Liz Claiborne Finds The Right Fit
With retail as a key component of its strategy, Liz Claiborne Inc.’s lifestyle concepts — Lucky Brand Jeans, Kate Spade, Mexx and Juicy Couture — are rapidly expanding. The company may have as many as 1,200 stores worldwide by 2011.
Randall Shearin

By the end of 2007, Juicy Couture will nearly double its retail presence, going from 21 to almost 40 stores.

If you are looking for the hottest fashion retailers for your center, chances are you have come across Lucky Brand Jeans, Juicy Couture and Kate Spade. These three labels are just a few of the brands controlled by fashion giant Liz Claiborne Inc.

Liz Claiborne is a company of brands. It is especially interesting because the company sees retail as one of its chief expansion vehicles for its brands over the next few years. Most consumers probably aren’t aware of the fact that Liz Claiborne is the parent of great retail concepts like Juicy Couture, Lucky Brand Jeans, Sigrid Olsen, Dana Buchman and Kate Spade. And Liz Claiborne Inc. doesn’t want them to know. The company has a new CEO and a new retail chief, who are fired up about retail and ready to open stores.

Based in New York City, Liz Claiborne Inc. also has corporate offices in Los Angeles, Amsterdam and Hong Kong. Shopping Center Business was excited to meet with executives of this growing international retailer at the company’s New York headquarters to discuss its retail plans and operations. SCB met with William McComb, chief executive officer; Jill Granoff, group president, direct-to-consumer; and Trent Merrill, senior vice president of real estate and construction, direct-to-consumer.

History

After working for other designers for years, fashion designer Liz Claiborne founded her namesake company in 1976 as a producer of career wear for women — a design philosophy that was unique for the time. The company hit the scene at a time when women were entering the workforce in droves. During the same period, the mall industry was growing and expanding department stores needed product to feed this new audience.

For many years, Liz Claiborne’s largest wholesale customers were the department stores, which needed a wear-to-work resource for women. Consumers turned to the Liz Claiborne brand because of its sensibility — it was affordable, aspirational and fashionable.

Because of its timing and the role that the retail industry played, Liz Claiborne Inc. grew incredibly fast. By the 1980s, the company had built a powerful supply chain that could accommodate huge runs of goods. It gave the company a cost position and competitive advantage. That supply chain is what has led the company into the future: it began to use its supply chain to feed other brands.

Since the 1980s, the company has acquired numerous household name brands and has licenses for others, and it uses its supply chain and sales channels, including retail, to market the brands. Doing so reduced the company’s reliance on department stores and other retailers for its business. Thus, when department stores began to consolidate, Liz Claiborne Inc. was in a good position.

While Liz Claiborne herself retired from active management of the company in the late 1980s, her successors have paved a successful road for the company. In times when apparel sales have been flat, Liz Claiborne Inc. has managed to stay ahead. The company’s net sales and gross profits rose steadily from 2001 to 2006 (net sales rose from $3.44 billion in 2001 to $4.99 billion in 2006). A significant restructuring at the company in late 2005 further streamlined operations and readied the company for the future, although the company did suffer some financial repercussions from chargebacks relating to the restructuring, which impacted its net income for 2006.

Today, the company is led day-to-day by CEO McComb, who joined in November 2006 after successfully leading one of Johnson & Johnson’s top consumer units; President Trudy Sullivan; and Chief Operating Officer Michael Scarpa.

Retail Is The Future

There will be nearly 150 Lucky Brand Jeans stores by the end of 2007.

In the past decade, Liz Claiborne Inc. has modified its strategy to be not only multi-brand, but also multi-channel. Its channels include wholesaling to department stores, the Internet, third parties like QVC, and, for some brands, retail stores. The company has acquired Juicy Couture, Mexx, Lucky Brand Jeans, Kate Spade and Sigrid Olsen over the past 8 years. All of these concepts either came with or now include a stand-alone retail presence. Today, the direct-to-consumer channel, which includes retail, is about 27 percent of the company’s total sales. Opening stores for a number of these brands is chief among the company’s goals.

The company’s chief retail cheerleader is McComb, who joined the company last year, following the retirement of longtime CEO Paul Charron, now chairman emeritus. To push the retail envelope further, the company recruited Jill Granoff, who serves as group president, from Victoria’s Secret Beauty, where she was president. (At Victoria’s Secret Beauty, Granoff built the sales from $500 million to $1 billion and managed 500 stores for the brand. She learned retail from Les Wexner, founder of The Limited.)

“Our goal is to increase direct-to-consumer as a percentage of our total sales,” says Granoff.

Mexx is Liz Claiborne’s largest retail brand.

“Retail is our future,” says McComb. “The acquisitions of Mexx and Lucky Brand Jeans brought a retailing capability and strategy to Liz Claiborne Inc.”

The acquisition of these brands and Juicy Couture has brought a different cache to Liz Claiborne Inc. The brands are internally described as “lifestyle” brands — they appeal to a consumer’s psychographic versus their demographic. The brands transcend ages. Lucky Brand Jeans, for example, has denim that fits men, women, teens and kids — and appeals to a person’s sense of style versus their pocketbook.

Kate Spade currently has 20 full-price stores in operation.

Part of the brands’ attractiveness to Liz Claiborne is that they appeal to different lifestyles, so the company is not going after the same consumer with all of its brands. If you look at the target audience that drives the market for Lucky Brand Jeans — both demographically and psychographically — it is very different than that which drives the Juicy Couture division, which is different from buyers of Kate Spade. Consumers have an emotional connection with these brands, which have a great track record in terms of growth and profitability.

“Our brands play like movies,” says McComb. “We are a purveyor of great power brands. We want brands that can be in a number of different categories and not narrow niches. Accelerating our focus on retail will help us increasingly express each brand’s marketing message. Retail gives us the degrees of freedom to grow the brands the way the consumer wants to see them grow.”

Lucky, which had a small retail operation when Liz Claiborne purchased it in 1999, was an extremely successful operation. Liz Claiborne has developed a strong retail division for the brand, and it currently has over 130 stores in malls, lifestyle centers and urban destinations across the country, and there will be nearly 150 stores open by the end of the year.

Liz Claiborne operates more than 50 Sigrid Olsen stores.

Sigrid Olsen operated only as a wholesaler to retailers when Liz Claiborne purchased it in 2004. The company began opening retail stores for the concept shortly after acquiring it and operates more than 50 stores today. Liz Claiborne Inc. feels that there is a larger market for Sigrid Olsen, but it is not one of its lifestyle brands currently marked for heavy expansion.

Mexx is the company’s largest retail brand. The brand, which is a retail powerhouse in Europe and Canada, has over $1 billion in sales. Liz Claiborne opened a few experimental Mexx stores in the U.S. over the past 2 years that it did not heavily market. The company recently made the decision to close the U.S. stores.

In 2005, the company acquired Juicy Couture, one of the hottest brands in fashion. The brand is known for its contemporary, playful casual wear. The brand currently operates 21 stores. By the end of 2007, there will be nearly 40 stores in the U.S., and Liz Claiborne has recently begun to take the retail concept international.

In late 2006, the company acquired Kate Spade, a maker of women’s accessories and handbags. Kate Spade currently operates 20 full-price retail stores in the U.S. The brand has a luxury reputation, with traditional lines and products.

Inside Lucky Brand Jeans.

“We see each of our expanding brands — Lucky Brand Jeans, Juicy Couture and Kate Spade — operating between 250 and 400 stores each worldwide by the end of a 3- or 4-year timeframe,” says McComb.

“We believe that most of our retail brands are accessible luxury brands,” says Granoff. “They are luxury but they have a broader reach. Their positioning enables us to generate a higher level of transactions and have numerous points of distribution.”

Despite all of its brands, Liz Claiborne still operates each business on a decentralized philosophy. To investors, it communicates the breadth and depth of its portfolio, but to the consumer, this information is irrelevant. The company wants each of its brands to have its individual audience. Each division of Liz Claiborne Inc. has a group president — a title that denotes the most senior corporate executive that has accountability for the daily line operations of the individual brand businesses. Group presidents do not necessarily run the day-to-day business — that could fall to the founders or a brand president. Many brands are based in different buildings, even when in the same area. Juicy Couture, for instance, is based in the San Fernando Valley area of Los Angeles, while Lucky Brand Jeans is based closer to downtown Los Angeles. Mac & Jac, an apparel line the company owns, is based in Vancouver. Mexx is based in Amsterdam.

“This decentralized philosophy of managing the business really works to create that distance between the brands,” says McComb. 

Liz Claiborne also has a strong presence in the outlet business, operating over 330 stores in outlet centers across the world. Like many wholesalers, the company entered the outlet business in the 1980s to divest itself of clearance merchandise. As that channel for the company has evolved into a full shopping experience, so too have its outlet stores. The company today has an entire business devoted to its made-for-outlet merchandise. It has changed its outlet stores to be more compelling and contemporary. It has also begun to open single-brand outlet stores, rather than one store for all brands as it has done in the past.

In addition to the retail brands that the company currently has, Liz Claiborne Inc. has begun to think about launching retail stores for some designer and luxury brands that are in the works. Under that model, a line would be simultaneously launched as a wholesale and highly specialized retail concept. McComb uses the company’s Dana Buchman brand as an example. Buchman was a line designer who worked for Liz Claiborne. Claiborne saw her potential and set Buchman up with her own label in-house. Today, the company operates Dana Buchman stores, wholesales the label through premium department stores, and sells the line’s product on QVC.

The company also sees a lot of potential in further segmenting its retail brands. Lucky Brand Jeans, for instance, has opened Lucky Brand Kid stores close to a few of its full-line locations. Juicy Couture also has children’s lines and menswear lines, which are new, but have the potential for future retail expansion.

Real Estate

Real estate is one of the few areas of Liz Claiborne Inc. that is highly centralized. In order to create efficiencies and maximize its supply chain, the company likes to locate its concepts in the same geographic areas. Merrill is the senior vice president of real estate and construction, with responsibility for real estate location and site selection, as well as store development.

Based in Los Angeles, Merrill oversees all real estate in the U.S. In Europe and Asia, the company’s real estate operations fall to its Mexx division in Amsterdam. The U.S. real estate team is divided between Los Angeles and New York. The company also uses outside brokers in smaller markets to assist in site selection. However, the real estate team works directly with mall and lifestyle center developers on most locations.

Liz Claiborne Inc. operates about 400 full-price stores under many names, including Dana Buchman, Lucky Brand Jeans, Mexx, Sigrid Olsen, Juicy Couture, Kate Spade and others. For the future, though, the company will be concentrating its store opening efforts on Lucky Brand Jeans, Kate Spade and Juicy Couture.

Because the company looks for psychographics in addition to demographics, it has different criteria than a lot of retailers. To find psychographics, Liz Claiborne does marketing studies of consumers, asking them questions like where they live and shop, what magazines they read, what they do in their free time, and what television shows they watch. This gives the company insight into consumers’ sensibility and what motivates them.

“When we look for real estate locations, we look for malls, lifestyle centers and street locations in major urban and suburban markets where we feel the demand will be significant enough to meet our sales and profit targets,” says Granoff. “That translates to high-traffic, high-fashion locations with great adjacencies. We want to be near stores that have a similar consumer profile to our consumer.”

Lucky Brand Jeans likes to locate next to productive, high-energy retailers that have the same appeal, like Apple. Kate Spade stores, on the other hand, are positioned around retailers that appeal to the same classic audience, like J.Crew.

“We are very selective in where we place our stores,” says Merrill. “The visibility and foot traffic have to be good. The co-tenancy has to be right.”

For an apparel retailer, Liz Claiborne has a lot of real estate experience. The company has hired real estate people from great retailers, like The Limited and Gap.

“Our real estate executives understand ubiquity; they understand what it takes to set up a test market,” says McComb. “They also understand the difference between what warrants a flagship location versus an A mall or B mall.”

“For our brands, there has to be a critical mass,” says Merrill. “Oftentimes, lifestyle centers are built in areas that are growing. We have to have the co-tenancy that will draw traffic to the center and make it a central location.”

Liz Claiborne is now looking at secondary markets for Lucky Brand Jeans stores. With Juicy Couture and Kate Spade, the company is still seeking A locations in top centers in top markets. Traffic, customer base, demographics and psychographics all have to be there because the concepts are still in their early retail stages.

Liz Claiborne is also taking a geographic clustering approach to the expansion of Kate Spade and Juicy Couture. In Los Angeles, it is currently evaluating all of the opportunities — malls, lifestyle centers and urban retail — in the area for Kate Spade. It will develop a long term strategy for how many locations it wants to open in the market and where it would like them to be. It has already studied the Los Angeles market for Juicy Couture and located stores in places like Westfield Century City; Malibu Mart in Malibu; and Fashion Island in Newport Beach. A new, flagship location on Rodeo Drive in Beverly Hills will create a regional statement for the brand when it opens this fall. It is working on a similar strategy for New York City, where it currently has stores on Bleecker Street, Fifth Avenue and Madison Avenue. It is now evaluating locations on Long Island, Westchester County and New Jersey.

“We do that so we will have appropriate distance between stores and the right consumer traffic patterns at each location,” says Granoff. “We look at each market like that. We think there is an advantage to having this market approach. We can leverage our talent and our marketing investment. We look at the geographic clustering strategy to be sure that we hit all facets of the market.”

Liz Claiborne’s real estate group has mapped a methodical strategy for the expansion of all its brands. Merrill and Granoff have worked to develop a clear real estate strategy for all of the company’s brands. It has identified the top malls and markets across the country. It studies sales volumes of similar tenants and sales per square foot. It takes this methodical approach to identify which locations it wants to be in based on proven track records of key competitors. It also closely analyzes the volumes of anchor tenants at a center. This indicates traffic and where the customers are actually shopping.

In addition to opening stores for its growing lines, Liz Claiborne also tests potential retail concepts on an ongoing basis. It will test the waters in different markets, then make a decision to expand or close the stores.

Unlike a lot of apparel players, Liz Claiborne doesn’t necessarily believe that its first stores for any concept should be in New York. It has opened flagship stores in locations like Los Angeles, Chicago and San Francisco. And, the company isn’t afraid of international locations either. Two Juicy Couture stores have opened in Hong Kong, and they are two of the highest net revenue Juicy stores in the company. The strongest performing stores for Lucky, Juicy and Kate Spade in the U.S. are in Manhattan, Los Angeles, San Francisco and Las Vegas. More specifically, the Lucky and Juicy stores at The Forum Shops in Las Vegas are extremely strong performers. The Juicy store at San Francisco Centre, which opened last year, is one of the top in the chain. In Los Angeles, Lucky’s strongest performing stores are at Third Street Promenade in Santa Monica and The Grove at Farmer’s Market.

“Our strongest performing stores are in centers in urban areas, surrounded by a significant community that embraces that center as its own,” says Merrill.

For urban locations, Liz Claiborne looks for established streets that have credibility with shoppers. The company has stores on Union Street in San Francisco, Third Street Promenade in Santa Monica, California, and in Georgetown in Washington, D.C.

Lucky Brand Jeans has two basic formats, flagship and core stores. Flagship stores are located in key markets with highly visible locations that can reinforce the brand image while generating significant sales. These can be either street or mall locations. By their nature, flagships are limited to relatively strong urban markets such as Union Square, San Francisco; Third Street Promenade, Los Angeles; The Forum Shops at Caesars, Las Vegas; and Manhattan. Core locations represent the majority of all Lucky Stores. These stores are located in better retail centers in both urban and suburban markets and represent Lucky’s standard design prototype. A slightly smaller version of the core store format can be situated in smaller markets that will only support one store. For example, Lucky has only one location in North Carolina, at The Streets of Southpoint in Raleigh-Durham and this store, at 2,056 square feet, is a little smaller than the typical Lucky footprint of 2,500 square feet.

Juicy Couture’s and Kate Spade’s initial real estate strategies have been to develop a number of flagship locations. Although this has been a primary objective, the flagships have been complemented with core stores in the best centers in key target markets as those locations have become available. For Kate Spade, the real estate team looks for center court locations close to other accessories tenants. Kate Spade has stores at upscale centers like Town Center at Boca Raton in Boca Raton, Florida; Lenox Square in Atlanta; Somerset Collection in Troy, Michigan; and Stanford Shopping Center in Palo Alto, California.

Juicy Couture prefers to locate around other high-end tenants based on its higher price points and fashion categories. The company focuses on centers that are performing north of $600 per square foot in sales.  Juicy has stores in high-end centers like Atlanta’s Phipps Plaza; Orlando’s Mall at Millenia; Scottsdale Fashion Square in Scottsdale, Arizona; and Fashion Island in Newport Beach, California. New locations for Juicy Couture include Bleecker Street in Manhattan; Grant Street in San Francisco; Northpark Center in Dallas; and The Domain in Austin, Texas.

Site Selection

Site selection is something that Liz Claiborne does not take lightly for any of its brands. Just as important as the site is the store that ends up going in it. The company spends a lot of time making sure that each store best represents the brand. However, no two stores are exactly the same — the store that it builds in a specific area is the right store for that market.

Key to this decision-making process is actually visiting the center, not just choosing a location from a floorplan, says Granoff. The real estate department visits every site multiple times, on different days of the week and at different times of the day. While at a center, the company also looks to see who is shopping or why they are at the center. There may be thousands of people at a lifestyle center on a Saturday night, but they may be there to eat dinner and see a movie.

“You can go to a center on Tuesday at 10 a.m., but that it is not indicative of when the consumer is shopping,” says Granoff. “You have to understand what the center is like during the course of the week and on weekends and the evenings.”

Having good frontage is important to the brands. The company does not like long, narrow boxes with tight storefronts. It wants to have a storefront that shows off the interior of the store.

“We view our storefronts as billboards,” says Granoff. “The storefronts make a statement for the brand.”

“We are really after the best location in a market,” says Merrill. “We look at street locations, mall locations and lifestyle centers. It’s not about finding the least expensive location in the market, but more about finding the right location where our stores will be most productive. Sometimes, our occupancy costs become the least significant aspect of the deal. In real estate, we find that we get what we pay for. We don’t shy away from paying significant rents if we believe that it is the right location in the right center in the right market for us.”

When anchors are strong in a center, Liz Claiborne will try to locate its concepts close to the strongest anchor tenant. Juicy Couture, for instance, may locate by a Saks Fifth Avenue or Neiman-Marcus. When locating a Sigrid Olsen store, it looks for tenants like Nordstrom. While the lines are often sold in the department stores, Liz Claiborne sees this as something that enhances sales for both retailers. Within its own stores, it has the complete product assortment. For example, the company opened a Juicy Couture unit at San Francisco Centre that has accessories, children’s clothing and other products that the nearby Bloomingdale’s does not display together. 

“Our stores really expose the customers to the entire line,” says Granoff. “At the end of the day, they really help the department stores because they build traffic there as well through product awareness. If you have an aspirational brand, both locations will win.”

The company does open multiple concepts in a single center, if the center is right for all of them. Merrill uses the example of Westfield San Francisco Centre, where the company opened Lucky Brand Jeans and Juicy Couture. Lucky Brand Jeans, Juicy Couture and Kate Spade are all located in Scottsdale Fashion Square in Scottsdale, Arizona, as well as Fashion Island in Newport Beach, California.

Liz Claiborne’s real estate department is scouting the entire country for sites for Lucky Brand Jeans. It has stores in most major markets in the country at this point, and wants to continue to fill in coverage in stronger markets. About 35 to 40 new Lucky Brand Jeans stores will open over the next 12 months.

Juicy Couture is seeking locations in markets with an affluent population base and leisure lifestyles. These include California, Florida, Texas, Chicago, Nevada, Arizona and the Northeast.

Aside from the U.S., Liz Claiborne has plans to expand retail stores for Juicy Couture, Lucky Brand Jeans and Kate Spade internationally as well. Each brand is being expanded with different methods. Juicy Couture has been the brand with the most overseas expansion to date. Liz Claiborne has entered into a partnership with Lane Crawford with the intent of opening 24 Juicy Couture stores in Asia.

Store Design

Since Liz Claiborne Inc. does not market the brands together, it is essential that each brand have its own identity. This is especially the case with regard to store design. The brands play a large role in the identity and design of their stores. Each division has its own ideas about what store design should be.

The real estate group has its own architectural-design department. That department takes the brand’s vision and image and creates a prototype design for a store. It then translates that vision to the various locations that it finds.

Lucky Brand Jeans stores fit the brand’s rock-n-roll lifestyle. You almost feel as if you were in a converted garage or an old record store rather than a clothing store. Merchandise is displayed naturally, as if bookshelves were meant to hold jeans. Even with the ambiance, you still sense you are in a clean environment, where the merchandise is clearly seen and found.

At Juicy Couture stores, design follows the brand’s over-the-top tones. Like Juicy’s apparel and accessories, the stores are modern in design, painted white with some gothic fonts used for labels and signage. Walls may have murals and counters may be made of clear materials to showcase the merchandise, not the store. Juicy’s merchandise is known as almost over-the-top, yet not risqué, so the store needs to take a backseat to showcasing it.

At Kate Spade, merchandise must also take precedence over the store. Following the traditional lines of the company’s handbags, the stores use wood, stainless steel and glass for clean design that showcases the brand’s products.

The size of the average store is based by brand as well. The average Kate Spade location is 1,500 to 2,000 square feet. Lucky Brand Jeans stores average 2,000 to 3,000 square feet. Juicy Couture stores are the largest of the brands, at 3,000 to 5,000 square feet on average.

Founder’s Philosophy

Liz Claiborne has made a name for itself as an acquirer of brands. But it doesn’t dump the old management after an acquisition. It believes that the founders of a company are its soul, and that they should remain an active part of the company’s future. On the day that Shopping Center Business visited, Merrill was preparing to take Kate Spade Founders Kate and Andy Spade on a real estate tour of the Los Angeles market to show them locations the real estate department had scouted for possible future stores. Merrill himself came as part of Liz Claiborne’s purchase of Lucky Brand Jeans. He had done such a good job of locating stores for Lucky that Liz Claiborne Inc. decided to tap his expertise to find, design and build stores across all brands.

“We are a founder-friendly corporation,” says McComb. “The founders that are the entrepreneurs of these organizations have, for the most part, stayed with us. We want them in place to be the brand champions and the real energy and source of those brands. The vision that they had to generate the brand is necessary to sustain it. That is extremely important to us.”

Brand founders really act as the face of the brand. Days before Shopping Center Business visited, Sigrid Olsen appeared on The Martha Stewart Show. Olsen also makes regular appearances at the stores.

“We cherish the relationships we have with our founders and, in many ways, we believe that is what sets our brands apart,” says Granoff.

The founders’ input is especially sought after when looking for new store locations. As the soul of the brand, the founders often have a feel for the right locations, says McComb. The brands are all in charge of their own strategic plans, including how many stores they will open and where they will open new locations. Each brand manages and controls its own growth.

“The founders work with Trent and his group to scout locations,” he says. “They will have a very brand-centric point of view on a location. Many times, they will be very involved in the sites within a given complex where they want the store. They care about the adjacencies and the traffic flow. The brand is left in charge of those decisions, not the real estate department.”

McComb adds that this is one way the company has ceded decision rights to the founders of the company. The real estate department acts as an advisor in deals, bringing the best locations and cutting the best deal for the brand based on the corporation’s power.

If a brand wants to locate a store in Las Vegas, for example, Merrill brings a list of scouted locations to the founders and group president. The internal deal-making becomes a short back-and-forth before settling on a location. Most of the time, a real estate site selection committee consists of two or three real estate executives, and three or four people from the brand group who are responsible for the retail expansion.

Once a decision has been made on a store at the brand level, it goes to a corporate real estate approval committee. The committee consists of the company president, Trudy Sullivan, COO Michael Scarpa and Granoff. This step is necessary because the corporation will underwrite the lease for the brand.

“We care a lot about the quality of our locations, and having the brand filter in place helps to ensure good adjacencies and tenants,” says McComb. “This is an area that we are quietly very good at.”

As with site selection, the founders also have a lot of input into the store’s design and evolution.

“The founders are the face of the brand,” says Granoff. “They know the product, the marketing, the store design and the visual merchandising intimately. The brand founders continue to play a role in these areas to ensure there is a consistent and cohesive message that we communicate.”

“The founders are the keepers of the brand,” adds Merrill.

Liz Claiborne Inc. has incentives in place for founders to stay with the company, and also gives them the autonomy to continue to run the businesses. In every brand, the case is different as to how the brand is run. In some cases, a group president or president acts as the head, while in others the founders may still lead the business.

“That also makes us a great founder-friendly company,” says McComb. “At different points in the lifecycle of the brand, the accountabilities can be divided in different ways to take advantage of strengths and weaknesses.”