Marx, Inc.; Intercontinental Branded Apparel, Inc.; Universal Design Group, Inc.; Henry Grethel Apparel, Inc.; Hickey-Freeman Clothes, Inc.; Bobby Jones International, Inc.; Trans-Apparel Group, Inc.; Biltwell Company; Karl Lagerfeld Company; The Kuppenheimer Company; Barrie Pace Catalog; International Womens Apparel, Inc.

Further Reading

Hartmarx Annual Reports, Chicago: Hartmarx Corporation, 1986, 1992.

Hartmarx: Cashing in on Discount Suits Without Losing Its Upscale Image, Business Week, May 14, 1984, p. 200.

Hartmarx Corp., Moodys Industrial Manual, 1992.

Hartmarx Is Suddenly Looking Threadbare, Business Week, January 29, 1990, p. 40.

Hartmarx: Restoring the Specialty Group, Daily News Record, February 11, 1991, pp. 1011.

Hartmarx Unveils Its Game Plan, Daily News Record, October 15, 1992, pp. 15.

Hart, Schaffner & Marx: Suiting up for the Eighties, Duns Business Review, September 1, 1980, pp. 2021.

Hart, Schaffner & Marx: Expanding Boldly from Class to Mass Markets, Business Week, October 20, 1980, pp.74-75.

Has Anyone Seen this Man? Chicago Tribune, April 16, 1993, sec. 3, p. 3.

How Hartmarx Plans to Recapture its Youth, Adweeks Marketing Week, May 1, 1989, pp. 3438.

A New Cut for the Gray Flannel, Forbes, December 28, 1987, pp. 6164.

A Retailored Hartmarx Still Needs Some Altering, Business Week, March 9, 1987, p. 109.

Tailored Growth, Barrens, December 4, 1984, pp. 5556.

Whole Cloth, Barrens, April 4, 1983, p. 59.

John Simley

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