A Sagging Bottom Lineat Liz Claiborne

Can a huge, troubled apparel designer that was a high-flier in the 1980s remake itself for the 1990s? That's what anxious department-store executives, nervous shareholders, and disillusioned shoppers are wondering about Seventh Avenue titan Liz Claiborne Inc.

Claiborne's raiments were the uniform of choice for baby-boomer women climbing the career ladder in the 1980s. But sales of the $2 billion apparel manufacturer have flattened, and operating income has plummeted (chart). The company has been bedeviled by inventory problems and its inability to make a key acquisition pay off. It has done little to instill loyalty to the brand among the waves of women who have entered the workforce since the boomers. And key executives have left, including founder Liz Claiborne and her husband, co-chairman Arthur Ortenberg. Both retired from the company in 1989 and sold their stock and moved to Montana in 1990.

Shareholders are wondering whether their company can thrive without them. After peaking in 1991, Claiborne's net income slipped 2% in 1992, then plunged 42% in 1993. Last year, for the first time in the company's history, sales fell for the core lines--Liz Claiborne Collection, Lizsport, and Lizwear--sliding 7%, to $1.1 billion. Results for the first quarter of 1994, ended Apr. 2, were also dispiriting. Sales inched up 2%, while net income dropped 35%, to $27.4 million. The company said it didn't expect a dramatic improvement in the second quarter. Its stock has skidded to the mid-20s, from 50 in 1991. "Most apparel companies get up to a certain size and hit a wall," says one of Claiborne's largest institutional investors. "Unfortunately, a lot of them fall apart. We hope that's not what's happened here."

Investors' restiveness boiled over last year, when a group of angry shareholders filed a lawsuit in U.S. District Court in Brooklyn alleging that several Claiborne executives knew that earnings were about to collapse, initiated a stock buy-back program to boost the price, and then dumped their stock. A similar suit was filed in March. A lawyer for Claiborne says the company will fight the charges.

Battling the business issues could prove even tougher. Claiborne's marketers are hatching what they call a "re-imaging campaign" to lure shoppers back, with a spruced-up Claiborne boutique, new ads, and a plan to persuade department stores to staff up in their Claiborne areas. And there will be more changes: On Apr. 22, the company announced that Paul R. Charron, 51, who was passed over for chief executive at VF Corp., had been hired as Liz Claiborne's vice-chairman. Though Claiborne CEO Jerome A. Chazen, 67, says he has no plans to retire, a source close to Charron says he will assume the CEO post in 18 months.

Declining fortunes. Chazen, who has been with the company almost since its inception--he roomed with Ortenberg in college--bristles at the notion the founders' departure had anything to do with the company's declining fortunes. Claiborne, he says, is the victim of the woes besetting the department-store business. "The world has changed," says Chazen, known as a skilled schmoozer who excels at cultivating relationships with department stores. "The dynamic growth of the department stores in the 1980s has slowed considerably. We have to sit back and say, 'O.K., this is a new period in Liz Claiborne's life.'"

That's too bad, because the old life was pretty good. In its heyday, Claiborne was regarded as the smartest, most efficient apparel outfit around. "When people were hired away from Claiborne, their new employers thought they were getting some magic," says one ex-executive. Between 1985 and 1991, sales and net income almost quadrupled.

Today, Claiborne seems neither magical nor efficient. Last year, the company had to liquidate roughly $300 million worth of unsold merchandise, says Laurence C. Leeds Jr., managing director of Buckingham Research. Chazen acknowledges some glut but blames overly optimistic projections by department stores. "There was a very strong feeling on the part of department stores that the consumer part of the economy would be fabulous" by the middle of 1993, he says. The surge didn't materialize. Not everyone buys the theory that department-store forecasts were to blame. Critics argue that Claiborne's apparel just didn't appeal to consumers. "For them to blame the stores now is nonsense," says one institutional investor.

Mixed results. Chazen admits that because Claiborne was designing and producing apparel as much as nine months in advance of shipping it to stores, it couldn't cut back in time. In an effort to prevent a recurrence, he brought in consultants Kurt Salmon & Associates to help Claiborne shorten its production cycle from 40 weeks to 30 weeks.

But the question of most concern to investors is what Chazen and Charron will do to jump-start growth. Claiborne is so dominant in department stores that there's not much room to expand. In 1993, 45% of Claiborne's sales came from four companies: Dillards Department Stores, May Department Stores, Macy's, and Federated Department Stores. "Claiborne has exhausted the market it's in," says apparel consultant Alan Millstein.

Efforts to expand its franchise beyond women's sportswear have yielded mixed results. Sales of the chic, higher-priced Dana Buchman line, for example, jumped 23%, to $90 million in 1993. "Dana Buchman is a sensation for us," says Rose Marie Bravo, president of Saks Fifth Avenue. But sales of Elisabeth, Claiborne's line for large-size women, dropped 11%, to $144 million. Men's sportswear fell 14%, to $81 million. And sales of dresses and suits plummeted 24%, to $130 million, in 1993.

Worse, many department-store buyers feel Claiborne's clothes have lost the elan they once had; Saks dropped Claiborne's core sportswear lines last year. "Liz had an internal sense of style that was very modern," says a former Claiborne executive. "After she left, the merchandise became a little stale."

Industry-watchers say Claiborne hasn't made much of its best opportunity to grow. The company's mass market lines, Villager, Russ, and Crazy Horse--acquired in 1992 from bankrupt manufacturer Russ Togs Inc.--generated $79 million in sales for Claiborne in 1993 but have not yet turned a profit. Todd Slater, an analyst at UBS Securities Inc., believes the lines could make Claiborne a powerful supplier to Sears, Penney's, and Montgomery Ward. Charron's background at VF--which shifted its focus from department stores to mass merchants in the 1980s--is expected to help.

Still, the company has to reach out to new consumers. The baby boomers whose skirt-tails Claiborne rode in the 1980s now have mortgages, kids, and tight budgets. Many women in their twenties think of Claiborne as a brand for older women. "Last time I saw Liz, I breezed through and said, 'There's nothing really here,'" says Marisa Kuhn, 24, a sales assistant at a Manhattan brokerage firm. Kuhn, who plans to spend $600 to $700 on clothes this spring, will check out DKNY and Ann Taylor instead.

Claiborne is counting on the reimaging effort to bring in shoppers. Marketing never has been a priority for the company; word-of-mouth and new department-store openings carried Claiborne. Now it is asking stores to hire extra sales clerks for its boutiques. In a test of the program, Claiborne offered to cover the costs if sales didn't pick up. It never had to. But with many retailers expanding private-label lines and rivals likely to clamor for similar deals, the gambit could meet resistance. Good products will help: Buyers say Claiborne's fall lines are a step up. "They're getting back to clothes that look fashionable but are mainstream and understandable," says Barbara Dovolis, a buyer at Dayton Hudson Corp.

The company knows it has to raise its profile in shoppers' minds. "We realize we need to do it better," says Wendy Banks, senior vice-president for marketing. Millstein thinks it's overdue. Claiborne's marketing efforts, he says, are "somewhere back in the 1950s." For a brand that's struggling to catch up with the 1990s, that's no place to be.

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