Holly Etlin
Managing Director, AlixPartners

The successful turnaround of BCBGMaxAzria is a Cinderella story for our times. Unlike tragic players like Payless Shoes and Bon Ton, BCBG passed through the Chapter 11 process and emerged stronger and more vital — saving 2,000 jobs in the process.

It was an award-winning turnaround for AlixPartners — which captured TMA’s Best Large Company Turnaround of the Year in 2018 — led by managing director Holly Etlin. But the outcome was not so certain at the onset, and the issues at hand were more complex than the usual 21st century retail woes of underperforming brick-and-mortar stores competing with the internet.

In 2017, when Etlin stepped in as CRO with teammate Deb Rieger-Paganis as interim CFO, they found a brand that had lost its luster and been floundering for years trying to find its footing and regain its customer base.

“The company had been struggling since it had made a transition from the founder (Tunisian-born fashion designer Max Azria), who had outgrown his ability to manage the business, to a new professional manager,” Etlin explains.

Azria founded the company in 1989. He named it BCBG for the Parisian slang bon chic, bon genre or “good style, good attitude.” Azria went on paid leave in July 2016.

Nine months before AlixPartners was hired, Martin D. Staff, the professional manager, inherited a company that was very short on cash. Guggenheim, the private equity sponsor, “had sort of reached their limit of how much additional cash that they were going to invest in the business,” adds Etlin.

Etlin said that she and Riger-Paganis were given a mandate to turn around the business as quickly as possible and then to prepare the company for a sale to a new investor.

It’s All About Liquidity

Etlin’s first step was to figure out “how much runway we had.” They had to discover how much liquidity the company had and whether the current rate of losses was going to give them three months, six months or one month to turn things around. The second step was to look for ways in which they could enhance that liquidity profile so they had the ability to implement some of their turnaround initiatives. If a company is already gaining traction toward a comeback, it is a much stronger sale prospect.

There were, however, some obstacles.

“We had to make some difficult personnel decisions within the executive management team, and one of those was to part company with the head designer, who is the wife of the founder,” Etlin recalls. “It was probably one of the most difficult issues. She was very talented, but she was not focused on designing things that were customer-focused and made money.”

She also had difficulties producing a collection on time, which had a negative impact on the vendors.

“When people are counting on you to deliver a season, it has to arrive on time. If they order spring dresses, and they’re supposed to be in their stores by March 15th, we need to deliver them by March 1st. Which means they need to be completely designed and under production by November or December.”

A New Design

Fortunately, the company had a designer already on staff who was qualified and prepared to step in. At that point, the company had not shown a collection at Fashion Week ­— the bi-annual display of new fashions that vendors attend to place upcoming orders — since Spring 2016.

“We luckily had a very talented designer, Brend Kroeber, who also was economically focused. He knew that he had to design a line that had a certain number of styles in it, and it needed to have a certain size profile. It couldn’t all be for skinny-sized women, because that’s not the typical company profile anymore,” Etlin says.

Having a designer enabled the company to begin working on the upcoming season, which was reassuring to the vendors who had been struggling in their dealings with the brand.

“The vendors were very concerned about going forward with the business and how they were going to be paid. And then we had our lenders who, while supportive, really wanted to understand that each step we took along the process were steps towards an ultimate goal of getting this business into the hands of somebody who could properly capitalize and finance [it],” says Etlin.

“We had very able lenders — a group led by Bank of America. They were engaged and very supportive,” she adds.

Unlike other brands or ordinary retailers, BCBG was configured with multiple arms, so it was fully vertically integrated and then basically sold only products with its own label. Merchandise was sold three ways: through company-owned freestanding stores, through more than 300 in-store boutiques in major department store chains, and through those chains, along with other department stores, as a wholesale line in which the dresses were sold within the regular dress department.

Etlin notes the department store partners were very focused on and concerned about the viability of the business. They also supplied solid feedback to the company about what was working for their customers and what wasn’t, giving the new chief designer a wealth of information.

The fashion business is very seasonally focused and fickle in the best of circumstances. Etlin and her team had to work to create a solid sales forecast and determine the optimum production number.

“You always produce a little bit of excess because you hope the customer will reorder. Even though they won’t commit to that upfront, and then you have your own stores and your own boutiques that you have to have a realistic sales forecast for,” she explains.

Reorganizing the Organization

The next obstacle was the organization of the company itself, which, Etlin says, was excessively complicated about reporting relationships, structure, and people. She and Staff went through a detailed talent assessment within the business. The pair were helped by the rest of the AlixPartners team that was on site, and they evaluated every person in every major department. They figured out how these departments really should be structured on a clean sheet of paper, then selected the best people to move into those positions.

“Then we did a major headcount reduction and realignment at the same time in the business to really get people focused on where the priorities were,” says Etlin.

Once the design department was nailed down, it was time to focus on the finances, which were in great distress, Etlin recalls.

“Deb had to rebuild the finance team there and put people in place and procedures and controls so that we really could understand what the trajectory of the business was and where we needed it to go,” says Etlin.

The team also made a decision to close many of the free-standing stores.

“Remember, we were at the very front end of the start of the retail downturn with regard to store closures, and we were fairly certain that we were not going to have the same latitude that some other people have enjoyed with landlords to really get the kinds of issues resolved that needed to be resolved,” she says.

Investor Luck

The team got lucky with Guggenheim, which was willing make a loan to bridge the company to a sale so that they would have to find a good outcome rather than walk away from the business.

“That’s very rare, in my experience,” Etlin says.

They filed for Chapter 11 and closed about 50 percent of the freestanding retail stores. They did not close or exit any of the department store-based businesses. At that point, there was a lot of interest in buying the company.

“Ultimately, in what is a fairly common structure of transaction these days, the operations of the business got split off from the actual brand name and intellectual property (IP) assets,” says Etlin. “Marquee Brands bought the brand name and the IP. Global Brands bought the rights to market, promote, sell, and distribute products bearing the BCBG brand and operate the wholesale operations, select retail stores and e-commerce platform.”

Before the finish, the team had to wind down the company’s operations in France and Canada as a condition of the sales, which provided further complications because of the French legal system.

Today, the team that AlixPartners worked with at BCBG is still in place. Marty Staff is still leading the company, which is once again doing what it does best — designing and selling high-end fashion.

“He was a great partner to work with because he really understood the business, but had very realistic expectations of what needed to happen,” Etlin explains. “He wasn’t afraid of taking bold moves to really right size the business and put it on the right track. Sometimes management finds this process a little bit difficult, because you’re asking them to make hard decisions very quickly and move quickly. Marty really embraced that process.”

For Etlin, to see the company thriving and even opening new retail stores is satisfying, and she still keeps in touch with the turnaround team, though the actual turnaround is now two years in the past, and she has moved on to other challenges.

“It may sound a little bit old fashioned,” she says, “But I came into this business to save businesses. To actually find a way to turn them around. Unfortunately, given the way retail is financed, by the time you get called in, you just don’t have the runway to do that. The business is too deteriorated, too out of liquidity. There’s nobody willing to fund it, and you find yourself presiding over a wind-down. And so the most satisfying thing for me was that there really was a successful business there that we were able to bridge to a solution, and the business continues to operate.” •