During his ownership, Farley served as chairman, but longtime Fruit of the Loom executive John Holland continued to influence operations. Thanks to Holland, the company extended the Fruit of the Loom brand into the broader apparel market. He added women’s wear in 1984 and sportswear in 1987 and continued to drive activewear sales.
Despite Holland’s business successes, Fruit of the Loom’s leveraged capital structure drove the company to several years of losses in the late 1980s.36 At the same time, competition intensified due to cheaper imports and an “underwear” battle with the company’s archrival, Hanes.37 In the 1990s, a national recession exacerbated these negative forces. Succumbing to mounting pressure, the company closed most domestic manufacturing plants, laying off 10,800 employees, and moved to Mexico, Morocco, and elsewhere abroad, and the business reincorporated in the Cayman Islands to reduce taxes.38 In 1996, Holland retired, leaving Farley in charge.
Downsizing measures proved inadequate. Leverage and enduring external strains were too great as the company racked up losses. It also erred by making additional borrowings to fund acquisitions that turned out to be disappointing. In mid-1999, Farley resigned due to shareholder agitation, and by year end the company filed for bankruptcy. The administrators promptly recruited Holland out of retirement to revive the company’s fortunes.
Soon after the bankruptcy filing, Berkshire signaled interest in buying Fruit of the Loom’s apparel business. For Buffett, it was difficult to resist such a great story of American entrepreneurship, one dating to 1851 and interrupted by a short period of excessive leverage and poor stewardship. And he also had a personal connection.
When Philadelphia & Reading (P&R) bought union Underwear back in 1955, it was controlled by Graham-Newman, where Buffett worked, and Buffett was also a shareholder of P&R. At the time, Buffett was delighted by P&R’s acquisition of union Underwear from Jack Goldfarb, as it was structured on mutually advantageous terms.39 Forty-five years later, Fruit of the Loom’s bankruptcy administrators named Berkshire the winning bidder, so Buffett’s company bought Fruit of the Loom—again.40
Buffett requested that Holland, who had helped Fruit of the Loom navigate the adversity of the leveraged buyout, stay on to run the business. Holland returned the company’s capital structure to basics—little debt and modest expenses for funding operations. Within a few years, Fruit of the Loom was revived, today being among Berkshire’s largest subsidiaries by number of employees. In a sign of its prosperity, in 2006 Fruit of the Loom paid $1.12 billion to acquire Russell Corporation, owner of powerful brands, including Brooks running shoes.
At Berkshire, economic value arises from combining modesty about one’s ability to understand any business with a preference for businesses that are relatively easy to understand. Zeroing in on rudimentary industries, basic businesses focused on what they do best, and simple capital structures, poses less risk than dabbling in exotic industries, adventuresome businesses, and heavy debt.
11
Eternal
During the period between Christmas and New Year’s Eve of 2011, Jim Weber regularly checked his email, but not his voice mail. Back in the office on January 2, he retrieved his phone messages. One had been left five days earlier: “Jim, this is Warren Buffett. I have an idea I want to run by you. Please give me a call.” Weber was mortified that he had not returned a message from Warren Buffett after almost a week had elapsed.1
When Weber made the call, Buffett said “Tell me about Fruit of the Loom and Brooks. To what degree are you integrated? Are you sharing many services or systems?” Buffett was referring to Brooks Sports, Inc., a company Fruit of the Loom had acquired as part of its acquisition of Russell Corporation several years earlier. Weber had run Brooks for a decade, and Buffett wanted to assess whether it should be spun off as a standalone subsidiary of Berkshire rather than remain tucked in two corporate levels below.
Brooks, founded in 1914 by Morris Goldenberg in Philadelphia, was, through the 1960s, a modest maker of athletic shoes, cleats, and ice skates.2 In the 1970s, it rode the national jogging wave by making running shoes that were among the most sophisticated of the period. Growing too fast, however, Brooks soon ran into cash flow and product quality problems that impaired its independence and sustenance. It was passed around to a series of corporate owners—five in two decades—which left the company a corporate orphan.
In 1982, Wolverine World Wide Inc., maker of Hush Puppies, acquired Brooks out of receivership. Through the 1980s, Wolverine participated across the athletic footwear spectrum—basketball, fitness, tennis, training, and walking shoes—against industry giants such as Adidas and Nike. Wolverine transformed Brooks from a niche player to a generalist, moving from “class to mass” in hopes of prospering. It did not.