Term Paper on "Liz Claiborne, Inc. 2005"

Term Paper 7 pages (1795 words) Sources: 2 Style: APA

[EXCERPT] . . . .

Liz Claiborne, Inc.

The international fashion apparel and accessories company, Liz Claiborne, Inc., performed well under CEO Paul R. Charron. However, due to increased competition and cut-rate pricing, it is questionable whether or not the company can maintain its streak of quarterly sales increases. Although the company does not own any manufacturing facilities, through arrangements with other organizations it designs, manufactures and markets both casual and formal, women's and mens apparel and accessories. The company utilizes a multi-brand portfolio strategy, with 38 brands, as part of their strategic management. Yet, both regional and international competitors such as: Benetton, Espirit, Jones Apparel, Polo Ralph Lauren, and Tommy Hilfiger have put increasing pressure on Liz Claiborne (Leonard, 2007, p. 119). This paper will present an external factor evaluation matrix, internal factor evaluation matrix, SWOT matrix, and analyze the retail apparel industry using Porter's Five Forces.

Liz Claiborne, Inc. - 2005

Introduction:

The international fashion apparel and accessories company, Liz Claiborne, Inc., performed well under CEO Paul R. Charron. However, due to increased competition and cut-rate pricing, it is questionable whether or not the company can maintain its streak of quarterly sales increases. Although the company does not own any manufacturing facilities, through arrangements with other organizations it designs, manufactures and markets both casual and formal, women's and mens apparel and accessories. The company utilizes a multi-brand portfolio strategy, with 38 brands, as part of their strategic management. Yet, both regional and international competitors such as: Benetton, Espirit, Jones Apparel, Polo Ralph Lauren, and Tommy Hilfiger have put increasing pressure on Liz Claiborne (Leonard, 2007, p. 119). This paper will present an external factor evaluation matrix, internal factor evaluation matrix, SWOT matrix, and analyze the retail apparel industry using Porter's Five Forces.

External Factor Evaluation Matrix:

The key external factors affecting Liz Claiborne, Inc. vary greatly. Growth in online spending, growth in the retail apparel industry, with a 21.3% growth from 2002 to 2007 (Leonard, 2007, p. 118), growth in the Asian retail sector, growth in mass merchandising retailers, and increased demand for high quality, low-cost apparel are important opportunities the company can't afford to miss.

Threats to the organization involve: the economic slowdown in the United States, increase in counterfeit products, increased competition from regional and international competitors, a decline in the world's cotton production ("Liz Claiborne," 2008), and increased shipping costs. When assessing Liz Claiborne's effectiveness using an external factor evaluation (EFE) matrix, it becomes clear there are several areas where the organization could improve.

With a highest score possible of 4 and a lowest score of 1, Liz Claiborne scored 2.325 on the EFE matrix. It received it's highest marks for its strategy for taking advantage of the online retail increase, with the company's 20 websites including: www.claiborne.com, www.candccalifornia.com, and Liz Claiborne," 2008).

It's lowest ranking scores were in addressing the threat of the decline in the world's cotton production, rising shipping costs, and the opportunity afforded by increases in mass-merchandising retailers, as the company has yet to take any action, in these areas. The company has also taken little action to address the economic slowdown in the United States, the rise of counterfeit products in the marketplace, and the increased competition in the industry (See Table 1).

Internal Factor Evaluation Matrix:

The key internal factors affecting Liz Claiborne's success are their strengths and weaknesses. The company's primary strengths include: strong cash flow, a diverse brand portfolio, a multi-channel sales network. Management's strong commitment to ethics, and a decentralized decision making style. Weaknesses are also significant areas Liz Claiborne needs to focus on. These include: the organization's declining margins, the company's low returns, low revenue and net income per employee ("Liz Claiborne," 2008), too much siloing of information due to brand autonomy, and reliance on all manufacturing produced by partner companies.

Utilizing an internal factor evaluation (IFE) matrix, one can see the areas that Liz Claiborne needs to focus on to better utilize their strengths and improve in areas of weakness.

With a highest score possible of 4 and a lowest score of 1, Liz Claiborne scored 2.525 on the IFE matrix.

Liz Claiborne's highest scoring facet of the IFE matrix was the company's strength of strong cash flow. The company's free cash grew at a Table 1: Liz Claiborne EFE Matrix

Key External Factors

Weight

Rating

Score

Opportunities:

1. Growth in online retail spending

2. Continuous growth in the retail apparel industry

3. Growth in the Asian retail industry

4. Growth in mass merchandising retailers

5. Increased demand for high quality, low-cost apparel

Threats:

1. Economic slowdown in the U.S.

2. Counterfeit products

3. Increased competition from regional and international competitors

4. Decline in world cotton production

5. Increased shipping costs compounded annual growth rate of 23% from 2000 to 2006.

They also scored high in the diverse brand portfolio the company manages, with 46 brands covering low to high-end price segments of the market ("Liz Claiborne," 2008).

However, the company has done little to address their high cost structure, which has resulted in low revenues and net income per employee as well as low margins, and their inability to effectively utilize assets, resulting in low returns (See Table 2).

SWOT Matrix:

There are a variety of strategies that Liz Claiborne may undertake in order to maximize strengths, improve on weaknesses, take advantage of opportunities, and ward against threats. Developing a high quality, low-cost brand that can be sold through a mass-merchandiser such as WalMart or Target would address most of the issues raised. In addition, reducing the workforce and increasing efficiencies will be paramount to improving the company's high cost structure and resultant low returns (See Table 3).

Porter's Five Forces:

Utilizing Porter's Five Forces, one can better understand the retail apparel industry Liz Claiborne operates within. Rivalry within the retail apparel industry is very intense. Although industry growth is strong, as noted earlier, and brand identity is an important feature, there are very few product differences among competing brands, with brands following similar fashion styles each season. Switching costs also are typically quite low, for the consumer.

Knowing that switching costs are traditionally low, it is not surprising that the threat of substitutes is quite high as well. As mentioned, many competing apparel brands carry very similar styles. Although a consumer may have a brand preference,

Table 2: Liz Claiborne, Inc. IFE Matrix

Key External Factors

Weight

Rating

Score

Strengths:

1. Strong cash flow

2. Diverse brand portfolio

3. Multi-channel sales network

4. Management's strong commitment to ethics

5. Decentralized decision making style

Weaknesses:

1. Declining margins

2. Low returns

3. Low revenue and net income per employee

4. Too much siloing of information due to brand autonomy

5. All manufacturing is performed by a partner company

Table 3: Liz Claiborne, Inc. SWOT Matrix

STRENGTHS - S

1. Strong cash flow

2. Diverse brand portfolio

3. Multi-channel sales network

4. Management's commitment to strong ethics

5. Decentralized decision making style

WEAKNESSES - W

1. Declining margins

2. Low returns

3. Low revenue and net income per employee

4. Too much siloing of information by autonomous brands.

5. All manufacturing produced outside company

OPPORTUNITIES - O

1. Growth in online retail spending

2. Continuous growth in the retail apparel industry

3. Growth in the Asian retail industry

4. Growth in mass-merchandising retailers

5. Increased demand for high quality/low-cost apparel

SO STRATEGIES

1. Diversify into children's clothing, offering online sales of new brands S2, S3, S5, O1, O2

2. Develop a high quality, low-cost brand that can be sold specifically at mass-merchandisers such as WalMart or Target S2, S3, S5, O1, O2, O4, O5

WO STRATEGIES

1. Vertically integrate production by purchasing a manufacturing facility to facilitate the manufacture of low-cost, high quality brand W1, W2, W3, W5, S1, S2, S5

2. Reduce workforce and increase efficiencies within the organization W1, W2, W3, O5

THREATS - T

1. Economic slowdown in the U.S.

2. Counterfeit products

3. Increased competition from regional and international competitors

4. Decline in world cotton production

5. Increased shipping costs

ST STRATEGIES

1. Develop new low-cost brand to address American's needs for high quality clothing in tough economic times S2, S4, S5, T1, T3

2. Offer online only discounts to drive online sales S2, S3, T1, T2, T3, T5

WT STRATEGIES

1. Offer online only discounts to drive online sales and reduce costs W1, W2, W3, T1, T2, T3, T5

2. Reduce workforce and increase efficiencies in order to pass cost savings on to consumers W1, W2, W3, T1, T3, T4, T5 most are not solely loyal to one brand, instead they often purchase a variety of similar brands, leading them to be inclined to substitute one brand for another. Pricing is also similar across similar market segments, leading to increaed threat of substitutes.

Buyer power is moderate within the apparel industry. For Liz Claiborne, buyers of retailers, such as department stores, have significantly more power than the individual consumer who visits one of their specialty boutiques and purchases directly from the company. Large volume… READ MORE

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