Chapter 11 for London Fog

Famed manufacturer of rainwear plans to restructure its debt

Eldersburg HQ to stay open

115 stores to close of 140, after disastrous emphasis on retailing

September 28, 1999|By Kristine Henry | Kristine Henry,SUN STAFF

London Fog Industries Inc., founded in Baltimore more than 75 years ago and now headquartered in Eldersburg, filed for bankruptcy yesterday and said it will close 115 of its 140 stores nationwide.

Company officials said the Chapter 11 filing is an attempt to restructure operations and redefine the company's mission and should not be seen as the beginning of the end of one of the world's best-known clothing labels.

The company narrowly escaped a bankruptcy filing in 1995 by restructuring debt and streamlining operations.

Shortly thereafter, the privately held company shifted its focus from wholesaler to retailer and began opening stores nationwide at breakneck speed.

"We were trying to compete in the retailer arena," Peter Smith, chief operations officer, said yesterday. "We tried to play somebody else's game, and it didn't work."

Smith said London Fog's two Maryland stores -- in Eldersburg and Hagerstown -- will remain open, as will Eldersburg's 1 million-square-foot corporate offices and distribution center at Londontown Boulevard near Route 32.

He said none of the approximately 275 employees in Maryland will lose jobs as a result of the bankruptcy, which was filed in U.S. Bankruptcy Court in Wilmington, Del., where the company is incorporated.

"We're a company in bankruptcy, so it's difficult to say anything absolute," Smith said.

"But [Eldersburg] is a prime distribution point for the entire U.S., and for the foreseeable future we will remain here."

Mark Millman, president of Millman Search Group Inc., a retail consulting firm in Lutherville, said London Fog was once one of the most recognizable names in America.

"They were up there with Pepsi and Coca-Cola in terms of recognition, and in a few short years of mismanagement they are to the point of filing for bankruptcy," he said.

"It's one of the most mismanaged companies I've ever encountered in my 25 years of retail consulting."

London Fog got its start in Baltimore in 1922 and moved its headquarters to Eldersburg in 1976.

The last remaining London Fog manufacturing facility in Maryland was shuttered in 1997; the products are now made overseas where labor is cheaper.

In 1994 the company moved to Darien, Conn., near the home of then-Chief Executive Officer Arnold P. Cohen, who was ousted from his position just months after the move.

With Cohen out of the picture, London Fog moved back to Eldersburg less than a year after going to Connecticut.

Millman said the Connecticut move was a disaster from which the company never recovered.

"They lost a lot of people, and ever since have just gone downhill with executive shake-ups and shuffles," he said.

"Then they started this over-ambitious retail expansion, with 140 stores, and they were mired in nothing but operational issues and high turnover."

Cohen was replaced in 1995 by Robert E. Gregory Jr. -- the force behind the retail focus.

"It was an ill-conceived strategy," Douglas Hillman, London Fog's president until 1996, said yesterday. "The strength of the company was its balance between wholesale and retail."

Hillman also said that although Gregory was attuned to consumers' growing desire for casual jackets instead of formal raincoats, he failed to produce jackets that were fashionable enough for London Fog customers.

And it's a focus on design that will make or break the company, said Howard Davidowitz, chairman of New York's Davidowitz & Associates Inc. retail consulting firm.

"At the end of the day, what the company has to do, whether it's selling products in their stores or in department stores, is it has to offer exciting products to customers at a great value," he said.

"Restructuring can't help them do that."

In its filing, the company said it had assets and debt of more than $100 million each; more precise numbers were not available.

Last year, the company reported net income of $155.7 million, after four straight years of losses, including a $225.4 million loss in fiscal 1995.

William Dragon Jr., who replaced Gregory as chief executive in March, said he and other officials decided that competing with their "retail partners" was a bad idea and that the company had too much debt.

"We believe that a Chapter [11] proceeding provides an effective base for the restructuring of our debt and the elimination of unprofitable retail stores," he said in a statement.

The company, which employs about 1,500, said it secured $130 million in financing to help with its restructuring.

John T. "Jack" Lyburn, Carroll County's economic development director, said the state and county would work with the company, Carroll's fourth-largest employer, to keep it viable.

"We are all hoping for a cold winter," he said.

Carol Pickett, chairwoman of the South Carroll Business Association, said she feels sorry for London Fog's Eldersburg employees.

"Even if they don't close, people will be wondering," she said. "This puts a lot of stress on families."

Sun staff writer Mary Gail Hare contributed to this article.

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