Liz Claiborne offloads distribution to Li & Fung

Apparel seller Liz Claiborne Inc is taking steps to cut its fixed distribution costs after signing a deal with sourcing giant Li & Fung Ltd to deliver goods to its stores and wholesale business.

The initiative announced today (11 August) is part of plans by the struggling company to reduce debt and aggressively manage costs - and will also see it sell several fragrance brands to Elizabeth Arden for $58.4m.

Although it hasn't revealed terms of the agreement with Li & Fung, the apparel firm said the move will significantly reduce its fixed cost base for distribution. But related functions such as logistics and compliance will remain in-house.

On its second quarter earnings call last month Liz Claiborne said it was closing its last remaining company-owned distribution centre in the US as part of a wider goal to cut $25m worth of costs.

"This agreement with Li & Fung Limited will allow us this much needed flexibility without sacrificing the service level our customers, our owned retail stores and ultimately our consumers demand," explained CEO William McComb.

Last month the company, whose brands include Juicy Couture, Kate Spade and Lucky Brand, revealed its second-quarter loss had widened to $89.9m, from $86.8m a year earlier. It is also saddled with around $548m in long-term debt.

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.

Efforts to bring costs in line with weak sales have included the axing of thousands of global jobs, and the disposal of at least 14 brands including JH Collectibles, Ellen Tracey, and C&C California. It also offloaded its sourcing business to Hong Kong-based Li & Fung in 2009 in another attempt to reduce costs.

And rumours persist that its loss-making Mexx brand may be on the market for up to US$100m. Mexx is responsible for roughly one-third of Liz Claiborne's revenues, but the company has been exploring strategic alternatives to reduce its exposure to the division's losses.

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