Liz Claiborne recently announced plans to close down its sourcing operations and buy all its offshore garments through Hong Kong-based Li & Fung. While Claiborne will still handle the design and merchandising, Li & Fung takes over responsibilities for identifying and conducting negotiations with vendors as well as quality monitoring.
Claiborne hopes that tapping into Li & Fung’s global sourcing network will not only give the company more flexibility, but will also tackle the specific needs of each brand, improve speed to market and ultimately benefit margins and profitability. Li & Fung agreed to pay $83 million upon completion of the deal.
In a statement, Mr. McComb said the elimination of quotas and other globalization factors has "dramatically" changed the manufacturing world in recent years, and its current sourcing organization wasn't providing enough flexibility.
"Our 'one size fits all' sourcing model does not align well with our brand-centric strategy - a strategy that requires each brand to build separate and unique sourcing plans based on specific requirements," said Mr. McComb in a statement. "With Li & Fung as a partner, our brands will have access to a vast, worldwide network of manufacturing partners and best-in-class systems, management and talent - all of which give us more flexibility and a better competitive position. Greater buying power will enhance our going in margins, and disciplined execution will improve our speed-to-market."
Brian Sozzi, equity research analyst with Wall Street Strategies, told The Wall Street Journal that Claiborne might wind up reducing costs fairly substantially because of the arrangement with Li & Fung. He also said Claiborne "has been struggling for about three years getting goods to key department store customers in an efficient manner," and the Li & Fung arrangement may speed up the process.
Still, Mr. Sozzi described the accord as "the type of measure a company often does too late, when operating results have come under pressure."
Claiborne was one of the first apparel companies to source product in Asia back in the Seventies and Eighties.
Discussion Questions: What do you think of Claiborne's move to turn over sourcing responsibilities to Li & Fung? Do you see others moving away from the direct-sourcing model?