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Frederick J. Rowan II

Iconic Brands

EDITORS’ NOTE

Frederick Rowan joined Carter’s in 1992 as President and Chief Executive Officer and became Chairman in October 1996. Prior to joining Carter’s, Rowan was Group Vice President of VF Corporation, a multi-division apparel company and, among other positions, served as President and Chief Executive Officer of both The HD Lee Company, Inc., and Bassett-Walker, Inc., which are divisions of VF Corporation. Rowan began his career at the DuPont Corporation and later joined Aileen, Inc., a manufacturer of women’s apparel, ultimately becoming its Chief Operating Officer.

COMPANY BRIEF

Carter’s (www.carters.com) is a leading, publicly held U.S. maker of apparel for youngsters, with primary products that include newborn layette clothing, sleepwear, and playwear. Employing over 6,700 people, Carter’s markets its items under the Carter’s, OshKosh B’Gosh, Child of Mine, Just One Year, and Genuine Kids brands in department and specialty stores, and 370-plus company outlets nationwide.

Are you optimistic for the growth of Carter’s brands in 2008?

Yes. We have powerful consumer brands, and even in less than desirable economic climates, there is still natural demand for our products. We do not have fashion brands; we have lifestyle brands, in a breadth of categories with a breadth of core customers. At the moment, demand is sufficient and we expect that to continue.

To what do you attribute the strength of Carter’s business?

The strength comes from our breadth of brands, products, and multiple channels of distribution. We have a lot of legs to stand on. Furthermore, we have organic growth across all of our distribution channels. We also have a unique culture, which attracts and retains the industry’s best talent.

You recently brought OshKosh B’Gosh into the Carter’s fold. Has that segment of the business developed in the way you expected it to?

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It did not develop the way we had expected, but it was not for the lack of power of the franchise. Recent consumer surveys have validated that OshKosh resonates well with them and that the intent to purchase the brand is strong. We, in retrospect, initially positioned the brand too high in product benefits and pricing, and when it hit the shelf, there was consumer resistance. We’ve since corrected that, and moving into spring, summer, and fall of 2008, we expect improvements. We remain confident that we made a wise acquisition, and we now have our hands around it. It was a big bite and a lot to chew. In retrospect, we were a bit too optimistic regarding the time required to fix an ailing business, but now we’re optimistic about its potential.

How do you differentiate Carter’s brands from those of its competitors?

This is clearly a more competitive market. We even compete with our customer’s private brands and exclusive offerings. It’s always a challenge to stay relevant, but we do. We can’t be stagnant with our product values. For Carter’s and OshKosh, the point of view is so strong and differentiated in these two brands. They are similar in that the consumer views them as icons. They are different in that Carter’s sweet spot is clothing for newborns to two-year-olds, and OshKosh’s sweet spot is two to four-year-olds. Carter’s is adorable and soft, and OshKosh is more rugged and fun. Those points of view serve us well, and allow us to differentiate and not dilute each brand’s opportunity for substantial growth.

What sort of impact has technology had on the production and distribution of Carter’s products?

One should take a holistic view of technology. First and foremost, we have to use technology to understand the consumer and connect with them. Also, technology has to be used to service the customers and to educate the consumer on the brand’s proposition, such as through our Web site. Additionally, we use technology to improve decision-making within the company.

What means do you use to stay in touch with consumers? How do you keep the dialogue open to make sure your brands remain relevant in the marketplace?

It is very important for us to keep our dialogue with consumers open and active. We do significant research, such as online surveys and consumer panels, and then use the information that we derive from those methods to help us strengthen our decision-making. Consumer panels, specifically, are very helpful in the development of our product lines. We stay connected to consumers through the Web, and we do surveys to understand shopping habits in our stores. Fortunately, we have enough stores to gain a true understanding of consumer behavior. We also do threshold-pricing studies to understand what consumers think of the value of our products.

Carter’s has a strong retail footprint. Do you anticipate opening even more Carter’s stores?

There is significant opportunity for store growth, and an opportunity to use our stores to elevate our brands even more so and to make them more aspirational. When the consumer sees a good store of ours, it helps drive our customers’ business; if our brands look right in our stores, it will drive a consumer to more destinations. We found out from our consumer surveys that customers prefer the accessibility and availability of Carter’s and OshKosh in different formats.

Is it difficult to train salespeople in department stores and other outlets on the value proposition of Carter’s brands?

It is challenging, but one has to accept the fact that that’s the real world. So we propose that our retail customers allow us to provide Carter’s and OshKosh merchandise with strong branding at the point of sale and provide information to make it easier for the consumer to shop. Our customers can only afford so much in terms of floor labor, and they can only do so much to educate the consumer. So it’s a joint responsibility to do that. We would like for our customers to buy into this proposition for stronger branding and better fixturing as we move through the next couple of years. It will make a big difference to them and to us.

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Is there opportunity for growth outside of the U.S.?

Yes. We’ve been careful to make sure that we’re doing our homework first. OshKosh appears to have a legitimate amount of brand recognition internationally, and we do have a fairly strong licensing business offshore. We think there is an opportunity for OshKosh and Carter’s, as well. Let me put it this way: For the next year, we’ll focus on restoring the OshKosh brand, before we tackle the international scene.

What is Carter’s philosophy towards corporate social responsibility and giving back to the community?

It’s vital, and it’s great to rally our associates for a common cause. We first got involved in the Leukemia & Lymphoma Society a few years ago, but in the past two years, we’ve really connected our people with the society, and we participate in its Light the Night campaign. The campaign promotes walks around the country to honor survivors, to remember those who have lost the battle with leukemia, lymphoma, or other blood cancers, and to raise significant funds for research. The goal is to eliminate these blood diseases. In 2006 Carter’s led the nation in walkers with about 600 people, and in 2007, we had 1,400 walkers. In 2006, we raised $210,000, and in 2007, we raised $450,000. So we’ve become a significant force. True to the culture here, we like to get into something only if we can make a meaningful difference and if it’s a noble thing to do. We don’t like to be spread too thin. It’s like business: If you try to tackle too many things and be all things to all people, you won’t make a meaningful difference. So we’ve really hung our hat on this cause. Our people are just amazing. I’m thrilled with what we’ve done. We also have programs in local communities. We donate to the Shepherd Center, a catastrophic care hospital in Atlanta. It’s the best hospital in the United States for treating catastrophic spinal cord injuries, many of which affect young people.

Carter’s has a history of offering high-quality, yet affordable, products. Would you define your brands as luxury brands? Is that something the typical Carter’s consumer would even think about?

The media defines luxury differently from how a consumer would. It’s more about what I can afford and what image I prefer to portray. The media likes to think that the upper distribution channels are comprised of only extravagant consumers – that’s simply not true. There are certainly a small percentage of people in the country who are extravagant, but most people seek value. The meaning of value varies by consumer profile and certainly by income levels, but even at Neiman Marcus or Saks Fifth Avenue, people watch what they spend. Wealthy people didn’t get wealthy by being extravagant. Carter’s and OskKosh are more about aspiration and value. I certainly would not use the word “luxury” to define either brand. Our consumers just don’t converse that way and neither do we. That said, they are willing to spend, but they have to get a really good deal on our products. They want a really good price, as opposed to upscale distribution. Our customers are more price-sensitive than they are sensitive to where they purchase those goods. For some people, it’s important to be able to say, “I bought it at Neiman’s.” But our consumers are more practical; they are aspirational, but they want outstanding quality, a really good product, and a great price. The word “cheap” is not in their vocabulary. They don’t want poor quality products that just don’t measure up. The Coaches and the Abercrombies of the world are the ones that refer to “affordable luxury” – we would never say that.

You’ve led this company for a long time. Do you ever think about slowing down?

All leaders, at times, think about slowing down. Not every day’s a holiday, nor every meal a feast. There are moments when I think, “What the hell am I still doing this for?” But at the moment, I don’t give it serious consideration. I really enjoy the work, and I think I can make a meaningful difference. Those are two things that are required to lead. If you’re enjoying your work and not making a meaningful contribution, you should get out; if you are making a difference and not enjoying the work, you should also get out. I wouldn’t still be here if I didn’t think I could offer something to the company. So I don’t have any short-term plans for exiting.

Is Carter’s still attracting the quality employees it needs to run its operations?

We are happy with our ability to attract talent. People still perceive us to be a growing company and a company with a culture they agree with and respect. Therefore, we don’t have a big problem attracting top people. Now, to say A students are easy to come by – that’s never been the case, but we get our share.

What will be your key priorities for 2008 and 2009?

Our priorities are to block and tackle as we never have before and to continue to execute at very high levels. We want to fix OshKosh and make that brand contribute significantly in the next couple of years, while continuing to grow the Carter’s business. Then, in the next three to five years, we’ll look for other opportunities for growth.