Liz Claiborne Inc. chief executive officer William L. McComb said the restructuring at the company is about 80 percent complete. The remaining 20 percent of the task will likely result in more cuts in 2009, sources indicated.
This story first appeared in the December 24, 2008 issue of WWD. Subscribe Today.
The $4 billion vendor has trimmed 1,500 jobs and $265 million in costs in the last two years. But McComb said reduced consumer spending in the recession and investor fears that the credit drought might prevent the company from getting a $650 million asset-based revolver loan have helped push down Claiborne’s stock price to as low as $1.46, compared with a 52-week high of $22.78.
Shares dropped 70 cents, or 23 percent, closing at $2.28 Tuesday.
Uncertainty continues to persist throughout the market, but Isaac Mizrahi’s spring relaunch of the core Liz Claiborne brand has been given high marks by retailers who previewed the line. The brand accounts for almost a quarter of the parent company’s volume. Mizrahi’s debut is coupled with relaunches of Kate Spade, Dana Buchman for Kohl’s and Claiborne by John Bartlett, but the company is predicting that consumer malaise will offset sales gains from revived product.
On Tuesday, Standard and Poor’s downgraded Claiborne’s debt two notches to “BB-minus” from “BB-plus.” In recent months, as performance metrics have declined and perceived risk has increased, the cost of insuring debt against default through credit default swaps has risen markedly.
So for the remaining 16,500 Claiborne employees, further job cuts appear inevitable in a market where even the relatively healthier fashion companies are slashing overhead.
McComb, who took the reins from Paul Charron two years ago, has realized much of the cost savings through eliminating 25 percent of the company’s executive staff, most notably the group president position.
“There were layers and layers of management that were bloated that we couldn’t keep carrying,” McComb said. “We needed some different skill sets. I needed people who were less skilled and groomed in wholesale showroom sales, and more who had retail capability.”
Just a few months after McComb joined Claiborne in November 2006, earnings for the final quarter of the year slid, a wake-up call that the company’s business model needed to be changed, he said. In the seven quarters since then, between the economy and the restructuring, earnings have fallen, leaving some analysts to question the changes. In the most recent quarter ended Oct. 4, the company posted a $68.7 million loss compared with a gain of $33.1 million in the third quarter of 2007.
McComb said Charron, who since 1995 had led the company through a decade of growth fueled by acquisitions, “had a smart vision that worked for a long time, using the scale Liz had on a departmental basis that no other player had, and the excellence and capability that came from that scale. But the strategy was out of gas.
“The big complaint when I came in was that across the functions we were doing things that weren’t good for the brand,” he said. “When you don’t have a strong brand-aligning mechanism, you end up with execution that doesn’t make sense across the brand.”
In the old model, the company focused on categories, with groups for wholesale apparel, jewelry, handbags, retail, outlet, licensing, international, sourcing, cosmetics and Mexx. Now Claiborne has transitioned to focusing on brands, with independent structures and leadership for Lucky Brand, Juicy Couture, Kate Spade, Mexx, Liz Claiborne, DKNY Jeans, Monet, Kensie and midtier.
“We’ve made a major blood transfusion from wholesale to direct brands,” McComb said. “It’s no secret that some of the most talented people in the industry have moved on to other positions as we’ve restructured, looking, frankly, for different competencies and skill sets in some of our leaders.”
Casualties of the new strategy have taken positions in the industry as presidents and ceo’s of other companies, from VF Corp. to Tahari to Best & Co. Unlike waves before them who had graduated from what had been called Liz Claiborne University, these alumni had been pushed out with often bitter feelings, and have since formed an informal support group helping each other to network and find jobs.
“I’m sure they aren’t my fans, but I’ve got nothing bad to say about anybody,” said the former group president at Johnson & Johnson. “It just stopped working. In the serious business community, this stuff happens all the time in companies. This is such a thin-skinned industry.”
A few executives have left on their own accord, such as president Trudy Sullivan and executive vice president of direct brands Jill Granoff, who were hired as ceo’s at Talbots Inc. and Kenneth Cole Productions Inc., respectively.
McComb lauds the “dream team” he has assembled, largely in new posts, including Tim Gunn as chief creative officer; Tom Fitzgerald, chief operating officer of direct brands, and Dave McTague, executive vice president of partnered brands.
Earlier this month, to motivate and retain the executive team in the face of record-low stock prices, Claiborne’s board approved new severance agreements and gave senior executives their 2009 equity awards early. Scheduled to be distributed next March, the equity grants instead are being divided into four quarterly installments, with the first granted this month and the last on Sept. 1.