NEW YORK — Liz Claiborne has entered the McComb era.
It's a time when the apparel giant retrenches from a decade of aggressive acquisitions, focuses on its strengths and sheds its weaknesses.
A 200-person audience at Liz Claiborne Inc.'s long-awaited Investor Day on Wednesday heard details of chief executive officer William L. McComb's ambitious turnaround plan.
Analysts were impressed by McComb's transparency, benchmark goals and research, and now will focus on the execution. The ceo outlined how he will "strategically review" 16 small brands while focusing on growing Juicy Couture, Lucky Brand, Kate Spade and Mexx from $2.2 billion today to around $3 billion by 2010.
McComb said the company is entering the fourth era of its 31-year history. The first was during Claiborne's founding years; the second, when it started leveraging competitive advantages, and the third, Paul Charron's "era of acquisition" — all leading to the newest era of prioritization, investment and divestment. (See timeline.)
"This is a company that has revolutionized the industry before and we look forward to doing it again," McComb said. "Our growth has slowed and our returns have stalled, indicating we have reached another turning point. We overplayed the acquisition playbook, but it proved a successful strategy that delivered four gems that will lead growth."
McComb outlined five actions the company will take:
- "Narrow the portfolio to select brands we can fully resource," he said, adding that, of the 16 brands under strategic review, "many require investment levels that we cannot fund with the company's new plan." The brands up for possible sale, discontinuation or licensing include Sigrid Olsen, Dana Buchman, Ellen Tracy, C&C California, Laundry by Design, Enyce, Prana, Kenzie, Mac & Jac, Emma James, First Issue, Intuitions, J.H. Collectibles, Stamp 10, Tapemeasure and Tint — totaling $800 million in wholesale volume. The company has hired Centerview Partners to find buyers to which Claiborne can sell or license the brands.
- Reduce costs by $190 million total by 2010. The company has tied executive incentives to cost cutting, among other benchmarks.- Commit resources: Claiborne plans to spend 3 to 5 percent of the "power brand" sales on marketing (up from about 1 percent), totaling more than $20 million per power brand, plus make a $500 million capital investment in the next few years. "Historically, we have underinvested, but with the correct marketing, we can really drive customers to our stores," said Jill Granoff, the recently promoted executive vice president of direct-to-consumer brands.
- Create "best-in-class retail capability."
- Make "fashion faster" by innovating the supply chain.
Brad Stephens, a retail analyst at Morgan Keegan & Co., gave Claiborne "an ‘A' from a presentation standpoint." Although he thinks that it will be difficult to tell whether McComb's plans have worked for at least another 18 to 24 months, Stephens thinks higher-than-expected cost savings will tide the investor community over until then.
"I like any company that actually sits there and breaks stuff down," Stephens said. "When you give enough granularity, you show the investment community you have nothing to hide. It makes investors feel good about it, so they can do the math themselves."
Margaret Mager, retail analyst and managing director for Goldman Sachs & Co., said, "The strategy gives stronger direction and clarity in terms of allocation of resources, both human and financial. There's a lot the company can do and that became clear to the investment community today. The stage has been set with expectations of reasonable goals that encourage achievement, and now we get to follow the story along and see how the boxes are checked over time."
Claiborne's stock closed up 33 cents at $37.56 Wednesday on the New York Stock Exchange. Trading volume was 36 percent above average.
Claiborne promised shareholders that earnings per share would increase every year, first driven by cost savings, but by the third year, driven by sales growth, primarily from the direct-to-consumer brands. It outlined specific growth plans, broken down into partnered and direct divisions, as well as brand by brand.
Granoff addressed the company's failure to deliver consistent retail performance, what she called the "elephant in the room." She pointed out the company has already closed the stores for brands that "do not have viability to reach size and scope," including Elisabeth, Dana Buchman, Ellen Tracy, Laundry, Kensie and Mexx USA, and Sigrid Olsen is under review. The company plans to renew attention to its outlet business, while accelerating growth for its "four gems."In total, the four direct-to-consumer brands, in which Claiborne will pump the most time and investment dollars, are projected to bring in $2.2 billion this year with 519 stores. By 2010, Claiborne projects direct business will grow to $2.9 billion to $3.2 billion with 854 stores, with 50 percent growth in overall square footage.
Executives added that outlet business had been sluggish, and they needed to add merchandise specifically designed and priced for outlets. They plan to carve up many of the Liz Claiborne brand outlet real estate to include outlets for its power brands, which are:
- Juicy Couture: Claiborne acquired Juicy in 2003, when it was doing less than $50 million in wholesale volume. This year it should do $450 million in total volume — $300 million at wholesale through 265 doors, $100 million at its own 40 full-priced stores, $25 million at its 16 outlet stores and $25 million in e-commerce through its wholesale partners. As it builds about 100 stores in the next three years, expands internationally, adds categories and invests in marketing, Juicy will grow to $600 million to $700 million by 2010, according to the firm, which still believes Juicy is a $1 billion opportunity. "A Juicy revolution is under way," said Granoff.
- Lucky Brand: In 1999 Lucky became one of the first big contemporary acquisitions for Claiborne. It has grown into a $470 million brand this year, with $205 million in wholesale sales from 780 doors, $230 million at its own 174 stores, $12 million from 15 outlets and $14 million from e-commerce. By 2010, Claiborne thinks Lucky can grow to $600 million to $650 million. Claiborne sees growth coming from growing the accessories and tops business of the denim-dominated brand, adding 100 stores in Middle America and upping marketing with a grassroots bus that will travel through the country hitting music and sporting events to promote the rock 'n' roll brand.
- Kate Spade: The first acquisition after McComb took office last year, Kate Spade is projected to do $90 million in volume this year, with $35 million in wholesale at 210 doors; another $35 million at retail from 26 Kate Spade doors; $10 million from 14 outlets, and $10 million from e-commerce. The business could enjoy 50 percent annual growth and could almost quadruple to $250 million to $350 million by 2010, according to Claiborne, which plans to add 80 Kate Spade stores and streamline products to focus on Kate Spade's accessories roots, which means cutting out paper and table top products. "We think we are at the beginning of our journey with Kate Spade," Granoff said.- Mexx: Bought in 2001, Mexx is doing $1.2 billion in sales, of which retail makes up half, wholesale makes up 49 percent and e-commerce contributes 1 percent. By 2010, Mexx ceo Jeff Fardell wants that number to grow to $1.4 billion to $1.5 billion, with even growth between wholesale and retail. The plan is to reduce overhead by 10 percent, make the outlet business profitable, review penetrated versus underperforming markets and invest in the core markets to maximize retail business.
For the partnered brands, the goal is more to stabilize the losses. This year, Claiborne estimates the partnered brands — which are the Liz Claiborne, DKNY Jeans and the Monet groups as well as the cosmetics family, after taking out the $800 million worth of brands under review — will bring in $2 billion. Claiborne projected the partnered brands will decline in sales in 2008 to $1.8 billion, led by double-digit losses in the Liz Claiborne brand, but by 2009 the division will stabilize and possibly start slowly growing. The partnered brands include:
- Liz Claiborne: The Liz Claiborne brand family, which includes Liz Claiborne, Liz & Co., Concepts by Claiborne, Claiborne, Axcess and Villager, will bring in $1.5 billion this year. "In the two weeks since Liz Claiborne's death, we've been reminded of the tremendous attachment women feel to the brand," said Aru Kulkarni, chief customer officer. "It's no secret the Liz Claiborne brand family has been in the decline." The firm sees this area losing volume, led by significant losses in the Liz Claiborne brand itself, while exclusive brands like Liz & Co. are expected to expand. Claiborne is "revolutionizing the partnering model," inspired by the relationship with J.C. Penney for the new Liz & Co. exclusive line. The focus is on working with the retailer to share information, and to define success in terms of sell-throughs, rather than sell-ins.
- DKNY Jeans: The DKNY Jeans family has grown to a $255 million brand this year, up from $190 million in 2003, and by 2010 Claiborne thinks it can grow up to $300 million by increasing its representation in the Midwest and increasing the doors for men's and juniors.- Cosmetics: With fragrances in its portfolio, the cosmetics division is one of the company's more profitable areas, though Claiborne expects its sales to be flat or even slightly down from $175 million for 2007.
- Monet: The Monet jewelry family is expected to do $135 million this year, and Claiborne expects modest growth from there.
Liz Claiborne's Portfolio Brands on Review
- First Issue: Closed in 1994, but reinvented as an exclusive with Sears.
- Dana Buchman: Liz Claiborne designer launched her label in 1987.
- Emma James: Launched in 1996.
- J.H. Collectibles: Acquired in 1997.
- Laundry by Design: Acquired in 1999 as Laundry by Shelli Segal.
- Sigrid Olsen: Acquired in 1999.
- Ellen Tracy: Acquired in 2002.
- Enyce: Acquired in 2003.
- Intuitions: Created in 2004.
- Tapemeasure and Tint: Created in 2005.
- Prana and C&C California: Acquired in 2005.
- Mac & Jac and Kensie: Acquired in 2006.
- Stamp 10: Created in 2006 as an exclusive brand with Kohl's. Power Brands
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