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Liz Claiborne (LIZ)
Liz Claiborne Axes Brands, Splits Company in Two
Liz Claiborne is a born-again retailer. After a 65% drop in 1Q profit the company was forced to take extreme measures, and has since announced a new strategy for turning things around. It will eliminate nearly 9% of its workforce, sell or discontinue 16 out of its 40 brands, and split the company into two segments. The radical changes are expected to allow the company to focus on particular markets easier, but may not show results for several years. Will the bold, new moves bring Liz back to its former glory, or will the company wind up hung out to dry?
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Poor performance has not always plagued Liz Claiborne; instead, it is a rather new phenomenon. Throughout the late 1990s up to 2005 the overall performance trend was positive (up an annualized 26% 1999-2005). From 2005 onward, however, the company went through a series of peaks and troughs, oscillating between $35 and $40. While things had leveled out this year, it was an abysmal 1Q 2007 profit drop, 65%, that turned things sour. The company blamed department stores like Macy's for placing increased profitability pressure on suppliers, as well as for pushing out brands in order to boost in house created lines. The bright spots came from the more expensive brands, such as Kate Spade and Lucky Brand.
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The company's founder and fashion matriarch, Anne Elizabeth Jane Claiborne, died on June 26th. While she had retired from the company spotlight in 1989, the legacy that she had helped develop - fashions for the everyday woman - may have shifted for the worse over the past two decades. After leaving she remained an outspoken critic of what was happening to the firm that she once led, at one point refusing to wear Liz Claiborne clothing in response to the accoutrements looking cheap. It is rarely a good sign when your founder thinks that things have turned south. The wild success that the brand had experienced since the 1970s may have allowed the company to expand to quickly, and thus be forced to "turn cheap" when times were tight. As of 2006, Liz Claiborne clothing could be found in 30,000 retail locations throughout the world through a variety of formats and venues. While it has acquired several higher tier fashion companies, such as Lucky Brand Jeans, Mexx, Kate Spade and Juicy Couture, it still struggles to stay afloat in the tough world of retail. It certainly isn't that sales are non-existent - $5bn in 2006 - as much as the profitability of the brands Liz falling below expectations.
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Why are the brands the problem? For one, there are 40 of them, and not all are raking in the profits. This prompted CEO William McComb, who has been in charge since October 2006, to consider selling off 16 brands in an effort to let the company focus on the ones turning a profit. One of the brands on the chopping block is Dana Buchman, which has been part of Liz Claiborne since 1982. At the same time as the brand sell off, Liz will split the company into two segments. The four flagship brands already mentioned are expected to make up $3bn of the company's sales by 2010, and will be the retail-direct brands. The second segment will be comprised of the wholesale brands, such as DKNY, Monet and Liz Claiborne, which will bring in roughly $2.8bn in revenue.
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Profile |
The Company's principal activities are to design and market branded women's and men's apparel, accessories and fragrance products. The Company operates through the following segments: Wholesale Apparel, Wholesale Non-apparel and Retail. Wholesale Apparel segment consists of women's, men's and children's apparel designed, marketed, produced and sold worldwide under various trademarks owned or licensed by the Company. The Wholesale Non-Apparel segment consists of accessories, jewelry and cosmetics designed, marketed, produced and sold worldwide under various trademarks. The Retail segment operates specialty retail and outlet stores that sell these apparel and non-apparel products to the public. The Company's brands include AXCESS, BORA BORA, CLAIBORNE, CRAZY HORSE, CURVE, DANA BUCHMAN, ELISABETH, ELLEN TRACY, EMMA JAMES, ENYCE and FIRST ISSUE. On 07-Apr-2003, the Company acquired Juicy Couture Inc and on 01-Dec-2003, it acquired Enyce Holding LLC.
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