NEW YORK — William L. McComb might just want to keep some Extra-Strength Tylenol handy.
This story first appeared in the February 3, 2010 issue of WWD. Subscribe Today.
After selling off, shutting down and licensing many Claiborne brands the last three years, two of the company’s chief assets, Juicy Couture and Lucky Brand Jeans, are now both undergoing creative leadership changes this year — which were instigated by the chief executive officer of Liz Claiborne Inc. himself.
Meanwhile, the group’s namesake brand is undergoing its third reinvention during the McComb era as the main portion of the line becomes exclusive to J.C. Penney and the Isaac Mizrahi-designed Collection goes to QVC.
The changes mean three of the $4 billion company’s four core brands — the other being Kate Spade — will be undergoing major transformations this year, a year that initially was expected to see some stability finally arrive at the firm after 39 months of upheaval and restructuring.
Meanwhile, Claiborne has a major new investor who could bring pressure to bear on the firm’s management. Perry Capital has amassed a 9.7 percent stake in Claiborne, making it the company’s second-largest shareholder, according to a filing with the Securities and Exchange Commission. The hedge fund did not respond to requests for comment, and its intentions regarding its Claiborne stake could not be learned.
So, far from seeing calm return to the hallways of the Claiborne empire, as expected, McComb might be facing a few more headaches.
As their three-year contract stipulates, Juicy’s co-founders and co-designers, Gela Nash-Taylor and Pamela Skaist-Levy, are taking on a non-operating creative consulting role at the company this year, the final year of their contract, and Claiborne is searching for a creative director to succeed them.
At the same time, Claiborne has replaced Lucky Brand co-founders Gene Montesano and Barry Perlman with David DeMattei, ceo, and Patrick Wade, executive vice president and creative director, effective Jan. 4. Montesano and Perlman are also in the final year of a three-year contract which stipulates they, too, step back from day-to-day responsibilities and take non-operating creative consultancy roles. Again, Claiborne is looking for a new direction at that brand, as well.
Skaist-Levy and Nash-Taylor seem to be taking their departures in stride, and already are cooking up another lifestyle collection once their non-compete clause runs out.
“It’s [Claiborne’s] vision going forward. We’re creative consultants. They’ll call us up. It’s like letting your baby bird fly out of the nest on its own,” said Nash-Taylor, who founded Juicy Couture with Skaist-Levy in 1996 and sold it to Claiborne in 2003 when it was generating $50 million in sales.
But retailers admitted that Juicy, which has had a strong growth trajectory for most of its history and racked up sales of $605 million in fiscal year 2008, has started to fray around the edges and needs to be reenergized. Stores have cut back on the merchandise and reduced square footage of their in-store shops, complaining of quality and fit problems (“the pants need to fit better,” said one retailer) and a lack of newness beyond the core tracksuit.
Despite even more transitions for the company, McComb is viewing the moves positively.
“We weren’t hiding this. It’s a molehill, not a mountain,” said the ceo, discussing the Juicy designers’ changing roles.
McComb said that was the expected pattern for the two designers, “who have a lot of money and a rich life.” The switch to non-operating roles in the third year has always been in their contract. “It’s not material to the total corporation,” he said, explaining that’s why there was no obligation to file their contract with the Securities and Exchange Commission. “In a monobrand company called Donna Karan, you have to, but in a $4 billion conglomerate, it’s a different story.”
But as one market observer pointed out, “The brand is the girls. It’s their personality. P&G [Pam and Gela] is all part of the allure. People are buying into that.”
One former Claiborne employee said McComb wouldn’t let Nash-Taylor and Skaist-Levy “go off and do crazy things the way [former ceo Paul Charron] did.”
“All this takes money and it takes commitment and the company no longer has the money,” said the former employee.
For the nine months ended Oct. 3, Juicy’s sales fell 13 percent to $376 million. The brand had 65 specialty stores and 33 outlets at that time, as well as wholesale accounts.
“For us, this is so not monumental. We made an announcement on Jan. 4 that they’re moving from an operating role to a non-operating role,” said McComb. He added that if outsiders think the duo is actually doing the line work and the CAD sketches each day, they would be mistaken. “They’ll continue to do meetings with the management team, and will meet on the ad campaign, and they’ll come to the two big merchandise meetings and they’ll give their input,” said McComb.
“They’ll have a tremendous impact on the creative direction. Juicy’s a little Dolce & Gabbana and a little bit of Abercrombie & Fitch. It’s California with a twist of rocker London,” he added.
He said Nash-Taylor and Skaist-Levy are writing a book and working on a movie, and CAA is representing them for a possible TV show. Whether they will sign another contract with Juicy will be determined in August or September. It could be another three-year deal, or year to year. He said the girls have told him, “We’re never leaving this brand.”
“I’ve opened 90 stores for them, I’ve put in more money in talent and expenses, and it’s paid back,” according to McComb. He said the girls have a non-compete for a couple of years, and “our relationship with them is an ongoing relationship.”
Juicy is a major player in the contemporary area with sizeable selling space at stores such as Bloomingdale’s, Saks Fifth Avenue, Neiman Marcus, Harrods, Selfridges and Lane Crawford. Known for its wackiness, fun colors and imaginative in-store presentations, Juicy Couture has branched out beyond contemporary sportswear to children’s wear, fragrances, accessories, handbags, sleepwear, footwear and jewelry, and even accessories for dogs. As reported, the company plans to open about 15 more stores internationally and five domestically this year.
McComb also noted he’s got a staff of people who make Juicy Couture run, and Nash-Taylor and Skaist-Levy are not irreplaceable. When asked, “Aren’t they the DNA of the brand?” he replied: “I think that is a slap in the face. They don’t even do line reviews. We have a couple of people who make these businesses run. We’ve built a bench of really talented merchants and designers.”
McComb said retailers have told him that it was time to evolve the business, and that stores were looking for changes. He said the new, more sophisticated line, Bird, which the Juicy founders helped create, is designed and merchandised by a group of employees. “Pam and Gela helped create it, but, like every other part of this business, it’s from a bench of people,” said McComb. “This is a story of continuity and succession in management. Our investors have known about it. I’ve never hidden this. We’ve had a very good relationship [with the designers].”
Describing the designers’ work routine, McComb said Skaist-Levy would be at the office for two or three weeks and gone for a month. Nash-Taylor “was in and out. She has a beautiful home in England. By the time I arrived, they had built a pretty big team.” The new creative director will be based in Los Angeles.
“Juicy is a monster. It’s a beast of a business. There are 1,000 trap doors of opportunities,” said McComb, listing denim, outerwear and tops. “Edgar [Huber, the brand’s ceo] has a program of reinvigorating the core terry and velour business. Accessories is a crazy, runaway success and it’s a bigger and harder business to manage every year.”
McComb said he expects to name someone around April, May or June. “We’re not in any rush. It’s not like we have a one-armed paperhanger,” he said, adding: “We’ve targeted a couple of people.” He believes it will be a full-time job, rather than a consulting creative director role, with the person based in Los Angeles, although Juicy will remain a bicoastal business. He also believes there’s an opportunity for Juicy to have guest designers, but is focused mainly on hiring a full-time creative director.
Karen Harvey, ceo of Karen Harvey Consulting Group who is working on the search, which began in December, observed, “You want to find a person who has a natural affinity for the brand and can evolve where the brand has been. Brands like Juicy don’t need reinvention. We’re at a stage where there’s still more room to grow.”
McComb said the new setup will be more akin to the way Kate Spade is operating under Deborah Lloyd, co-president and creative director.
In fact, he recalled Nash-Taylor and Skaist-Levy as saying, “‘Let’s go get a Deborah Lloyd.’ They want to work with somebody, so they can dive in and dive out and have a serious talent sitting in that chair.”
Yet, given the brand is one of the company’s four most important lines, one source observed: “You’d think they would have had that lined up if the plan were for the Juicy designers to scale back from active duty.”
Skaist-Levy told WWD, “We’re super happy. There’s so much more we want to do. The brand is going to soar and we’re really excited about the new creative director. We’re devoted to our brand, but there are other things we want to do.” She confirmed the duo is working on a book deal, and “a movie about our story. We’re the American dream. We’re the luckiest two girls in the world.”
Nash-Taylor added, “Most people who are founders of a brand [get to a point] where it’s time to move on. We’re entrepreneurial in our thinking. We’re all ready to move into our next role. Liz Claiborne is doing a great job with Juicy. It’s just the way it goes. You don’t stay with it for the rest of your lives.”
Although the designers have a non-compete clause, they are eager to develop a new lifestyle brand, which they say will take some time to develop, and they’ve been fielding lots of phone calls. They said they won’t be getting royalties or a percentage of the Juicy Couture business going forward, beyond what they’ve already gotten.
Skaist-Levy added, “LCI helped us achieve our goals and our dreams and it’s been incredible. P&G will always be us.” Asked if it will be difficult for a new creative director to move the brand forward, she said: “I don’t think it will be hard. We’ll guide them. It’s time to hand over the baton.”
Analysts downplayed the departure of Nash-Taylor and Skaist-Levy, while giving them their due as creators of a successful brand.
“They have not been involved in the day to day for some time,” said Jennifer Black, analyst and president of Jennifer Black & Associates. “They both mentally moved on, and I think they’re great visionaries and I think they created a really strong brand.”
And many of the creative types who nurture brands from the sketch pad to the sales floor simply move on.
“I don’t think it’s common in general that you’d see the founder stay around for a long time,” said Scott Tuhy, Moody’s Investors Service debt analyst. “They’re entrepreneurial people. Eventually these kinds of things do happen. Liz has had a lot of time to prepare for these types of events, so they have an infrastructure and design talent. It’s hard to spin as something that’s good news, but I think it’s something you do recognize [could happen].”
As for the changes at Lucky Brand Jeans, McComb explained he got word through the grapevine that DeMattei was available, and invited him to dinner with Montesano and Perlman. “We had the most exciting dinner,” he recalled. He said people are ready for a change in Lucky and the brand “is ready to break out.”
DeMattei was previously group president of Williams-Sonoma, Williams-Sonoma Home and West Elm. Earlier, he was the president of Coach Inc. North America, and prior to that, was the chief financial officer at Gap Inc. He brought along Wade, former senior vice president of creative services and visual merchandising for West Elm, Williams-Sonoma Home, Hold Everything and Pottery Barn, who previously worked with him at several companies.
He expects Lucky to go the way he sees Mexx going with Thomas Johannes Grote [former president of Esprit and now ceo of Mexx], in terms of turning the operation around. “Someone with that level of divisional ceo experience is a great thing. I don’t care if a lot of people are coming and going. At the end of the day, I’m on the hook for making it happen,” McComb said.
“You don’t hire Dave DeMattei and say, ‘Don’t fire anyone,’” said McComb. “This is a big deal with Gene and Barry.”
Montesano and Perlman founded Lucky Brand in 1990 and sold 85 percent of the company to Claiborne in 1999 for $113.5 million. Claiborne made several more multimillion-dollar payments over the years for the remaining equity stake. Lucky ended the third quarter of last year with 193 full-price stores and 46 outlets, with comps falling 18.7 percent for the first nine months of the year.
Montesano and Perlman now will serve as creative consultants. “There’s a big bench of talent in New York with accessories and California with apparel,” said McComb.
Yet, while McComb said the changes at Juicy and Lucky were planned all along, Moody’s Tuhy said he’s still concerned about stress in the company’s direct brands given the continuing weakness in the upper end of the market. The Mexx division also has to prove it can turn around. For the first nine months of last year, Mexx’s sales fell 35.6 percent to $621.4 million.
Claiborne, which was built via acquisition, now itself could be vulnerable to a takeover given its low stock price, and Mexx could be a sticking point for possible suitors. “That might be the hardest part of the business to value,” Tuhy said.
Another hurdle for possible acquirers is the firm’s 350 million euro, or $486.2 million at current exchange, in debt from a 2006 bond offering on the Luxembourg Stock Exchange. The notes carry a provision that gives debt holders the option of forcing the company to pay off the outstanding principal and interest in the event control of the company changes hands.
In July, Claiborne’s board acknowledged a change of control was possible and updated McComb’s employment contract to ensure the “continued attention and dedication” of the ceo, according to an SEC filing. The agreement extends to July 2012.
McComb’s severance package includes the possibility of three times his base salary and three times his annual bonus and other benefits. In 2008, the ceo logged total compensation of $5.5 million, including a salary of $1.3 million. Under SEC accounting rules, McComb’s stock and option awards were valued at $3.8 million, though that dollar amount was not necessarily realized given vesting schedules and changes in share price.
It’s been a bumpy ride for the firm’s stock, which rose 5.6 percent Tuesday to $5.66. Over the last year, the issue has gone as low as $1.61 and as high as $7.88.
Even if redemption is still a long way off for investors who bought the stock at its all-time high of about $45 in early 2007, traders coming in at a lower price obviously see some opportunity.
Among them is hedge fund operator Richard Perry. Last year, Perry Corp. scooped up 9.3 million shares of the firm, or 9.7 percent of those outstanding, making the fund Claiborne’s second-largest shareholder behind retirement fund operator FMR, which owns Fidelity. Perry also is said to have taken a large position in the debt of Barneys New York.
And the departures of the Juicy and Lucky founders only add to what has been a turbulent three-year tenure for McComb as he’s tried to remake Claiborne by selling numerous brands, including Ellen Tracy; reorganizing the firm into direct and partnered brand units; outplacing its sourcing operations to Li & Fung, which one source contended was when the issues with Juicy’s quality and fit began; licensing Dana Buchman to Kohl’s, and doing the Penney’s deal for the Liz Claiborne flagship brand.
Claiborne has amassed considerable losses along the way. For fiscal year 2008, the group saw a loss of $951.8 million versus a 2007 loss of $372.8 million. Annual revenues fell 10 percent to $3.98 billion from $4.44 billion.
But McComb defended his moves to WWD, saying, “I’m controlling and driving the business, and figuring out what the business needs in terms of direction.”