By Brad Dorfman
CHICAGO (Reuters) - Liz Claiborne Inc
The exclusive deal with Penney
"They are out of that channel that was just eating them up and spitting them out," S&P equity analyst Marie Driscoll said, referring to higher-end department stores like Macy's that have slashed inventory in the wake of the recession.
The Liz Claiborne brand has sold poorly in recent years and continued to decline, said Macy's spokesman Jim Sluzewski, adding that Macy's could not justify expanding it.
"Customers have been confused between various brands carrying the Liz name, and the management of Liz Claiborne needed to take corrective action," Sluzewski said in an email.
The company said it would also move Liz Claiborne New York to cable shopping network QVC. The company had hoped Mizrahi's much-hyped revamp of the clothing line earlier this year would breathe new life into sales, but it failed to take off.
"It says the brand failed at retail because of the product offering," Jeff Edelman, director of Retail Consumer Advisory Services at RSM McGladrey Inc said of the Mizrahi line. "The product didn't work."
PAYMENTS AT PENNEY'S
The Claiborne and Liz Claiborne brands will be sold only at J.C. Penney for up to 10 years, beginning with the fall 2010 lines. Liz Claiborne said it expects a profit from its namesake wholesale brands in 2010.
Company brands Liz & Co. and Concepts by Claiborne have been sold since 2007 at Penney, which has fared better than some rivals by emphasizing lower prices and more exclusive merchandise. On Thursday, Penney posted better-than-expected monthly same-store sales and raised its third-quarter earnings forecast.
"This is about winning with winners," Liz Chief Executive William McComb told analysts on a conference call.
In September, Liz Claiborne hired turnaround firm Alvarez & Marsal to help it improve operations and cash flow. The company said on Thursday that Alvarez had finished its review and made recommendations, but it declined to give further details.
The Penney deal includes guaranteed minimum payments to Liz Claiborne. That will make revenue and earnings more predictable for Liz, which has suffered in the recession as retailers place fewer orders for its clothes or sell them at steep discounts.
The company's working capital requirements will be lower, since Penney will be responsible for sourcing and production, said Chief Financial Officer Andrew Warren.
"This will help Liz further streamline," Driscoll said. "What is their investment now? Their investment is the intelligence. It's the designers."
The deal also alleviates conflicts between the Liz Claiborne business at Penney and at other department stores in the mall, McComb said. Other wholesale brands, such as DKNY jeans, will still be sold at Macy's and Dillard's Inc
Aside from its wholesale business, Liz Claiborne owns the Juicy Couture, Lucky Brand, Kate Spade and Mexx retail chains.
The Liz Claiborne brand accounted for 17 percent of total 2008 sales, while other "Liz Family" brands made up 9 percent.
Under the QVC deal, Liz Claiborne will receive royalty payments on net sales of the Mizrahi-designed line, which will be more high-end. Mizrahi has a show scheduled to begin on the cable network this fall.
Liz Claiborne shares were up $1.34 at $6.54, while Penney shares were up 22 cents or 0.6 percent at $35.13.
(Reporting by Brad Dorfman; Additional reporting by Aarthi Sivaraman in Seattle, editing by Michele Gershberg and Gerald E. McCormick)
