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Management in Practice

What’s the New Look for the Fashion Industry?

During the global financial crisis, the Liz Claiborne fashion conglomerate found itself with too many brands and not enough channels through which to sell its products. Former CEO William McComb talks with Yale Insights about his brand-focused recovery plan, and what it may foretell for the fashion industry.

When the global financial crisis hit, the Liz Claiborne fashion conglomerate was all dressed up with very few places to go. The company had close to four dozen brands of apparel, accessories, fragrances, home furnishings, and other types of goods that it wanted to offer the public, but it was heavily dependent on one way to sell them—through other companies’ stores—at a time when consumers were reeling from the worst recession since the 1930s and were hardly in a mood to go shopping.

The company reported operating profit of $356 million in 2006, the last full year before the crisis set in. Two years later, during the worst of the downturn, it lost $734 million.

Liz Claiborne, which was renamed Fifth & Pacific Companies in the spring of 2012 and Kate Spade & Company less than two years later, was not the only fashion victim of the recession, of course. Sales at stores that sell clothing and/or accessories reached a peak in 2007 that was not exceeded until four years later, according to the U.S. Census Bureau. A 2012 study by the Russell Sage Foundation and the Stanford Center on Poverty and Inequality found that the reduction in consumer spending in general during the so-called Great Recession was more prolonged than in any other recession since 1970.

As bad as things were, being encumbered with too many brands and not enough distribution channels ensured that the impact of the Great Recession was particularly great on Liz Claiborne, William McComb, the company’s chief executive from 2006 to 2014, pointed out in an interview with Yale Insights.

The company’s recovery plan centered on culling the portfolio of brands, emphasizing quality over quantity, McComb recalled, and cultivating more channels through which to sell the brands that remained. Cutting out the middleman and reaching customers directly became a priority.

“Creating a company and a culture that was back to the origins of the Liz Claiborne company, which was all about brand, became our focus,” McComb said. There was a “realization that we didn’t have enough resources to focus on 46 or 47 brands; we had to focus on those that had the best possible [direct-to-consumer] future.”

The company would have to become “a true multi-channel retailer, including opening our own retail stores,” McComb added. That meant stores in the real world and in the virtual world: “The web became central to what we were doing.” A larger online presence fulfilled a third goal of leveraging Liz Claiborne’s brands by expanding worldwide.

The company spent several years sprucing up its brands by cutting costs, turning brands over to more skillful designers or enhancing distribution partnerships with the intention of selling them outright or licensing them to third parties. The aim was to improve the balance sheet so that more resources were available for the few brands that management wanted to retain.

The three product lines that Liz Claiborne was rebuilt around were Kate Spade, Lucky Brands, and Juicy Couture. They were the ones, McComb said, that met the key criteria of high growth potential, an ability to endure in the marketplace, the prospect of global reach, and of being multidimensional, meaning that they could be used for a wide array of merchandise categories, including apparel, accessories and home products.

That was what the company sold. As for how, “we opened hundreds of stores worldwide,” he said, “and built very successful, strong direct relationships on the web.”

The strategy seems to be working. Sales are far lower than in the years before and during the crisis—$1.24 billion last year, compared to $3.98 billion in 2008. That’s not surprising, since the company has has jettisoned so many of its brands—in fact, Lucky Brands and Juicy Couture were eventually sold as well, in 2013 and 2014. But Kate Spade is making money again; it reported operating profit of $66 million last year.

McComb sees the future of the fashion industry as similar to the path that Liz Claiborne took, with an emphasis on reaching customers online with unique brands. Those that cater to the high end should have an easier time of it.

“The race to the bottom is only getting faster in some ways for the value segment” and for mid-market producers, too, he said. The backdrop for luxury goods is more favorable for suppliers, in his view, because “the barriers to entry there are very, very high.”

He said he expects the most significant development to be an evolution in “what the customer interface looks like.”

“Stores aren’t going to go away, but I see them getting smaller; there’s too much square footage out there,” McComb said. “Retailers have the opportunity to use technology to make a sale with fewer actual items in the store, to sell a broader range of goods in a smaller box.”

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