NEW YORK — Liz Claiborne Inc. is expecting a “significant” improvement in earnings this year after a rough 1993.
The 1993 figures, scheduled to be released in mid-February, will show a drop of about 40 percent, about what the company had previously predicted. Earnings for 1993 are expected to come in at around $125 million, against $219 million in 1992.
Jerome A. Chazen, chairman and chief executive officer, said Wednesday that 1994 will be “an
OK year” and translated that to mean a significant improvement over 1993. Sales last year were ahead marginally, he said.
“We’ll still be doing some catching up in the first and second quarters of the year, but we should have good gains in the second half,” he said.
In a wide-ranging interview, Chazen covered the outlook and operations of each Claiborne division. He predicted explosive growth for Villager, but said it’s still a couple of years away. Meanwhile, Villager and the two other brands purchased from Russ Togs, continue to lose money.
Chazen said the goal for 1994 is to bring margins in the sportswear division, which he said makes up about 50 percent of Claiborne’s $2.2 billion volume, back to 1992 levels. He said this will be achieved by selling less merchandise and by refocusing the three sportswear divisions: Liz Claiborne Collection, LizSport and LizWear.
“We hope this will improve our margins and lead to a bottom-line improvement,” Chazen said. “One of the things we noticed in sportswear, in looking at our position in the stores and through consumer focus groups, was that there was a certain amount of redundancy and duplication within the three divisions.”
He said the studies showed three things about consumers:
- They didn’t know the difference between the three labels.
- They were all the same consumer, even though the company thought there was a difference, such as Sport being a younger consumer.
- The company was “imploding upon itself” because the divisions were too often competing with themselves.
“Now we’ve taken each division and given it a separate focus,” Chazen said.
Collection, which is the highest priced line, is going to focus on being the career division, with an increased emphasis in dressier clothes such as day-to-dinner looks.
“Our holiday line has always had dressier clothes and has always had some of our best-selling merchandise,” Chazen said. “Now we want to give that sort of section 12 months out of the year.”
LizWear will concentrate on soft dressing for the career women, with an emphasis on “item-driven commodities” Chazen said, citing denims, twill pants, T-shirts and turtlenecks.
LizSport will strictly concentrate on casual career wear that’s generally less expensive than Collection and LizWear. Chazen said Sport is often geared for the career women who work in a less formal atmosphere.
Dana Buchman, the firm’s bridge-price division is on a “nice growth curve” Chazen said, and will show an increase in 1993 figures, coming out in the $100 million area in volume.
He said the auxiliary area of the company — including shoes, jewelry, accessories and cosmetics — had “very good years in 1993 and are well positioned for further increases in 1994.”
“In addition,” he said, “the licensed areas — hosiery, sunglasses and optical frames — are doing well and should have royalty income of about $3 million to $3.5 million in 1993. Royalty income in 1992 was $2.9 million.”
The men’s division is “coming out of a two-year slump,” Chazen said, and should be named the “turnaround division of the year.”
The dress division continues to struggle, he said, and volume should be down from 1992, when sales were about $168 million.
“We still feel we are the largest dress company out there, and have been refocusing our efforts in the dress area under the leadership of Harriet Mosson,” said Chazen, noting this means concentrating on career wear and following the latest trends in the dress market.
The firm’s large-size Elisabeth division, which has grown from $10 million in volume in 1989 to $160 million in 1992, will show a slight drop in 1993 figures.
‘We’re sort of taking a breather and looking at our distribution channels,” Chazen said. “We’ll also be putting new management in place because Linda Larsen German has been promoted to head our sportswear divisions. Elisabeth should continue to grow in 1994.”
In December, as reported, German was promoted to president of Liz Claiborne misses’ and petite sportswear, succeeding Hank Sinkel, who was given the new post of president, corporate sales group-U.S., acting as chief liaison with retailers.
Sportswear will not show large increases, he said, because the base is so large and there’s just not much room to grow in that market. But in some of the smaller divisions, “we could see double-digit increases.”
Villager, purchased from Russ Togs in mid-1992, is being positioned for sales to chains.
“But the line is still in its incubation period. It will take time before these chains find their comfort level with the line. But once that happens sales will go through the roof. In 1995 and 1996, sales will be in the nine-digit category,” Chazen predicted.
“Our ultimate concept is to make Villager a mega-brand for the national chains such as Sears, Kohl’s and Montgomery Ward, eventually spreading into areas such as dresses, accessories and shoes.”
The other two labels in the Russ Togs purchase, Russ and Crazy Horse, are both department store brands and are still mired down in a highly promotional moderate area where everything is marked down.
“We’re trying to get retailers to sell the line at regular prices. We’ve gotten the support of the principals of some of the stores but the buyers think we’re crazy and that we have to play the game just like the rest of the world,” Chazen said.
In 1992, the Russ Togs brands had total sales of $2l million and lost money. They also lost money in 1993, he said.
Chazen pointed out that the 1992 sales were all old goods and that the first Claiborne line was in the spring of 1993. “There were production and delivery problems at that time but that is all behind us. Spring merchandise is going out nicely made and on time.”
He said the Russ Togs divisions will never be as profitable as Liz Claiborne because of the tighter margins in the lower-priced areas. All these divisions will lose money in 1993 but should be much better in 1994, he said.
In the retail end of the business, Chazen said there are 40 outlet stores currently, with a new unit opened in St. Thomas for the excess international merchandise. The Liz Claiborne stores continue to be a good laboratory for merchandise, he added; there are 18 signature stores and three Elisabeth units, with no major rollouts planned.
The First Issue stores — there are 55 — have “major potential for growth” Chazen said, with 20 to 25 more stores expected to be added this year.
“We feel we could be major player in the mall specialty store arena,” said Chazen, explaining that First Issue is not quite as expensive as Liz Claiborne merchandise.
On the international front, Chazen said the firm is in 28 countries now — including selling at wholesale, through leased departments, franchised stores and joint ventures. He said expansion plans include 14 more countries this year.
He said the company is looking for a successor from within the firm for Robert Bernard, who left this week as president of the International division to join J. Crew Group as president and chief operating officer. Among the countries targeted for new business are China, United Arab Emirates, South Korea, Costa Rica, Mexico, Malaysia, Sweden and Indonesia. International business accounted for about $110 million in 1993.
The company now manufactures in 34 countries, with the amount produced in the Far East decreasing because countries such as Korea, Hong Kong and Taiwan are becoming too expensive, and “China remains a mystery” because of the political status.
The company is increasing its sourcing in 807 countries and in Eastern Europe.
Further regarding Mexico under the North American Free Trade Agreement, Chazen said, “I am more enthused about it becoming a market for our merchandise than as a production source. We’re already selling a lot of goods there, and expect to sell a whole lot more. They love American goods.”
In the technology area, Chazen said the company has developed a new hanger that can be used for shipping and display. The new hangers will be used for fall shipments and should save the retailer about 10 cents on each item, he said. He noted that Claiborne ships out more than 60 million pieces of apparel a year.
Also, he said, the company is working on reducing the cycle time from design conception to distribution by 25 percent, to 30 weeks from 40 weeks. It is working with consulting firm Kurt Salmon & Associates in restructuring areas of the operation to achieve this goal by 1995.
“It’s a logistical nightmare manufacturing in so many different countries and working from so many distribution centers. It’s am impossible task, but as long as our people don’t know it’s impossible, they continue to do it,” Chazen said, with just a hint of a smile.