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Liz Eyes Further Cuts as Losses Widen

William L. McComb, chief executive officer of Liz Claiborne, said he would cut an additional $100 million in annual expenses.

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From corporate expenses to price points, Liz Claiborne Inc. is trimming down again.

William L. McComb, chief executive officer, said he would cut an additional $100 million in annual expenses as the company digests wider second-quarter losses reported Wednesday and prepares for a holiday season that could be more sale-oriented than many are predicting.

“The higher-level and middle-level consumer is still very gun-shy on price,” McComb told WWD.

Many in fashion are betting lower inventory levels this holiday season will help stores hold prices and prop up profit margins despite slackening demand. But McComb said shoppers simply might not pony up.

Accordingly, the company is positioning itself for greater appeal to more thrifty consumers. This fall, 40 percent of the Juicy apparel offering will start out at the opening price point, while Kate Spade will offer a more tightly edited handbag assortment, McComb said on the company conference call. Beginning in October, half of Lucky’s jeans will be priced at $99 or less.

“There’s just this industry cognitive dissonance about the better and bridge customer, that deep down she’s got a lot of money and she’s going to start spending it,” McComb said in the interview.

“This year, I don’t think [price promotions] will be driven by ceo’s of the big retailers looking at their balance sheet and looking at what their orders are,” he said. “This year is going to be about making money out of perishable inventory. It’s going to be about competing with each other.”

With his admittedly “iconoclastic” perspective, McComb waded into a debate that many retailers will be forced to dive into as they comment on their businesses in quarterly profit updates this week and next.

The promotional climate this fall is still very much an open question, said Scott Tuhy, debt analyst at Moody’s Investors Service.

“The customer’s been trained that the retailers are going to blink first,” Tuhy said. “A lot of it’s going to come down to: What’s the psychology when the holidays start? If it’s a slow start, how long will retailers be willing to say, ‘Let’s hold back on the promotions’?”

Already, competition is fierce.

On Wednesday, Claiborne reported second-quarter losses that more than tripled to $82.1 million, or 87 cents a share, from $23.2 million, or 25 cents, a year earlier. Adjusting for certain items, the losses were 48 cents a share and greater than the 40 cents analysts projected. Sales for the quarter ended July 4 fell 29 percent to $683.8 million from $963.4 million.

Claiborne’s stock slid 0.5 percent to $3.99 on what was a generally an up day for the market.

Even though the company has already streamlined — $70 million in expenses were cut in February, eliminating 725 jobs — the reductions haven’t been enough to keep up with the decline in Claiborne’s top line.

The firm’s selling, general and administrative expenses fell by $94.6 million in the second quarter, but amounted to 56.6 percent of sales, an increase from 50 percent a year ago.

This round of reductions will touch all segments of the business and include the consolidation of staff and distribution centers, the outsourcing of corporate functions and store closures in the ailing Mexx division.

“Are they cutting fat or are they cutting muscle?” questioned analyst Jennifer Black of Jennifer Black & Associates. “I don’t know the answer to that. They have some very talented people at each of these divisions.”

Almost a third of the expense cuts, or $30 million, will come from the Liz Claiborne-branded business.

McComb told analysts on Wednesday’s conference call that the line, which he noted was relaunched into “the jaws of a serious recession,” could be run more efficiently and with greater simplicity. The expense cuts would virtually eliminate the business’ losses at the current sales and gross margin levels, the ceo noted.

Despite signs of success in 43 shop-in-shops the company built to display the new Isaac Mizrahi-designed line, McComb said the department stores that carry the brand are being cautious in how much they buy and are requesting basic, rather than more fashion-driven, looks.

Headed into the second half, Claiborne expects sales to fall 20 to 25 percent in the third quarter and 10 to 15 percent in the fourth quarter.

Next year, McComb said retailers generally could move beyond price cuts and inventory reductions and begin closing more stores in reaction to the economic slowdown.

 

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