Liz Claiborne’s new chief executive officer, Johnson & Johnson group chairman William L. McComb, might need a Tylenol to deal with what is sure to be a headache.
Effective Nov. 6, McComb will take over as ceo and a member — not chairman — of Claiborne’s board. The board appointed its own longtime member Kay Koplovitz, 61, as nonexecutive chair, starting Jan. 1.
After a more than 16-month search, on Monday Claiborne finally made the long-awaited appointment of McComb, 43, an industry outsider with a 14-year tenure at the pharmaceutical giant. McComb has an MBA from the University of Chicago Graduate School of Business and a undergraduate degree in economics from Miami University of Ohio.
He comes without apparel experience, following in the footsteps of Paul Pressler at Gap Inc., Phil Marineau at Levi Strauss & Co. and William Perez, who resigned as Nike Inc. ceo in January after just 13 months — and who reportedly was approached as a candidate in the Claiborne search.
Paul Charron, Caliborne’s chairman and ceo, will remain chairman until the end of the year, when Koplovitz takes over. He will stay on as a consultant for another full year and become chairman emeritus.
Speculation on the quiet search put the choice between an external candidate and internal choice, Claiborne president Trudy Sullivan.
After being passed over for the top spot at Claiborne, Sullivan might jump ship, headhunters and analysts speculated. Claiborne is not raising Sullivan’s salary to keep her, saying that it gave her a raise on her promotion to president in January. Sullivan, who has been with the company since 2001, was the only internal candidate being considered. Two years of poaching have left Claiborne’s executive ranks picked over, and Sullivan’s departure would further drain the company of intellectual capital.
“If Trudy is not the next ceo of Liz Claiborne, she is ceo material and will be a great ceo somewhere else,” said Margaret Mager, retail analyst and managing director for Goldman Sachs & Co., last week before the announcement. “The company has shown its ability to build talent that goes on to pepper the industry. If she doesn’t get the ceo spot there, someone else will see her potential.”
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Analysts point to the departures of other executives: Angela Ahrendts, who resigned as executive vice president in October 2005 to head Burberry; Gail Cook, group president of bridge brands, who left in 2004 to start her own consulting firm and then was named president of Kellwood’s David Meister brand; Denise Johnston, president and chief merchandising officer for the better and moderate division, who left to become president of Gap Adult in April, and Bob Negrón, a group president at Liz Claiborne Inc. for more than seven years, who resigned his post, effective June 30, to pursue other interests.
While this poaching is a nod to the company’s talent pool and management experience, it means there are fewer senior executives left to support McComb as he learns the intricacies of the apparel industry.
And his learning curve will be a steep one, given Claiborne’s current woes. Charron, a Harvard MBA with experience at VF Corp. and Procter & Gamble Co., led the vendor through 40 consecutive quarters of growth, taking it from a $2 billion firm with five brands in the mid-Nineties to a $4.85 billion firm with a diverse portfolio of 46 brands and its own stores today. But that growth came to an abrupt halt this year.
Liz Claiborne’s winning streak could be coming to an end. For the first six months of 2006, earnings were down 31.2 percent, to $86.4 million, or 84 cents, from $125.6 million, or $1.17, in the year-ago period.
The 2006 earnings slump and what Charron called “our less than stellar performance in 2005” in that year’s annual report may be signs of things to come. Some dismiss it all as the nature of the apparel business — sometimes you get it right and sometimes you don’t. Others point out that higher levels of fashion — like Juicy Couture, Lucky Brand and redesigned mature brands — bring on higher levels of risk. In the higher-fashion, higher-risk business Claiborne has cultivated, leadership becomes even more important, according to analysts, who are worried no one can replace the deified Charron.
Having made allowances for questionable brands in the past because of its faith in the company’s leadership, Prudential recently downgraded Claiborne stock. A Prudential report lamented, “Liz does have some great brands, but it also has quite a few brands that are performing just OK, and some that we would characterize as problematic.”
Today, Claiborne’s portfolio is a mix of moderate lines, which make up 11 percent of sales; better brands, including the eponymous Liz Claiborne brand, that make up about 25 percent of sales; bridge brands, like Dana Buchman and Ellen Tracy, that have received makeovers after a tough year, and contemporary acquisitions like Juicy Couture and Lucky Brand Jeans.
The $533.5 million chunk that moderate brands contribute sends up a red flag. “The Street is very skeptical of the moderate zone because more retail customers are doing proprietary brands that are replacing their demand for moderate,” said Brad A. Stephens, an analyst for Morgan Keegan & Co. Inc.
Analysts suggest Claiborne has long “hidden” the stagnation of its “mature, tired brands” through acquisitions of hot, growing brands — although many of these have been tiny. Those may be harder to come by today, and there’s competition from private equity. After Claiborne’s public loss of J. Jill to Talbots and Seven For All Mankind to Bear Stearns, it’s clear Liz is not the only one vying for destination brands. Even some insiders complain that while Charron has bought a large number of brands, he’s been stingy when it comes to investing in their growth and marketing them aggressively, apart from a few.
“The pool of sizable brands that can add that oomph to a company that size has declined,” said analyst Beder. “They managed to hide the problem for a long time by buying more brands. You can’t add many companies that move the needle when you already own 40 brands. How big would that company have to be, and how many of those companies still exist?”