(FORTUNE Magazine) – As CEO of Warnaco, the $650-million-a-year apparel company she led in a 1986 LBO, Linda Wachner, 43, knows that to sell her Christian Dior, Hathaway, and Olga brands she must listen to what retailers want and help them sell her labels. Wachner talked to FORTUNE reporter Susan Caminiti about this partnership.

''I don't think the shakeup in retailing now is the worst thing in the world. It's a lesson for all of us that if the rules require cash flow because you're operating with a lot of debt and have high interest expenses, then you have to figure out how to generate that cash, even in the worst case, so that you can meet your obligations no matter what. When Robert Campeau bought Federated, people assumed he paid too much and that's why he's in trouble now. I'm not going to judge whether anybody paid too much. I think there just wasn't enough real attention paid to downside possibilities in terms of monthly retail sales. The cash flow projections were impossible to achieve because they assumed Allied-Federated would come off a period of relatively flat earnings and start increasing earnings at a much faster rate. My feeling is that nobody said, 'Hey, what will we do if earnings don't go up as rapidly as we expect?' The momentum for retail deals has been strong, and people coming into the market say, 'Let's open up a new store.' They believe that's all they'll have to do to increase cash flow. Well, how about closing the bad stores? When we did the Warnaco LBO, one of our four businesses was a little retail division with 64 outlet stores doing $30 million to $35 million a year and losing about $400,000 annually. We're down to 42 stores and we're making money. Why? Because we closed every poor location, every store that didn't give us a good return per square foot. Beyond all immediate cash concerns, I think retailers have to address the fact that the customer needs service. To me, good customer service occurs when a store has inventory in depth. If I'm in the underwear department, for instance, and I've found the bra I want to buy, the salesperson should be able to give me three or four just like it. It's not just a question of teaching the people in the department store to give good customer service -- the salespeople just aren't available to teach because the work force is so transient. As manufacturers, we've got to go in and make sure our merchandise is on the floor where shoppers can see it, and the counters are clean and uncluttered. Next year Warnaco is going to bring in more people to our selling organization who are merchandisers, sales helpers. In fact, I just read that there are going to be a lot of layoffs from computer companies. We're going to start running ads to get some of those people. I would give them, for example, a group of stores, ten Bloomingdales, say, or ten Carter Hawley Hale regional stores, and have them go in every day to make sure everything is in order on the selling floor. They can't ring up the sales, but they can straighten up stock and make sure merchandise is available to the customer. We're treating the retailers as our partners in selling. Early last year I decided to ask Carter Hawley Hale, Allied-Federated, May, and the other big retailers to spend a day with us. I took the seven Warnaco presidents to visit them, just so the retailers could tell us what's happening with our products in their stores and what we could do to make things better. We had meetings with ((Macy CEO Edward)) Finkelstein and his senior management. Then we went to see Bill and Alex Dillard ((of Dillard Department Stores)) in Little Rock. They spent the whole day with us from morning until night. In the new environment we have to listen to what the retailers want, and we have to make it happen. That's what suppliers owe the retailers. Retailers owe suppliers prompt payment. With all the changes in ownership, we have to become more watchful about our receivables. Sure, we can't sell to B. Altman anymore; it's going out of business. But my main thing is to collect our cash quickly. If I see a payment to us lagging, I'll call up the store president and say, 'I'm looking through things here and it seems you're a little late.' We're an LBO too and cash is real important to us. I'm not looking at this as a time of retrenching but as one of doing our homework so that we're producing best-selling products. We want to be there first and fastest with a trend, and if that means changing the way we sell or the way we organize our sales force, well, we'll have to do that. I don't think anybody loves hearing that she's tough or difficult. I certainly don't, but I've learned to live with it. When you do a turnaround, it's part of the PR. I'm very grateful to God and to the world for what I have. I really am. That doesn't mean I don't work hard or don't push myself and everybody else to the limit. But I certainly don't push them without pushing me.''