Liz Claiborne's decision this week to embark on another round of cost-cutting, this time aimed at saving $100m in 2010, suggests the $70m in cuts already carried out in the first quarter has not done enough to offset tumbling sales.

With the focus firmly on improving gross margins, the apparel maker is now planning to take the axe to all segments as well as corporate areas.

Further consolidation of its distribution centres, outsourcing of some corporate functions, a reduction in wholesale, merchandising and design team support at brand level, and store closures in its struggling Mexx business are all on the cards, it says.

Prompting these latest moves are a 29% drop in second quarter sales which, combined with earlier moves to exit some brands and fluctuations in currency exchange rates, widened second quarter losses to $82.1m from $23.2m last time.

These results reflect "the continuing challenges of turning around under-performing businesses in the current recessionary environment," CEO William L McComb said, adding that while consumer spending and mall traffic has not deteriorated further, it remains "at depressed levels compared to last year."

And most worryingly, perhaps, the greatest challenges are faced in "the two largest and most mature components of our business" - MEXX Europe and partnered brands (its domestic wholesale unit), where second quarter revenues fell 34.8% and 35.6% respectively.

The picture painted at its domestic based direct brand segment is not pretty either, with same-store sales falling 17% at Juicy Couture, 23% at Lucky Brand, and 15% at Kate Spade.

Spending cut-backs
The apparel firm has been hit hard as consumers continue to cut back on discretionary spending and its department store customers dramatically increase their promotional activity and lower their inventories.

Since 2007, Liz Claiborne has closed six distribution centres, eliminated nearly 3,000 global jobs, and streamlined its brand portfolio by selling, closing or licensing 14 of its brands including JH Collectibles, Ellen Tracey, and C&C California.

Most recently, in February of this year, it announced plans to slash 725 positions or 8% of its US workforce as part of efforts to bring costs in line with weak sales. Its plans also included closing its distribution centre in Mt Pocono, Pennsylvania and suspending performance bonuses for all employees.

And the measures have undoubtedly led to some gains. Total debt has been cut by $180m since last year to $718m, and inventory is down 22%.

There are also high hopes that lower sourcing costs and higher margins will kick in by the fourth quarter after the firm agreed to hand its sourcing business to the Hong Kong-based exporter and supply-chain specialist Li & Fung.

And that Thomas Grote, who is taking over as the new CEO for Mexx in October, will be able to engineer a turnaround of the troubled brand.

Rebuilding sales
That said, the New York based firm is having to face up to the fact that while it has been good at cost reduction, it also needs to focus on strategies that drive sales and rebuild gross margins.

"While many economists are declaring the end of the recession is upon us and technically they may prove to be right, we think that the consumer has adopted a new mindset that is going to be long-lasting," McComb said in a conference call.

A big concern is that research suggests up-market consumers are displaying as much caution as the lower end shopper, and that this "savvy shopper syndrome...will continue into the holiday season."

Second half results are likely to see a slight improvement, McComb said, driven by earlier cost reductions, modest margin expansion resulting from reduced inventories, and more responsive merchandising which will reflect broader opening price points.

But he added: "We are planning for the retail environment to remain fundamentally promotional" as demand remains tepid amid "a very competitive environment with highly compressed pricing."