Gordon Zacks was 32 years old in 1965 when his father died and he was named president of comfort footwear manufacturer R.G. Barry Corp. in his place. But despite his 10 years of experience at the company’s corporate headquarters in Columbus, Zacks was unsure of how to adequately take on his father’s role.
“I had no illusions about my ability to fill his shoes,” Zacks says. “I didn’t know how I could create a high-performance culture within the framework of our business.”
Now senior chairman of R.G. Barry Corp., Zacks says his father had a passionate commitment to the business and was an inspiration to the company’s employees.
“My father was a charismatic leader who gave us all unconditional love,” he says. “We achieved high output per hour with very high quality because of the trust and respect the people had for my father.”
To ensure that the company didn’t lose anything during that transition from his father to him, Zacks turned to Bob Woodruff, at the time the manager of the company’s North Carolina facility, for help.
Zacks knew that his father had a lot of respect for Woodruff and his management techniques.
“Bob gave me a dozen books to read on participative team management and how to tap into the creative energies of employees,” he says. “The bottom line was that we pioneered a new system of managing the factories that pre-dated the Japanese quality initiatives.”
That new system provided a 40 percent improvement in output, a decline in turnover and absenteeism, and improvement in the company’s profitability. Further, the employees enjoyed the fulfillment of their creative ideas.
With the system in place, Zacks grew R.G. Barry substantially. When he took the reins, the company posted sales of just under $10 million with earnings of $300,000.
“In five years, we had $25 million in sales,” Zacks says.
By the late 1990s, R.G. Barry had added three manufacturing facilities in Texas, one in Mexico and a sales office in New York City, and employed nearly 1,900 people. Zacks had led the company through countless industry changes and unstable economic and political environments. But things weren’t exactly rosy; by the end of the decade, the company faced large operating losses, employed a system that had become cost-heavy and was saddled with debt that consistently outweighed its income.
Simply put, the processes that Zacks had used to build the company into a success were now creating millions in losses each quarter.
So last year, just as he did nearly 40 years earlier, Zacks looked outside his office for help. His goal was the hire a business consultant and charge him with two tasks — find a way to increase sales and find areas where Zacks could cut costs.
But that didn’t create the overall results Zacks and the board sought. Instead, they agreed, the company’s problems went much deeper. Explains Zacks, “I brought in business consultants to help us improve the existing business model. But what we didn’t realize was that it was broken and we needed to throw it out and start over.”
Along came Von Lehman
By the end of 2003, R.G. Barry was in serious financial trouble. Although year-end net sales were $123.1 million, the company still announced losses of $21.7 million. The board agreed with Zacks that it was time to bring in a turnaround specialist and hired The Meridian Group, an investment banking firm that specializes in turnarounds.
Tom Von Lehman of The Meridian Group immediately recognized the company’s flawed business model.
“We did an analysis and realized there were a core group of clients that represented 70 percent of the company’s sales and 80 to 90 percent of its profits,” Von Lehman says.
In the company’s efforts to increase sales, it had created new product lines that were not as profitable as previously existing ones. Von Lehman proposed that the company simplify its product line and outsource all of its production, dramatically reducing costs and increasing profits.
“The company has a product offering of about 570 styles of slippers,” he says. “It will go down to 170.”
As part of the restructuring, Von Lehman says the number of customers the company serves will also be drastically reduced.
“We have more than 800 customers currently, but when we get done, that number will be in the range of 30,” Von Lehman says.
Despite how it looked on the surface — that R.G. Barry could potentially cut off longstanding revenue streams in an attempt to better streamline the company — Zacks says he and the board of directors saw merit in Von Lehman’s strategy and hired him to lead the implementation of the new model, which began in March.
“The board recognized that, in order to effect change, it would take a dramatic change of thought processes,” Von Lehman says. “Gordon loves the growing process. It’s asking a lot for him to lead the dismantling.”
As part of the change, Von Lehman assumed the role of interim president and CEO and will lead the company until the changes are complete. At that point, he says that Zacks will undertake an executive search for a new president and CEO with deeper industry experience.
Zacks says he is confident that Von Lehman’s strategy will succeed where previous strategies have failed.
“If I could change anything, I would’ve brought in a turnaround consultant in 1999,” Zacks says.
He says the management team is disappointed that it didn’t recognize the need for a turnaround specialist sooner.
“We asked why we didn’t see this ourselves. Everyone’s disappointed that we didn’t, but we are glad we have Von Lehman now,” Zacks says.
Zacks says that after the changes, R.G. Barry will emerge as a very different company than the one he took over in 1965.
“We’ll be leaner, faster and more profitable,” he says. “We’re also doing what is best for our customers.”
Von Lehman agrees that by focusing on the customers that are the most profitable, the company can further enhance existing relationships.
“This strategy actually reduces our risks because we won’t be diluting our resources,” Von Lehman says. “And we will still have 30 large customers — with not one of them too dominant.”
Looking ahead
Part of the strategy to reduce costs and outsource many functions is to close of all of R.G. Barry’s facilities in Texas and Mexico, which will reduce the total number of employees from 1,900 to 200.
“We will be outsourcing 100 percent of our products,” says Von Lehman, adding that most of that outsourcing will be to companies outside the United States.
Zacks, who is a member of President Bush’s Advisory Committee for Trade Negotiations and chairman of the U.S. & Foreign Commercial Service Advisory, says outsourcing is not to blame for the country’s current trade situation, which he claims is unfair to the nation’s suppliers.
“We do not have a level playing field,” Zacks says. “And the political reality is that it is unlikely to become fair.”
Zacks says instead of focusing on the outsourcing issue, business leaders should focus on educating their existing work force.
“In our company, we have so many good, long-service people that have made a lifetime investment with us,” he says. “That will be rare in the future. People are changing careers, working in multiple industries, and they need to be flexible, adaptable and able to learn new skills at an advanced age. That is our biggest challenge — to figure out how to re-educate the work force.”
Despite Zacks’ and Von Lehman’s positive outlook about R.G. Barry’s future, the company’s has received more bad news. Early in June, the New York Stock Exchange delisted R.G. Barry from public trading. Zacks and Von Lehman are taking the delisting in stride.
“We do not believe the NYSE’s decision has any bearing on our ability to move forward with implementation of our new business model,” Von Lehman says. “And we have no plans to challenge their decision.”
Von Lehman explains that 2004 is a difficult transition year, and he does not expect the company to turn in an operating profit. But he does expect to see positive results in 2005.
In the meantime, the company’s common shares will be traded on the Over the Counter Bulletin Board, and Von Lehman continues to be optimistic about R.G. Barry’s future.
“The employees are hopeful now,” he says. “And our biggest risk this year was customer defection. But we have gotten the commitment from our biggest customers for the big holiday season.”
Plus, he says, the comfort footwear market is expanding, and R.G. Barry is well-positioned to take advantage of the new casual trend in the nation.
“Consumers like comfort footwear they can go run errands in, or take out the trash,” says Von Lehman. “They’re not strictly for house wear anymore. We are expanding the definition of comfort footwear.”
Von Lehman also points to R.G. Barry’s solid foundation as insurance for the company’s turnaround.
“R.G. Barry has a very sound foundation of products, brands and customer relationships, which are all very important,” he says. “A company can’t turn around unless it has a reason for being — does it provide value? If the answer is no, no amount of re-energizing will help.
“But the answer here is yes. The company has good products and good people.” How to reach: R.G. Barry Corp., (614) 864-6400 or www.rgbarry.com
