Liz Claiborne has spent the best part of the last two decades buying small, niche-oriented brands. But this week the company ushered in a new era by announcing plans to focus on smaller, more powerful labels and develop its own retail businesses. Whatever the outcome of its change of direction, Arnold Karr believes the standards for a "lifestyle brand" have now been permanently raised.

Retailers and ultimately consumers will judge whether chief executive officer William McComb's bold vision for Liz Claiborne is on target, but the ramifications are already resonating throughout the apparel markets.

That's because, especially after the detailed explanations provided by Claiborne management on Wednesday (11 July), it's now clear that the most significant business trend of the 1990s - consolidation of lifestyle brands - has been taken about as far as it can go.

When Claiborne last month announced a reorganisation into two units - Partnered Brands and Direct Brands - it was immediately apparent that the company had drawn a thick, vivid line separating the main parts of its business.

On the one hand were the lifestyle brands that were growing and vital enough to merit retail expansion as well as investment support (Direct), while on the other, those in the Partnered area that were mature and dependent on growth from an increasingly small group of mass and department store retailers who are increasingly married to their own private labels.

All of the 16 brands marked for "strategic review" and the possibility of a sale, liquidation or licensing are in the Partnered portion of the business.

Those brands - C&C California, Dana Buchman, Ellen Tracy, Emma James, Enyce, First Issue, Intuitions, JH Collectibles, Kensie, Laundry by Design, Mac & Jac, prAna, Sigrid Olsen, Stamp 10, Tapemeasure and Tint - obviously aren't the most dynamic at Claiborne.

But even so, they are expected to generate US$800m in the Partnered group's anticipated $2.8bn in sales this year, more than a quarter of its total and 16% of the $5bn in revenues Claiborne is expected to produce this year.

Finding the right partners
McComb noted of the businesses under review on Wednesday: "These brands have loyal consumer followings and valuable distribution, represent meaningful growth opportunities and can excel with the right partners and necessary investment.

"They also have strong management teams that will be incented to continue growing and developing them concurrent with the review process."

Left unsaid in the CEO's comments, however, was that Claiborne isn't the right partner to take them to their next stage.

They represent the "have-nots" in the Claiborne portfolio, as they have not the "significant multi-channel, multi-national, multi-category growth potential" ascribed to the Direct Brands, including Juicy Couture, Kate Spade, Lucky Brand Jeans and Mexx.

The brands put in play by Claiborne on Wednesday remain pretty much at the mercy of the retailers to whom they are sold.

And even the Partnered labels not up for review, such as the flagship Liz Claiborne brand and Monet, are in the uncomfortable position of competing for an ever-shrinking base of retail real estate reserved for manufacturers' labels, with all the chargebacks and allowances that come with them.

Clear financial goals
In a report on the Claiborne meetings with investors and analysts on Wednesday, Goldman Sachs analyst Margaret Mager commented: "Clear financial goals were established centred around a flat sales scenario in the partnered brands segment and a strong growth trajectory in the direct brands segment.

"While the direct brands have been on a strong growth track for many years, we think clarifying and providing visibility around their contribution will lead to better allocation of human and financial resources.

"It should also shift investor perception away from an almost sole focus on the Liz Claiborne brand and the issues facing the department store channel which has weighed on the stock and its valuation," she said.

Some of the transparency provided on Wednesday was genuinely surprising. In the Direct Brands area, Mexx is expected to account for $1.2bn in sales this year, 24% of the corporate total, and $1.45bn in 2010, or 30% of the corporate total after the redeployment of the brands under strategic review, according to Goldman Sachs research and company data.

Juicy Couture is expected to grow from $450m this year to $650m in the next three years while Lucky is budgeted to move from $460m now to $625m in 2010. The recently acquired Kate Spade is pencilled in for $90m this year but $300m in 2010.

Meanwhile, the Partnered Brands not up for strategic review are seen shrinking from $2bn this year to $1.8bn in 2010.

Executive push
When McComb succeeded the near legendary Paul Charron as CEO in November, many in the apparel and retail businesses wondered aloud if someone without an apparel background could safely steer a vessel the size of Claiborne into a more hospitable environment for customers and investors.

Charron had been among the primary drivers in the move by larger companies to acquire smaller, more niche-oriented ones in the 1990s and the new century, but his successor, whatever his ultimate success or failure may be, has tacitly begun a new era in which the standards for a "lifestyle brand" have been permanently raised.

The moves at Claiborne in the past month have been one of those periodic reminders that just because something has a label on it and a good season behind it, it's not necessarily a brand.

It's a good bet that Liz Claiborne's fellow consolidators - VF Corp, Jones Apparel Group, Kellwood, Phillips-Van Heusen and Oxford Industries, to name just a few - will be watching closely to see how the McComb doctrine plays out.

By Arnold J Karr.