The equipment is all over the place, jumbled up and pushed together on the floor of the Baltimore factory where London Fog Corp.'s new chief executive is walking and talking. Robert E. Gregory Jr. doesn't say it, but the factory floor is the perfect metaphor for the company he is taking over.
It's in disarray, and rebuilding it will take generous dollops of other people's money.
Mr. Gregory, whose hiring was announced last week, is London Fog's "Mr. Fix-It." The 52-year-old South Carolinian, who brought in his longtime lieutenant C. William Crain as president, is here to bring order to the chaos of a money-losing rainwear company that has alienated retailers, closed five factories in Maryland and Virginia in 1994, and is now seeing its fourth chief executive in 16 months.
"Rob was the No. 1 person identified by one of the top executive search firms in the nation," said Melvyn Klein, general partner of GKH Partners, which owns 37 percent of London Fog.
With an a accent as Southern as black-eyed peas, he's an approachable, nice guy. Yet, the self-assured aura of "I am the boss" is always lurking.
"I want to be successful, and I want to have fun doing it," he said. "We'd like people to walk around with a smile on their face."
Nice or not, though, the bottom line will prevail.
Mr. Gregory and Mr. Crain proved that at Gitano Group Inc., where they nearly fixed the unfixable after being summoned in 1993 to run a low-end designer jeans company whose spendthrift ways and near-total lack of financial discipline were notorious.
"Rob had basically 'mission impossible' at Gitano," said Michael Jacobs, director of corporate finance at Kurt Salmon Associates, a retail consulting firm in Atlanta that served as Gitano's investment bankers.
"None of the creditors expected to get more than half [of their money]."
The creditors eventually got up to 90 percent of their money, but the price was high. Mr. Gregory closed or sold nearly all of the company's operations, cutting 3,600 jobs to about 150. He got Gitano out of manufacturing businesses it didn't have the cash to support, got them out of a wide range of clothing and focused the company on the jeans on which it was originally built.
By late 1993, Gitano was a profitable design and licensing operation.
"Gitano was the worst of the worst of the worst," said Howard Davidowitz, chairman of New York retail finance consulting firm Davidowitz & Associates. "Within months, he devised a winning strategy. . . . He has a winning track record in everything he ever did."
Mr. Gregory has heard all of this, of course, but tries to downplay it. He would rather be as well-known for expanding the work force during his seven-plus years as president of VF Corp., the Pennsylvania-based parent of Lee and Wrangler jeans, as for cutting Gitano to 150 workers. And, after all, he has fallen short of a few goals in his life.
A decade ago Mr. Gregory wanted the top job at VF, but he was never to get it. He left at age 48 in 1990, saying CEO Lawrence Pugh was too young for him to wait around hoping to get the job someday.
"When I was 42, I knew I knew everything," Mr. Gregory said. "At 52, I know I don't."
After VF, more than two years passed during which he looked unsuccessfully for a company to buy. Then he took the Gitano job, a task that looked basically hopeless. Gitano had been run by entrepreneurs with so few financial controls that one year its auditors couldn't find $15 million of profit that management claimed to have made.
Even secured creditors thought they would be lucky to get half their money, recalls Michael Jacobs, Gitano's former investment banker.
Gitano was a huge success in some ways, but even though it buffed Mr. Gregory's reputation, Gitano ended in disappointment. A customs fraud scheme, perpetrated before Mr. Gregory arrived, led Wal-Mart Stores Inc. to threaten last January to cut off orders representing 35 percent of Gitano's sales unless the company was sold. Just when he had the much smaller Gitano making a little bit of money again, about $4 million in the last quarter of 1993, Mr. Gregory had to throw in the towel.
Nothing more to do
"He was dealt cards that had only one way to be played," Mr. Jacobs said. "When Wal-Mart made the call, there was nothing he could do."
But there was no two-year wait for the right new job this time. The apparel business has a roster of fallen stars in or near bankruptcy. Mr. Gregory had a shot to look at the No. 1 or No. 2 job at many of them, including glamour names like Liz Claiborne, Stride Rite and Leslie Fay.
"He had opportunities other than Liz Claiborne to be the No. 2 in very big companies," Mr. Jacobs said. But Mr. Gregory's criteria included being the boss and finding a company that had a chance to build rather than bust up, Mr. Jacobs said.
"If we [he and Mr. Crain] were turn-around people, we would do one of these other things and make more money," Mr. Gregory said.
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If Mr. Gregory has gotten over his misperceptions about himself, he is still battling other people's, most of which are rooted in the gutting of Gitano. He swears his mission at London Fog is not to destroy the company in order to save it, to strip it down to bare bones and sell it the way he did Gitano.
There are lots of differences, he insists. He and Mr. Crain signed four-year contracts at London Fog. He was hired by London Fog's owners, mostly Merrill Lynch Capital Partners; at Gitano, he was hired by creditors who had already given up on the company as an operating business.
His contract is set up so he doesn't make a big score, like the millions he made at Gitano (he said Mr. Davidowitz's $15 million estimate is too high), unless shareholders make money.
And shareholders don't make money unless there is something left after the debt is restructured and creditors are paid their reduced shares.
L Most of all, he says, London Fog is still a decent business.
"This is a good business that got screwed up," he said. "It needs to be fixed. It deserves to be fixed."
That London Fog is in big trouble will draw no arguments from anyone. The company has about $350 million in sales, off 10 percent since 1993, and an impossible-to-service $425 million in debt secured by only $277 million of property.
20 institutions involved
It is losing money even before it pays a penny to its lenders, a syndicate of about 20 institutions led by Chemical Banking Corp. Mr. Gregory acknowledges it won't make all four of its quarterly debt payments for the fiscal year beginning March 1.
"The bottom line is, the company is in free fall," said Mr. Davidowitz of Davidowitz & Associates. "He's in a crisis."
Mr. Davidowitz said hiring someone with a reputation like the one Mr. Gregory earned at Gitano, which owed money to some of the same banks as London Fog, is the key to getting banks to make the concessions London Fog needs.
His role is to give banks confidence that if they agree to accept only partial repayment, the company will be able to keep the revised deal.
"It works only as long as the banks believe in you," he said. "He [Mr. Gregory] knows how to do this stuff. If you're a bank, this is a sensible guy. At the end of the day, if you're a bank, you're betting on people."
Until last week, London Fog's stated plan was to grow its way out of trouble.
Former Chief Executive Arnold P. Cohen, deposed in August after only a year at the top, hoped to get the company to $700 million in sales by 1997. He bought Pacific Trail Inc., a Seattle-based maker of outerwear more informal than London Fog's traditional trench coats, last January, and continued London Fog's push into fields like children's wear and sportswear.
Mr. Cohen, followed by the executives who left the company last week to make way for Mr. Gregory and Mr. Crain, also expanded the company's lower-cost Towne raincoat brand and looked forward to trying to extend the London Fog and Towne names to related products through licensing and other joint-venture arrangements.
Expansion given priority
"When I joined the company, we were looking at expanding into other products and other companies," former Chairman John Varvatos said. "We've kind of now taken some things off the table. And for me, its a much more limited focus. And that's really where my goals and aspirations were."
Mr. Davidowitz said the old strategy made some sense, but was a luxury that a company with an uncertain -- and publicly undisclosed -- cash position can't afford.
"This business of surviving by doing more is great if it's possible," he said. "Here's what survival depends on -- cash. When you run out of cash, you close the doors."
Mr. Gregory said London Fog needs to get simpler to have any chance to turn itself around.
"We want to focus and simplify the business and certainly get back to the basics. We feel we have to be dominant in men's and women's raincoats and outerwear," Mr. Gregory said.
"It's difficult to finance what I call these hobby businesses . . . all sorts of oddball categories of products that they have created over the last couple of years."
But if anyone is expecting to see quick asset sales a la Gitano, that person should hold on to his raincoat.
Needs to be fixed
"No one wants to buy anything that is this broken," Mr. Gregory said. "So until it's fixed, I don't think it's salable."
Before Mr. Gregory implements many changes in the company's products, he has to change its finances drastically. London Fog simply can't pay $425 million, he said.
L But an effort in November to restructure the debt fell flat.
Mr. Gregory says part of the problem was that the players knew he was considering taking the job, and that it didn't make sense to move before the new management team was in place.
"It's tough to have a refinancing plan without a good business plan," he said.
Mr. Klein said he expects a rough business plan to be ready in about a month. But even a stripped-down London Fog will have its problems. The rainwear business, by all accounts, had a terrible season this year because of the warm fall.
The company's Maryland operations, however, would be relative winners under the plans as Mr. Gregory has sketched them.
The Baltimore factory, now being renovated with the help of money from the state Department of Economic and Employment Development, is expected to employ 190 people to make raincoats when it reopens at the end of the month. The 500-employee administrative and distribution center in Eldersburg also looks like a keeper.
"You obviously have dislocations. We will," he said.
"People always ask me, 'Gee, does that mean people are going " to be laid off?' and I say, 'It could, sure.' But this is not a mass sweep. In fact, I could also say there could be more jobs. It depends on what we do with it."