Liz Claiborne of Yore Reduced to Rubble on Fifth & Pacific
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[Corrections made to paragrahs 10 and 11.]
From the signature suit jacket and “little black dress” of CoCo Chanel, to the first pair of designer jeans of Gloria Vanderbilt, and to the sensibly chic coordinated separates of Liz Claiborne, the business of fashion transformed our daily routine thanks to these iconic women who revolutionized the apparel industry by bringing Main Street fashion to households everywhere; leaving an indelible impression and cementing their names in history for generations to come.
Contrary to this fact, the announcement from Liz Claiborne’s CEO Bill McComb that the company’s soon-to-be name change to Fifth & Pacific Cos., which takes effect in May, suggests a name is just that… a name - nothing more, nothing less; leaving the notion that a name by any other name is not always a rose. To make matters worse, the $1.3 billion international conglomerate is looking more and more attractive as a takeover target and investors are eagerly anticipating by driving shares up 13%, on March 30, the biggest gain in four weeks after the buyout buzz was released. Private equity firms such as KKR & Co., Permira, Warburg Pinus LLC, VF Corp., and Warnaco Group have all been reported to show interest in a possible buyout at $20 a share; LIZ currently trades at around $13.00.
LIZ has released statements refuting talks of going private.
No frills. No thrills.
Under Bill McComb’s watch, Liz Claiborne (NYSE: FNP) has experienced five years of loses that has topped $2 billion, according to a Bloomberg report although Bloomberg analysts have projected that the company “will return to profitability in 2012,” estimating a 14% rise of $1.7 billion by next year but that still leaves the company trading at less than 1 x 2013 sales. That's "cheaper than 94 percent of similar-sized U.S. apparel companies." Additionally, 2011 ended with LIZ losing more money than any other U.S. clothing retailer – making them prime for picking.
"Liz Claiborne reported a net loss of $172 million in 2011, the only U.S. company in the apparel, footwear and accessories industry with a market value greater than $1 billion to lose money last year, data compiled by Bloomberg show. Analysts on average project the company will post net income of $15.7 million this year, its first annual profit since 2006. While Liz Claiborne shares had gained 123 percent in the last year, the stock price as of [April 10] was still 73 percent less than its peak of $46.64 in February 2007."
Chief Executive Officer Bill McComb joined the company in November 2006 from Johnson & Johnson, succeeding long-time chief- and some say legendary- executive Paul Charron after 12 years at the helm. When McComb inherited the company it had as much as 43 brands, including all the Liz Claiborne labels (which have subsequently been sold), Dana Buchanan, and DKNY Jeans and Active labels. Today, the company has downsized the portfolio to represent only three divisions- Juicy Couture, Kate Spade New York, and Lucky Brand.
- The Kate Spade brand gained 73 percent last quarter to $110 million from a year ago, helped in part by the rejuvenation from designer Deborah Lloyd, who was also responsible for revitalizing the Burberry brand. The versatile retailer currently operates 79 stores.
- Juicy Couture’s sales dropped 15 percent last quarter to $161 million. Despite the decline in performance, the 129-store business has shown “significant growth in e-commerce and outlet,” as stated in the company’s last quarter earnings report.
- Lucky Brand jeans performance reported a 23 percent increase last quarter to $137 million in sales; there are 221 stores in operation.
The stuff of legend
When Paul Charron was appointed CEO in 1995, Liz Claiborne’s sales were stagnant, net income declined and its market cap dropped from $3.5 billion in 1992 to $1.2 billion in 1994, according to reports. As department stores began to consolidate, Liz Claiborne implemented a hybrid strategy of both wholesale and retail brands in order to expand its distribution channels by acquiring “high-fashion, high-margin "lifestyle" brands to differentiate the company from low-price retailers,” making Charron an apparel pioneer according to a 2006 USA Today article. The introduction of more brands (in the company’s portfolio) with different price points resulted in sales growth from $3 billion by 2000 to $5 billion by the time of his retirement in 2006.
Not so lucky
An overhauled business model, a revamped corporate structure, and reduced talent at the management and design levels, have made for, if not questionable, then at least an intriguing quandary into Bill McComb’s choices.
His short tenure as CEO has already resulted in failed partnerships with famed designers Isaac Mizrahi and Narcisco Rodriguez, as well as the founders of both the Juicy Couture and Lucky Brand divisions; although not all is bad though, Project Runway’s Tim Gunn has been the company’s Chief Creative Officer since 2007.
But the most devastating failure of all was the ending of a 30-year relationship with Macy’s (NYSE: M). Several speculations as to what caused the dissolution - from the department store shifting from wholesalers to direct private labels, catering to a more younger audience (that’s why Mizrahi and later Rodriguez were brought in), and to McComb’s making an exclusive deal with J.C. Penney’s (NYSE: JCP) to distribute the Liz Claiborne brand - signal to the industry at-large that profit matters over partnership.
When Mizrahi’s resign of the Liz brand was met with unimpressive sales it was reported that Macy’s executives told Claiborne to rework the line. However, McComb chose to shop around to other buyers such as J.C. Penney’s and Kohls. When Macy’s received word of this – already upset by the prior Liz & Co label deal with J.C. Penney– they began to reduce the number of stores available to Liz Claiborne from 300 to 28, ultimately closing its doors to them for good in 2009.
Comparable store sales for Macy's continue to outperform analysts' expectation with fourth-quarter 2011 sales climbing an additional 5.2%.
Furthermore, J.C. Penney’s has since acquired the Liz Claiborne’s namesake and is now the home of the family of Liz Claiborne-based merchandise. Despite an overall decline in comparable store sales of 1.8% during the last quarter of 2011, the August 2010 launch of the Liz Claiborne and Claiborne brands in all 1100 stores remain of one their top performers.
McComb, who in his own right, used his marketing expertise to revitalize some of Johnson & Johnson's most popular consumer products such as Tylenol, Motrin and Clean & Clear. To be fair, McComb did become the new head of the corporation at the worst possible time; the beginning of the economic recession, but that argument no longer holds water. Liz Claiborne’s stock is down and sales have plunged by more than half. The only plus is that with the divestures, debt has been reduced by over half from over $500 million the previous year to just over $250 million presently.
What’s in a name?
Will McCombs’ bare-bones approach translate to sales? Does a new name equal profit? Will the company be able to stand-off private equity firms such as Warburg Pinus, whose senior advisor by the way, is none other than Paul Charron. There may be more questions than one can answer at the moment, but one thing is sure, the company needs to shape-up or Bill McComb may find his bags packed on the corner of 41st and Broadway.
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