Liz Claiborne's search for buyers

NEW YORK (Fortune) -- Liz Claiborne has received at least two final round bids for nine apparel brands - including Ellen Tracy and Dana Buchman - but the outcome of the auction was in doubt on Friday, after a handful of potential suitors dropped out, Fortune has learned.

One of the companies that entered the final round is Perry Ellis, the $830-million apparel firm known for its casual men's sportswear. The identity of the other bidder could not immediately be learned, although it is believed to be a combination of a private equity firm and a strategic partner.

The divestiture is part of a broader plan by Liz Claiborne (Charts, Fortune 500) Chief Executive William McComb to refocus the company on faster growing and more profitable power brands: Juicy Couture, Lucky Brand Jeans, Kate Spade, Mexx and the namesake Liz Claiborne line. As part of that process, Liz Claiborne has already sold four brands to Li & Fung USA, the local subsidiary of the large Hong Kong-based company that sources raw materials and manufactures products for a wide range of apparel firms.

Dozens of companies had initially eyed the remaining Liz Claiborne brands, which also include Sigrid Olsen, Prana, Enyce, Laundry, C&C California, Mac & Jac and Kensie. Those believed to have dropped out include Kellwood (Charts), Li & Fung and the private equity firm Sun Capital Partners. It remains unclear whether Windsong Allegiance Group, which holds the license to manufacture clothes under the Calvin Klein and Geoffrey Beene labels, submitted a final proposal.

A Liz Claiborne spokeswoman did not respond to requests for comment. The other companies either couldn't immediately be reached, or declined to comment on the bidding process.

There are many factors making it tough for Liz Claiborne to find buyers for the remaining nine labels. Potential suitors were interested in buying one or two of the brands, but not all nine as a package as Liz Claiborne had hoped. Perry Ellis, for instance, is only interested in five of the nine brands, including Dana Buchman and Ellen Tracy - but not Sigrid Olsen, sources said.

Another problem is the uncertainty that has hung over these labels since they were put on the auction block in July. The department stores that sell these brands curtailed orders heading into the fourth quarter until they had a better idea of who the new owners would be. At the same time, these brands, many of which had already been struggling, have been particularly hard hit by the broader economic slowdown, which has hurt all apparel sales.

All of that may mean that Liz Claiborne will not be able to sell at a desirable price. Perry Ellis, for instance, has shown a willingness not to overpay; the company has largely sat out the recent wave of M&A activity that has swept the apparel industry.

Once the Queen Bees of women's clothing, brands like Dana Buchman and Ellen Tracy have more recently been eclipsed by newer labels such as Tory Burch and Elie Tahari. An apparel company would have an easier time breathing new life into these labels than would the average private equity firm, which lacks the sourcing and design infrastructure as well as relationships with department stores.

The slimming down of Liz Claiborne is an about face for the $5 billion apparel company, which spent most of the 1990s on an acquisition spree. The company is not alone in looking to trim its portfolio. Rivals, including the Jones Apparel Group (Charts, Fortune 500) and Kellwood, have sold divisions recently, as they seek to retrench amid tougher competition and focus only on those brands that are likely to deliver the best growth.