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NEW YORK — Liz and Kenneth are parting ways when it comes to women’s sportswear.

Liz Claiborne Inc. and Kenneth Cole Productions Inc. said Thursday that they would not renew their licensing agreement, set to expire Dec. 31, to market women’s sportswear under the Kenneth Cole name.

This story first appeared in the March 26, 2004 issue of WWD.  Subscribe Today.

The two firms will continue their jewelry business and explore other strategic opportunities together. Claiborne is also evaluating its investment in 1.5 million of KCP’s Class A shares, or about 13.5 percent of those outstanding. “We will eventually liquidate the investment, but we’re not under any time constraints to do so,” said Angela Ahrendts, executive vice president at Liz Claiborne.

Paul Davril Inc., which is the men’s sportswear licensee, will pick up the Kenneth Cole New York women’s business, shipping product for spring 2005, while Claiborne’s final shipment of the women’s line will be for the holiday season.

Reaction Kenneth Cole, which has largely been fazed out of women’s sportswear over the past six months, is available only at the firm’s two Reaction stores and is not part of the deal with PDI. The brand continues to be sold in other product categories.

Paul Blum, KCP’s president, said pairing the more contemporary Kenneth Cole with Reaction, which is more of a better brand, “wasn’t really the right thing for either brand.”

“In the future, there is room for a Reaction better sportswear business,” said Blum. “Reaction is really a big future opportunity for us.”

Paul Charron, Claiborne’s chairman and chief executive, noted in a statement, “The decision not to renew the license for the apparel lines was based on strategic considerations. At this point, we do not expect the transition of this license to have a material impact on our 2004 financial results.”

Investors reacted to the news by trading shares of Claiborne up 54 cents, or 1.5 percent, to $36.15, and shares of KCP up $1.15, or 3.6 percent, to $32.75 on the New York Stock Exchange.

Kenneth Cole women’s sportswear is sold in about 400 department stores and, according to sources, pulls in under $100 million in sales annually.

Inked in August 1999, the license agreement gave Claiborne the rights to manufacture, design, market and distribute women’s apparel products in North America under the Kenneth Cole New York, Reaction Kenneth Cole and Unlisted trademarks. Unlisted, primarily a men’s shoe business targeting a younger customer with lower price points, had yet to be developed into apparel.

KCP’s Blum noted, “Liz, being a specialist in the women’s business, in a very professional and methodical way has built a very strong women’s business for us. Right now, we have some really positive transition points where PDI is going to pick the business up in motion, so that it just continues to grow.”

Having both the men’s and women’s sportswear businesses licensed to one company will help KCP leverage its investment and more easily steer the brand, said Blum.

Ahrendts said the transition to PDI would be seamless.

While singing the praises of the business’ growth, Ahrendts noted that it was “one of the smallest and least profitable businesses within the portfolio.” Part of that is due to the licensing nature of the business, which requires Claiborne to pay KCP for use of the name.

“We’ll never make the amount of operating income on the licensed business than an owned business,” said Ahrendts.

The move away from the licensing deal also makes sense, given Claiborne’s general preference to own the brands it markets, often picking them up through acquisition. Last year, the firm snatched up Enyce and Juicy Couture. Before that it was Lucky Brand, Sigrid Olsen, Laundry by Shelli Segal, Mexx and Ellen Tracy.

Claiborne, though, does produce DKNY Jeans and DKNY Active under a licensing agreement with Donna Karan International, which extends through 2012. There is also an agreement for City DKNY, often positioned next to Kenneth Cole on the sales floor, through the end of 2005.

Ahrendts said the firm’s business with DKNY has reached more of a critical mass than the Kenneth Cole business did.

Still, she added, “There are a lot of constraints in a license. When you own something 100 percent, you have the ability to grow it internationally, which you can’t do with a license.”

Ahrendts pointed to the contemporary brand Juicy Couture, which Claiborne has expanded with new product categories and licensing deals globally, as exemplifying the benefits of owning, not renting.

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