London Fog Industries Inc., the venerable Maryland outerwear manufacturer, sought bankruptcy protection in U.S. Bankruptcy Court in Wilmington, Del., yesterday, weighed down by more than $100 million in debt and a failed retail strategy.
The Eldersburg-based firm will close down most of its 140 retail stores in the United States and Puerto Rico and lay off a third of its nearly 1,500 employees to refocus on its original wholesale strategy.
"London Fog Industries' previous strategy was to compete in the direct retail sector," said William Dragon Jr., who took over as president and chief executive in March. "Substantial resources of time, talent and money were expended on this retail strategy for the past four years," he said in a statement.
London Fog's Seattle-based Pacific Trail Inc., which also makes outerwear, filed for bankruptcy concurrently with its parent.
The company expects to emerge from bankruptcy protection by early next year.
London Fog's previous strategy of setting up its own stores was "a very different business" from its original wholesale niche, said Bruce Crawley, a spokesman for London Fog.
Rob Gregory, a turnaround specialist who was chairman and chief executive of London Fog prior to Dragon, said London Fog's current troubles stem from its long history of struggling with a crushing debt load. London Fog is basically owned by its creditors, he said, and control of the company has changed several times since 1995.
"The biggest damage you pick up with companies in financial trouble is that you make a series of compromises with creditors who are trying to address a business strategy with a financial strategy," said Gregory, who successfully turned around Gitano Group Inc. before joining London Fog in 1995. That year, Gregory helped bring London Fog back from the brink of bankruptcy after handing over an 80 percent stake in the company to a host of creditors for retiring a large chunk of its $425 million in debt.
The company's traditional strengths are its brand image and marketing, not advertising or generating customer traffic to stores, Crawley said. Gregory said the company also is faltering because of an industry-wide trend: Consumers are shying away from mid-level brands and buying either low-cost or high-end products. In addition, the past two mild winters have hurt the company's sales, he said.
The company has secured a $130 million loan from Congress Financial Corp. to meet its cash needs while in Chapter 11. In a statement, the company said it was negotiating to give a stake in the company to creditors who hold more than $100 million worth of bonds.
The reorganization will enable the firm to clean up its long-standing debts and "still be a viable company, albeit in a reduced capacity," Gregory said. Only 35 of its 140 stores will remain open, and the company projects revenue of $300 million next year, Crawley said.
London Fog's lightweight rain gear made it an industry hit in the 1960s, and the company became a cornerstone of Baltimore's manufacturing base. Facing competition from overseas manufacturing, the company in 1997 closed down its Baltimore manufacturing plant, which the city's economic development agency helped it build in 1989. London Fog was founded in Baltimore in 1922 and went public in the late 1970s but then was purchased by Interco Inc. in a leveraged buyout in the late 1980s.
IN PROFILE: London Fog Industries
Business: Makes and distributes rainwear, outerwear and sportswear through more than 140 stores in the United States and Puerto Rico.
Brand names: London Fog, Pacific Trail, Clipper Mist, Towne and Black Dot
Based: Eldersburg, Md.
1998 sales: $335.6 million
1998 net income:
Ownership: Private; a host of investment firms owns the company
SOURCE: Hoover's, Bloomberg News