By Tom Ryan
With a massive restructuring announcement, Liz Claiborne becomes the latest brand to say "No" to department stores. The plan involves the possible sale or closing of up to 16 apparel brands as well as an aggressive retail expansion.
The hope is that opening its own stores will give Claiborne more control and higher margins than selling to traditional department stores, which have struggled this past spring and are aggressively growing their own private labels. The shift also largely reverses a strategy over the last decade to amass more than 40 brands in addition to its namesake line.
"We are at a turning point," CEO William McComb, who joined Claiborne last November from Johnson & Johnson, said Wednesday at an investor conference. "Everything we do will be centered on one key principle: building powerful brands."
The plan's core components are:
- An aggressive expansion of the specialty retail store base under Juicy Couture, Kate Spade, Lucky Brand Jeans and Mexx, with the four brands becoming Claiborne's primary growth engines. Retail sales are expected to reach $3 billion by 2010, or 60 percent of revenue, up from $2.2 billion currently.
- A second segment, the wholesale-based partnered brand group, will feature Liz Claiborne brands, DKNY Jeans group, Monet brands and its cosmetics brands. These brands account for $2 billion in sales.
- Strategic reviews - include selling, discontinuing or licensing -- will be explored for 16 brands, including Dana Buchman, Ellen Tracy, Emma James, Enyce, Laundry by Design, prAna and Sigrid Olsen. Reviewed brands represent $800 million in annual revenue.
Between 600 to 800 jobs, or seven to nine percent of its non-retail global workforce in 2007, will be cut as part as a cost-cutting program. Annual savings are projected to reach $190 million by 2010.
The move comes as some other former department store resources - notably Guess and Coach - have thrived by opening their own stores. It also came a day before Macy's, the department store king, lowered its second-quarter earnings outlook to 20 to 30 cents per share, from 35 to 45 cents due to soft spring sales.
But analysts weren't overwhelmed, noting that Claiborne hasn't had huge success in the past with its own stores. Another worry is execution risk since most of the senior management team, including Mr. McComb and the four division presidents, have worked at Claiborne less than a year. Claiborne also has to prove it can stabilize and grow sales of the wholesale brands it is keeping -- such as Liz Claiborne and DKNY Jeans -- and revitalize sales at Kate Spade.
But Jennifer Black from Jennifer Black & Associates was fairly upbeat.
"I think the whole strategy could be quite brilliant as long as they can execute," Ms. Black told Reuters. "I do think taking control of their own destiny ... is what it's all about."
Discussion Questions: What do you think of Liz Claiborne's restructuring plan? What are some challenges in the plan? What message should this send to other brands struggling in the traditional department store channel?