Liz CLaiborne Offloads Distribution to Li & Fung

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New York–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  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 $58.4 million.

Although it hasn’t revealed terms of the agreement with Li & Fung, Liz Clairborne 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 center in the United States as part of a wider goal to cut $25 million worth of costs.

Deal Support Goal to Lower Debt Levels

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

Last month the company, whose brands include Juicy Couture, Kate Spade and Lucky Brand, revealed its second-quarter loss had widened to $89.9 million, from $86.8 mimllion a year earlier. Not to mention, it is also saddled with about $548 million in long-term debt.

McComb said Liz Claiborne will use cash from the deal with Elizabeth Arden to pay down debt. The deal “supports our goal of ending 2011 with lower debt levels than at year end 2010,” he said.

The company 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 $100 million. 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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