July 13, 2007
Liz Claiborne Shuns Department Stores
By Tom Ryan
With a massive restructuring announcement, Liz Claiborne becomes the latest brand to say “No” to department stores. The plan involves the possible sale or closing of up to 16 apparel brands as well as an aggressive retail expansion.
The hope is that opening its own stores will give Claiborne more control and higher margins than selling to traditional department stores, which have struggled this past spring and are aggressively growing their own private labels. The shift also largely reverses a strategy over the last decade to amass more than 40 brands in addition to its namesake line.
“We are at a turning point,” CEO William McComb, who joined Claiborne last November from Johnson & Johnson, said Wednesday at an investor conference. “Everything we do will be centered on one key principle: building powerful brands.”
The plan’s core components are:
- An aggressive expansion of the specialty retail store base under Juicy
Couture, Kate Spade, Lucky Brand Jeans and Mexx, with the four brands becoming
Claiborne’s primary growth engines. Retail sales are expected to reach $3
billion by 2010, or 60 percent of revenue, up from $2.2 billion currently. - A second segment, the wholesale-based partnered brand group, will feature
Liz Claiborne brands, DKNY Jeans group, Monet brands and its cosmetics brands.
These brands account for $2 billion in sales. - Strategic reviews – include selling, discontinuing or licensing — will
be explored for 16 brands, including Dana Buchman, Ellen Tracy, Emma James,
Enyce, Laundry by Design, prAna and Sigrid Olsen. Reviewed brands represent
$800 million in annual revenue.
Between 600 to 800 jobs, or seven to nine percent of its non-retail global workforce in 2007, will be cut as part as a cost-cutting program. Annual savings are projected to reach $190 million by 2010.
The move comes as some other former department store resources – notably Guess and Coach – have thrived by opening their own stores. It also came a day before Macy’s, the department store king, lowered its second-quarter earnings outlook to 20 to 30 cents per share, from 35 to 45 cents due to soft spring sales.
But analysts weren’t overwhelmed, noting that Claiborne hasn’t had huge success in the past with its own stores. Another worry is execution risk since most of the senior management team, including Mr. McComb and the four division presidents, have worked at Claiborne less than a year. Claiborne also has to prove it can stabilize and grow sales of the wholesale brands it is keeping — such as Liz Claiborne and DKNY Jeans — and revitalize sales at Kate Spade.
But Jennifer Black from Jennifer Black & Associates was fairly upbeat.
“I think the whole strategy could be quite brilliant as long as they can execute,” Ms. Black told Reuters. “I do think taking control of their own destiny … is what it’s all about.”
Discussion Questions: What do you think of Liz Claiborne’s restructuring plan? What are some challenges in the plan? What message should this send to other brands struggling in the traditional department store channel?
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With the consolidation in department stores over the last few years, brands like Claiborne don’t have a choice–they have to diversify, they have to be able to have more control over their own destiny. When it comes to fashion, department stores have been so stiflingly conservative, that they’ve nearly forced apparel brands to go out on their own into the retail market. I’ve talked to a couple of strong apparel brands who’ve said they started opening their own stores in malls where their biggest department store customers are just to be able to prove that the merchandise they thought would do well is actually selling well–so that they could convince the buyer to bring it into the department store.
I’m not convinced that department stores are on the upswing. And Claiborne’s move to break away from its dependency on that segment is not just a good one–I think it’s a necessary one.
I went with the “other (challenge)” choice: as might be imagined in this–or any other–eponymously named company, the loss of the founder/guiding force is often a fatal blow. If the company was slipping before her death, the slide is likely to accelerate now.
For mid -level department stores, especially Macy’s, developing private label interest and loyalty from customers hasn’t been coming so easily for them. Customers who are used to purchasing tried and true brands (such as those from the LIZ companies) at department stores DO occasionally look at the available private label merchandise while they’re in the department, however, and are sometimes inclined to try it out. Although the brands in question have faded somewhat in recent years this move by LIZ can’t be good news for the struggling department store sector.
Department stores are making hay on their private label merchandise, at the same time as they “hit up” their suppliers for markdown money and other chargebacks. This isn’t meant to be disrespectful–it’s just a fact of life.
It’s natural and appropriate for LIZ and other brand managers to move into retail. They’ve taken a financial beating and need to sell their own brands by themselves.
Of course, retail is all about execution at the store…but Liz can likely buy the talent and technology to support success in that arena.
The commercial real estate people are happy beyond belief! I’ll bet they are churning out 10 year contracts at record rates.
Again, the management team doesn’t seem to understand the business; most have probably been in place for less than 18 months. My guess is, this blunder will deprive thousands of sales and support people their jobs and management will “just move on” when the numbers start looking bad. Do these people have a board of directors? Is anyone awake?
I don’t think that Liz Claiborne’s fundamental decision IS actually one of retail/distribution. To paraphrase an oft quoted comment: “It’s the customer, stupid.” Kate Spade has faltered recently because, in my opinion, it lost focus on it’s customer and tried to be too many things to too many people. Liz Claiborne, now that it’s set its core group of brands and how they’ve chosen to manage and structure them internally, needs to “pick a lane” and choose the customer they will focus on–then use the channels they care about, design for them, market for them. Part of the reason the entire apparel industry is having such a hard time is because they are ignoring consumer realities: they love to focus on the young and the youth, but the largest consumer cohort–the baby boomers–are now aged 40-60, and they don’t behave like the last generation of 40-60 year olds when it comes to fashion and shopping. But, most apparel manufacturers–LIZ included–seem to completely ignore that fact. Meanwhile, the generation coming up at the beginning of the 18-34 year old age group, has a completely different outlook on the world–customization and making it “mine” is of critical importance; and they simply don’t shop the way the teens and young adults before them did. The real challenge the company faces is how to meet the needs of the most profitable customer segments and meet them on their turf. They don’t need department stores to do it, but they’ve got to get the fundamentals right before they can win.
Nikki’s comment struck a chord with me. As someone who only pops into American department stores every now and again and behaves more like a consumer or researcher than having any actual business interaction with management, they uniformly strike me as conservative. So it really depends on whether or not the Liz Claibourne team is focusing and on what. The fact that they are new could be to their advantage. We all know that casting a fresh eye over stale brands can produce fantastic regeneration and a wonderful opportunity for innovation. Having your own stores is the best way of doing it. Any of you familiar with Marks & Spencer and its turnaround since introducing George Davies’ Per Una range to sit beside its more traditional St Michael brand will know whereof I speak.
Having worked for the company for over 12 years, my main concern is thus far, Liz Claiborne has not shown it has the leadership to put all its eggs into the retail basket.
The problems which exist on the retail level are not unique. Unbalanced inventories, poor training of store management, over-stretched district supervision (districts often with over 25 stores), excessive markdowns and high shrinkage.
I suspect the new direction will only be successful with a major overhaul at the store level and by trying to recapture the loyalty of the consumer who is often confused by the current Liz Claiborne lines.
I agree that LIZ needs a new plan, however pulling its exposure by pulling out of department stores may be too early a move. Without a lot more internal cleanup, I fear it spells disaster.
Liz Claiborne’s strategy isn’t to shun department stores. Liz Claiborne simply wants to maximize profits. Department stores are a tough market. They want high private label margins. The consolidation of Federated and May means buying power (the ability to influence terms of sale and wholesale pricing and marketing allowances) is shifted even more towards the retailer, away from the famous brands. The big surprise would’ve been if Liz Claiborne had announced greater emphasis on the department store channel. Would that have had any credibility? And why can’t Macy’s or any other major retailer create and sustain their own brands? Can’t Macy’s get clothing made in Asia just as well as Liz Claiborne? Maybe Macy’s doesn’t see the value of the middleman. J.C. Penney built its core profitability on its own clothing brands. They sell other brands too, but the core profits lie within.
Interesting that they would pull away from department stores when it seems that segment is enjoying a revival. Creating a destination just for themselves will prove to be a challenge that not only becomes one of differentiation but one of competition with the department stores they are leaving.
Department stores are making a comeback. That is true, however, one must ask why. Some like JCPenny are trying to create images of a more “upscale” fashion. Are these attempts being done at the expense of the “labels” such as Liz Claiborne? Liz Claiborne is looking at what Coach and others have accomplished and realize that they are leaving money on the table and retaking control of their MDF funds. With smart management, they too can flourish.
The reality is: “Department stores aren’t a good partner for apparel suppliers in general and don’t know to negotiate high value brands.” The results: the supplier searches for new options to do business better. That is all.
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With the consolidation in department stores over the last few years, brands like Claiborne don’t have a choice–they have to diversify, they have to be able to have more control over their own destiny. When it comes to fashion, department stores have been so stiflingly conservative, that they’ve nearly forced apparel brands to go out on their own into the retail market. I’ve talked to a couple of strong apparel brands who’ve said they started opening their own stores in malls where their biggest department store customers are just to be able to prove that the merchandise they thought would do well is actually selling well–so that they could convince the buyer to bring it into the department store.
I’m not convinced that department stores are on the upswing. And Claiborne’s move to break away from its dependency on that segment is not just a good one–I think it’s a necessary one.
I went with the “other (challenge)” choice: as might be imagined in this–or any other–eponymously named company, the loss of the founder/guiding force is often a fatal blow. If the company was slipping before her death, the slide is likely to accelerate now.
For mid -level department stores, especially Macy’s, developing private label interest and loyalty from customers hasn’t been coming so easily for them. Customers who are used to purchasing tried and true brands (such as those from the LIZ companies) at department stores DO occasionally look at the available private label merchandise while they’re in the department, however, and are sometimes inclined to try it out. Although the brands in question have faded somewhat in recent years this move by LIZ can’t be good news for the struggling department store sector.
Department stores are making hay on their private label merchandise, at the same time as they “hit up” their suppliers for markdown money and other chargebacks. This isn’t meant to be disrespectful–it’s just a fact of life.
It’s natural and appropriate for LIZ and other brand managers to move into retail. They’ve taken a financial beating and need to sell their own brands by themselves.
Of course, retail is all about execution at the store…but Liz can likely buy the talent and technology to support success in that arena.
The commercial real estate people are happy beyond belief! I’ll bet they are churning out 10 year contracts at record rates.
Again, the management team doesn’t seem to understand the business; most have probably been in place for less than 18 months. My guess is, this blunder will deprive thousands of sales and support people their jobs and management will “just move on” when the numbers start looking bad. Do these people have a board of directors? Is anyone awake?
I don’t think that Liz Claiborne’s fundamental decision IS actually one of retail/distribution. To paraphrase an oft quoted comment: “It’s the customer, stupid.” Kate Spade has faltered recently because, in my opinion, it lost focus on it’s customer and tried to be too many things to too many people. Liz Claiborne, now that it’s set its core group of brands and how they’ve chosen to manage and structure them internally, needs to “pick a lane” and choose the customer they will focus on–then use the channels they care about, design for them, market for them. Part of the reason the entire apparel industry is having such a hard time is because they are ignoring consumer realities: they love to focus on the young and the youth, but the largest consumer cohort–the baby boomers–are now aged 40-60, and they don’t behave like the last generation of 40-60 year olds when it comes to fashion and shopping. But, most apparel manufacturers–LIZ included–seem to completely ignore that fact. Meanwhile, the generation coming up at the beginning of the 18-34 year old age group, has a completely different outlook on the world–customization and making it “mine” is of critical importance; and they simply don’t shop the way the teens and young adults before them did. The real challenge the company faces is how to meet the needs of the most profitable customer segments and meet them on their turf. They don’t need department stores to do it, but they’ve got to get the fundamentals right before they can win.
Nikki’s comment struck a chord with me. As someone who only pops into American department stores every now and again and behaves more like a consumer or researcher than having any actual business interaction with management, they uniformly strike me as conservative. So it really depends on whether or not the Liz Claibourne team is focusing and on what. The fact that they are new could be to their advantage. We all know that casting a fresh eye over stale brands can produce fantastic regeneration and a wonderful opportunity for innovation. Having your own stores is the best way of doing it. Any of you familiar with Marks & Spencer and its turnaround since introducing George Davies’ Per Una range to sit beside its more traditional St Michael brand will know whereof I speak.
Having worked for the company for over 12 years, my main concern is thus far, Liz Claiborne has not shown it has the leadership to put all its eggs into the retail basket.
The problems which exist on the retail level are not unique. Unbalanced inventories, poor training of store management, over-stretched district supervision (districts often with over 25 stores), excessive markdowns and high shrinkage.
I suspect the new direction will only be successful with a major overhaul at the store level and by trying to recapture the loyalty of the consumer who is often confused by the current Liz Claiborne lines.
I agree that LIZ needs a new plan, however pulling its exposure by pulling out of department stores may be too early a move. Without a lot more internal cleanup, I fear it spells disaster.
Liz Claiborne’s strategy isn’t to shun department stores. Liz Claiborne simply wants to maximize profits. Department stores are a tough market. They want high private label margins. The consolidation of Federated and May means buying power (the ability to influence terms of sale and wholesale pricing and marketing allowances) is shifted even more towards the retailer, away from the famous brands. The big surprise would’ve been if Liz Claiborne had announced greater emphasis on the department store channel. Would that have had any credibility? And why can’t Macy’s or any other major retailer create and sustain their own brands? Can’t Macy’s get clothing made in Asia just as well as Liz Claiborne? Maybe Macy’s doesn’t see the value of the middleman. J.C. Penney built its core profitability on its own clothing brands. They sell other brands too, but the core profits lie within.
Interesting that they would pull away from department stores when it seems that segment is enjoying a revival. Creating a destination just for themselves will prove to be a challenge that not only becomes one of differentiation but one of competition with the department stores they are leaving.
Department stores are making a comeback. That is true, however, one must ask why. Some like JCPenny are trying to create images of a more “upscale” fashion. Are these attempts being done at the expense of the “labels” such as Liz Claiborne? Liz Claiborne is looking at what Coach and others have accomplished and realize that they are leaving money on the table and retaking control of their MDF funds. With smart management, they too can flourish.
The reality is: “Department stores aren’t a good partner for apparel suppliers in general and don’t know to negotiate high value brands.” The results: the supplier searches for new options to do business better. That is all.