Reshaping Claiborne: Liz Faces Challenges Selling Off 16 Brands

After a decade of frenzied acquisitions, Liz Claiborne Inc. is having a garage sale of many of its brands.

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William L. McComb

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After a decade of frenzied acquisitions, Liz Claiborne Inc. is having a garage sale of many of its brands. The question is: Will there be any buyers?

The group has put 16 of its subsidiaries under review — from Dana Buchman and Ellen Tracy to Emma James and Tapemeasure. The hope of Claiborne chief executive officer William L. McComb is that the company sells them all by the second quarter of 2008, which will depend on whether it gets its "preliminary idea of price."

"The biggest thing is whether we will be able to get competitive prices," McComb said. "There's a point where it's more valuable to keep a brand."

McComb is likely to discuss the review today when Claiborne releases its second-quarter earnings, which analysts are expecting to be weak. But there is little doubt Claiborne won't keep any of the 16 companies. And as the sale process drags on, observers wonder how much more these brands will wither on the vine waiting for white knights to snap them up.

At its much-anticipated July Investor Day, McComb, who took his post in November, outlined his vision for the $4.99 billion firm, which meant focusing time, talent and funds on "power brands" Kate Spade, Juicy Couture, Lucky Brand and Mexx, while closing, selling or licensing the not-so-sweet 16 other brands. This new phase marks a sharp divergence from the last decade under Paul Charron's acquisition-happy, diverse portfolio strategy.

Analysts are less concerned the brands bring a good price than they are that Claiborne just gets rid of the subsidiaries, which collectively do $800 million in revenues but run low-single-digit negative operating margins and drag down the company average.

"As investors, we don't care if the brands actually sell — everyone just assumes they aren't going to get sold," said Brad Stephens, a retail analyst at Morgan Keegan & Co. "If Liz gets anything for them, more power to them. Anything they get is just icing on the cake — the important thing is they get out of these businesses."

But with poor earnings, which Stephens attributes more to the changing marketplace than Claiborne's management, the brands may only appeal to buyers if the price is low enough; buyers perceive the brands have been mismanaged and new owners could improve management, or a retailer buys a label as an exclusive.

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