Sure, it lost big money, but hey, it's Klein

<div class="section1"><div class="Normal">Bruce J Klatsky, chief executive of Phillips-Van Heusen, knew that running Calvin Klein would be a challenge eight months ago when he bought the company.<br /><br />Just how big the challenge might be emerged this week when Phillips executives acknowledged that Calvin Klein had, in past years, lost $20 million to $25 million a year on the couture collection alone, and another $10 million to $15 million on its retail operations numbers previously known only to company insiders.<br /><br />In addition, Phillips said the company had spent about $50 million a year on overhead.<br /><br />While those numbers may have scared off other potential suitors, to Klatsky and his board, Calvin Klein was a golden name that just needed to be further mined. <br /><br />Phillips, a $1.4 billion company whose highest-priced item before the acquisition might have been a $100 pair of Bass loafers, is aiming to succeed with Calvin Klein in the world of $3,000 watches and $5,000 chiffon evening dresses.<br /><br />Klatsky, who has already pushed the label into two new midrange sportswear lines, said he thought he could significantly cut costs while keeping intact Klein''s stable of 110 designers and increasing the advertising budget by about 5 per cent.<br /><br />"Design and marketing was the lifeblood of the brand," he said. "But everything else was on the table to be analysed."<br /><br />The first things to be analysed were those expenses. While designers often lose money on showcase couture collections, one investment banker close to both Phillips and Klein said on Thursday that the Klein numbers were "substantially higher" especially when compared with total sales than the figures for most big-name designers.<br /><br />Klatsky defined overhead this week as "computers, warehouses, office equipment," and simply the way the business was run with a perfectionist''s zeal. "They made thousands of samples," Klatsky said on Tuesday, "and that costs a bloody fortune".<br /><br />Last week, Emanuel Chirico, Phillips''s chief financial officer, defined the charges as "limousines and everything you could think of." What else? Chefs and waiters and lots of security guards at the ready at the company''s office.<br /><br />Klatsky said that none of these expenses came as a surprise. "When we bought Calvin Klein, it was a private company, and, as such, Barry and Calvin were perfectly justified in running it the way they wanted to, private, whatever; they were entrepreneurs building a wonderful business," Klatsky said this week.<br /><br />Undaunted by the financial reports, Phillips looked beyond the free-spending and spotted several advantages. First, there were the licensing revenues $120 million last year, on total retail sales of $3.3 billion of goods with the Calvin Klein name on them, but not made by Calvin Klein. <br /><br />Phillips owns Izod (bought in 1996 for $35 million; now with sales of $300 million a year), and holds licenses to make DKNY, Geoffrey Beene, Arrow and Kenneth Cole. With the addition of the Klein name, the price range at Phillips has skyrocketed.<br /><br />"They needed very badly a prestige designer name to fill in what was a mainstream business," said Mr. Aronson, who is now a managing director at Kurt Salmon, a retail management consulting firm. "With the Calvin Klein name, they can do it all: Good, better and best." <br /><br />While Klatsky said that eventually he might shepherd his new brand into shoes and an expanded jewellery line, he said he immediately felt there was a huge market for lower-price men''s and women''s Calvin Klein sportswear. He said the two new sportswear lines, destined for department stores from Macy''s to Saks, could bring in a combined $1 billion a year.<br /><br />In its examination of the Calvin Klein records, Phillips found that the Klein company had been approached by Vestimenta, the blue-chip Italian company that makes clothes, not only for its own label, but also for Armani. <br /><br /><span style="" font-style:="" italic="">NYT News Service</span></div> </div>