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Apparel COO has brief run
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January 29, 1998: 3:38 p.m. ET
Fruit of the Loom's president resigns as company sweats over basic costs
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NEW YORK (CNNfn) - Fruit of the Loom Inc.'s president and chief operating officer resigned Thursday, capping a rocky two-year tenure punctuated by mounting concerns over how to squeeze profits from an increasingly cutthroat market for basic apparel.
In explaining his reasons for stepping down, Richard Lappin, 53, said only that the company's restructuring "is mostly behind us and it is an appropriate time to spend more time with my family."
The company said it had begun a search for a new chief operating officer.
Casting Lappin's departure in a sharper context, William Farley, the company's chairman and chief executive officer, said it comes at a moment when "the textile and apparel industry is going through a period of substantive change…due primarily to the increasingly competitive nature of the industry on a global basis and to changes in world trade regulations."
Calling 1997 a "disappointing" year, Farley expressed hope for a "sharp turnaround" in 1998, led by a fresh injection of new managers brought in since 1995 to help reinvigorate the company and return it to profitability.
Last fall, Fruit of the Loom, one of the world's leading makers and marketers of basic family apparel, projected restructuring charges of $100 million to $200 million. The extent of those charges will be divulged when the company issues its quarterly report Feb. 12.
They are linked, at least in part, to a shift of 95 percent of the company's labor-intensive sewing operations to offshore facilities since the end of 1994, according to Fruit of the Loom spokesman Mark A. Steinkrauss.
Steinkrauss said that of the company's 30,000 employees, the labor migration had affected more than 15,000, who now are based in Mexico, South America and the Caribbean.
In undertaking the labor shifts, analysts say, company executives had hoped to slash production costs enough to offset the effects of lowered revenues due to overproduction. Despite slowing business industry wide, many apparel makers kept production at high levels, driving prices down.
"This was a classic case of excess supply," said Lorraine Miller, of Robinson-Humphrey, noting that the cost savings from the offshore moves were essentially "given back" to customers in the form of lower prices.
With Lappin's resignation, Miller said, Fruit of the Loom is sending a signal that it is no longer in denial about its problems.
"There is always a day of reckoning," she said. "You accumulate all this inventory at the wholesale level, and it all kind of implodes. So I think this is it…I view it on their part as at least an admission that some change needs to be made."
Shares of Fruit of the Loom rose 1-3/16 in afternoon trading on the New York Stock Exchange to 24-1/8, a 5.2 percent increase.
Farley said Thursday he expects Fruit of the Loom to rebound this year.
"We have substantially reduced our cost structure while looking at opportunities to improve revenue growth," he said. "Coupled with a lower tax rate and the possibility of some asset sales, 1998 should show a sharp turnaround from a disappointing 1997.
-- by staff writer Douglas Herbert
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