Bernard Chaus, Inc.

1410 Broadway
New York, New York 10018
U.S.A.
(212) 354-1280
Fax: (212) 921-4619

Public Company
Incorporated: 1975
Employees: 334
Sales: $191.5 million (1998)
Stock Exchanges: New York
Ticker Symbol: CHS
SICs: 2331 Women’s, Misses’ & Juniors’ Blouses & Shirts; 2337 Women’s, Misses’ & Juniors’ Suits, Skirts & Coats; 2339 Women’s, Misses’ & Juniors’ Outerwear, Not Elsewhere Classified; 5621 Women’s Clothing Stores

Bernard Chaus, Inc. designs and markets an extensive range of women’s career and casual sportswear at the high end of the “upper moderate” price range. This clothing is marketed as coordinated groups of jackets, skirts, pants, blouses, sweaters, and related accessories that, while sold as separates, are coordinated by styles, color schemes, and fabrics, and are designed to be merchandised and worn together. The company’s products are sold by department store chains, specialty retailers, and other retail outlets.

Garment District Dynamo: 1945-85

A track star at Boys’ High School in Brooklyn, Bernard Chaus dropped out in his junior year and sought a job with Henry Rosenfeld, a legendary figure in New York City’s garment district. Rosenfeld wanted salesmen who were college graduates and more than six feet tall. “Since I was neither,” Chaus recalled, “I had to talk myself into a job in the shipping department. Within two years I was his assistant.” It was the beginning of a lucrative career for the supersalesman whom a Bobbin columnist later called “part Jackie Mason, part Charlie Chaplin, part Ebeneezer Scrooge and part P.T. Barnum.”

Chaus became part-owner of Major Blouse Co. in 1958 at the age of 29, taking annual sales, he said, from $1 million to $5 million in three years. After the business was purchased by Genesco, Inc., in 1965, Chaus sold the Genesco stock he received and retired. A year later he became a partner of Joanna Blouse Co. According to Chaus, he took the company’s sales up to $3 million within two years. After the firm was acquired by Lilly Lynn five years later, Chaus once again cashed in his profit and departed.

Josephine Ferraro was a 22-year-old buyer for a New Jersey store when she met the 44-year-old Chaus in 1973. After a year traveling together cross-country by motorcycle, they became partners of newly founded Bernard Chaus, Inc. in 1975. She became his second wife shortly after. Although she bore two children, she remained active in the firm, first as director of design and later of production as well, and she was named president in 1980. Otherwise Chaus essentially presided over his eponymous firm as a one-man band, with no secretary, marketing director, advertising agency, or showrooms outside Manhattan. To sell his company’s sportswear he cultivated store buyers. “Bernie started from nothing and built relationships,” a former company executive told a reporter in 1991. “Eventually the people he dealt with became heads of the store.”

The fledgling firm built its collection around the concept that working women wanted colorful, moderately priced separate articles that could be easily coordinated with a fashion flair. Its founder pioneered the practice of selling moderately priced sportswear on the main floors of department stores as an impulse purchase. The Chauses, according to a 1986 Forbes piece, “quietly have built a loyal following among conservatively dressed working women who would rather not spend $150 on a blouse.” By the end of 1982 (the year ended June 30,1982) the firm’s sales had reached $91.2 million and its net income was $6.9 million, even though it did no advertising in print or on television except for a minor amount of so-called cooperative ads in which the costs were shared with retailers. All manufacturing was being performed by suppliers in the Far East.

The Founder’s Last Years: 1986-91

After net income of $12.9 million on sales of $155.3 million in 1984, Bernard Chaus fell slightly into the red the next year because one of its biggest accounts, R.H. Macy & Co., dropped Chaus’s line of blouses and sportswear, largely in favor of its own private brands. But the company had record net income of $35.3 million in 1986 on record net sales of $278.8 million. That summer Bernard Chaus went public, netting $95.7 million by selling stock at $17 a share. The Chauses received $86.4 million of that total and still retained 62 percent of the firm. Now the envy of the garment district, Bernard Chaus’s founder fielded a stable of thoroughbred racehorses, went on fishing trips ranging from Alaska to Argentina, and became a collector of modern art. When not in their renovated Upper East Side townhouse, the couple relaxed on a working Connecticut farm they purchased. They also were active in philanthropic pursuits.

The Chauses’ good fortune would not last long, however. In 1987 sales reached a record $333.9 million, but net income slipped to $13.3 million. Then the firm lost money in 1988 and 1989—$10.9 million in 1988 alone. Bernard Chaus blamed his company’s problems primarily on having raised prices higher than the market would bear, but his wife also pleaded guilty to leaving “the design direction of the company to others without giving them the focus they needed.” The couple’s response was to cut costs, trimming staff by 30 percent, shipping goods from the Orient primarily by sea rather than air, and closing all four of the company’s retail outlets. The Chauses also delegated more day-to-day responsibilities to other executives, hired additional designers—overseen by Josephine Chaus—and conducted marketing research to better determine the needs of the company’s customers.

Bernard Chaus raised its sales in 1990 and ended the year with a net profit of $1.5 million. During this period 90 percent of its merchandise was being sold to between 50 and 65 major department stores. Macy’s was again a big buyer, taking about $40 million of Chaus’s goods annually, but in 1990 the department store dropped the firm’s goods after one of the founder’s horses threw the wife of Macy’s chairman during a weekend visit. In addition, other department store bankruptcies in this recessionary period limited the number of outlets for the firm’s apparel.

Neither husband nor wife had allowed their fortune to lessen their motivation or work habits. When not overseeing the company’s six contiguous floors of showroom and office space in Manhattan, Bernard Chaus was, according to a 1989 Women’s Wear Daily story, often on the road, conducting seminars, visiting store managers, or traveling to the Far East, where four offices were established to monitor the firm’s suppliers. This was not the full story, however, for Chaus’s founder had been stricken with cancer. Shortly after he died in May 1991, the company ended its fiscal year with a $12 million loss on sharply lower sales of $232.4 million. His widow was forced to extend the firm a $10 million loan from her own resources to keep bankers from canceling its credit lines after long-term debt reached a record $24.7 million.

Drowning in Red Ink: 1992-97

One of Josephine Chaus’s first decisions was to stimulate sales by lowering prices. This became feasible by consolidating manufacturing into fewer plants and shifting some of it to lower-cost factories in Central America. She added sporty weekend apparel to the career-oriented blouses, skirts, and jackets and emphasized the firm’s clothing as a collection rather than separates to be mixed and matched with other lines. Bernard Chaus also began to open retail stores and regained Macy’s as a customer following the departure of its chairman. In her first full year at the helm—fiscal 1992—sales rose to $254.2 million, and the company registered a net profit of $5.5 million. The number of retail stores reached a peak of 36 in 1994.

Bernard Chaus, Inc.’s resurgence did not last long. The company’s sales fell to $235.8 million in 1993, and it registered an $11 million loss. Results were even worse in 1994, with sales sliding to $206.3 million and a loss of $46.8 million, which included write-offs and restructuring costs. In September 1994 Andrew Grossman left the presidency of rival Jones Apparel Group Inc.—a struggling company he had helped turn around—to become president and chief executive officer of Bernard Chaus. Josephine Chaus, who remained chairwoman, extended the firm $3 million in credit in early 1994 and another $14.4 million in September of that year, of which an unprecedented $6.2 million went to Grossman as a signing bonus.

Besides hiring Grossman, who was considered one of the garment district’s brightest stars, Josephine Chaus recruited a highly regarded chief financial officer to pare expenses through consolidation and layoffs and persuaded the firm’s banks to waive covenants on its $60 million credit line. “She’s a champ,” said a securities analyst. “Most people in the world would go bankrupt and start again. She keeps plugging.” He added that she had “kept the Chaus name relatively clean” by not selling to chains and discount stores.

Grossman’s strategy for Bernard Chaus was to return the company’s merchandise to the upper-moderate price range with a new strategy emphasizing fashion-forward looks. “We want to be current with fashion, just like the better and designer lines,” he told stockholders at the company’s annual meeting in November 1994. “We don’t want to chase it, as we had in the past, but be a leader.” However, in 1995 sales fell again to $181.7 million, and the company, despite having cut operating costs and raised gross margin, incurred a loss of $27.9 million.

In September 1995 Bernard Chaus attempted to turn its fortunes by signing a licensing deal with Nautica Apparel, Inc. to manufacture and market apparel for women under the Nautica label, which had previously only been for menswear. David Chu, president and designer of Nautica Enterprises, the parent company, was to design the line. Under the agreement, Bernard Chaus had to raise at least $10 million in equity capital by the end of the year and devote at least $7 million to fulfill obligations, including minimum royalty and advertising payments and the construction of a separate showroom for the display of licensed Nautica products. The company raised $15 million, before underwriting costs, in November 1995 by selling five million shares of common stock at $3 a share.

Bernard Chaus’s bestsellers at Macy’s in-store shops during the spring of 1996 included rayon and silk blouses, two-piece dressing, linen, and viscose jackets, knit cardigans, and linenblend pants. Grossman’s plans to move the company’s apparel upscale were said to have backfired, however. A Women’s Wear Daily article said that, according to retail executives, without a suitable home in many stores the merchandise was rejected by traditional customers, who were puzzled by its dramatically updated fashions, such as plaid slip-dresses and retro Forties dresses. Bernard Chaus subsequently dropped its money-losing dress division. Company sales again fell in 1996, to $170.6 million, and it incurred a net loss of $24.4 million.

Bernard Chaus unveiled its Nautica line of apparel in August 1996. Marketed in 120 in-store shops, Nautica’s sportswear included coordinating knits, blouses, wovens, sweaters, pants, skirts, jackets, outerwear, and sportswear dresses. The results were disappointing, with only $24 million in sales during 1997. Company sales declined again in the year, to $160.1 million, although its net loss narrowed to $16.5 million. In November Bernard Chaus announced that it would close all of its 22 outlet stores except the one adjacent to its warehouse in Secaucus, New Jersey.

In order to obtain new financing to replace an expiring credit line of $72 million, Josephine Chaus agreed to provide $12.5 million in cash collateral to pay off a loan extended by BNY Financial Corp. She also agreed to spend up to $12.5 million buying company stock in a new rights offering to existing stockholders enabling them to buy 10 million shares at $1.43 each. This rights offering, effective January 1997, was part of an overall debt structuring that converted $40.6 million owed by the firm to Josephine Chaus into stock, established a new $81 million bank line, and created a 1-for-10 reverse stock split. The offering, which raised $20 million in new equity capital, half from Josephine Chaus, was oversubscribed by $8.2 million. As a result of these actions, her stake in the company grew from 51.3 to 69.5 percent. Bernard Chaus’s long-term debt was $13.5 million at the end of 1998.

Turnaround in 1998

In September 1998 Bernard Chaus reported its first annual profit since 1992, earning $4.3 million on sales of $191.5 million—up almost 20 percent from the previous year and 36 percent when taking into consideration the phase-out of the retail stores. Grossman said that robust gains in the Chaus line had offset continuing weakness in the licensed Nautica line. He added that soft dressing looks in general and long skirts and long jackets in particular had been key sellers for the firm.

The Nautica line was relaunched in 1997 with a narrower focus on casual but higher-priced sportswear. Sales fell to $15.3 million, however, in 1998, and Bernard Chaus announced it was in discussions to terminate the license, which was not due to expire until the end of 1999. Lynn Buechner, formerly vice-president of sales for the Liz Claiborne Collection, was hired in October 1997 to manage the Nautica line. She was the designer of the Nautica apparel presented by Bernard Chaus for the fall of 1998.

Bernard Chaus’s products, at the end of 1998, were being sold under the brand names Chaus, Chaus Woman, Chaus Petite, and Nautica, with suggested retail prices ranging from $24 to $280. Career sportswear accounted for 61 percent of sales and weekend casual for the remaining 39 percent. The leading brand was Chaus, followed by Chaus Sport, Chaus Woman, Chaus Petite, and Nautica.

These goods were being sold nationwide to an estimated 1,800 individual stores operated by about 160 department store chains, specialty retailers, and other retail outlets. During the year about 82 percent of the company’s net sales were made to department store customers owned by four single corporate entities. Sales to Dillard’s accounted for 43 percent and sales to nine department store companies owned by The May Department Stores Company for 29 percent. Eighty percent of Bernard Chaus’s products were being manufactured by 35 Far East suppliers, with the remainder manufactured in the United States and the Caribbean. The company continued to maintain corporate headquarters and a showroom in Manhattan’s garment district and a warehouse and retail store in Secaucus, New Jersey. It was also leasing offices in Hong Kong and South Korea.

Principal Subsidiaries

Bernard Chaus International (Hong Kong), Inc.; Bernard Chaus International (Korea), Inc.; Bernard Chaus International (Philippines), Inc.; Bernard Chaus International (Taiwan), Inc.; Chaus Retail, Inc.; Chaus Specialists, Inc.