Liz Claiborne courting designers for overhaul

NEW YORK (Fortune) -- Liz Claiborne is in advanced discussions with the fashion designer John Bartlett, part of a broader push to revitalize its namesake brand, Fortune has learned.

Bartlett, known for his preppy sportswear with a twist, would be charged with designing a men's line under the Claiborne name, according to three people familiar with the negotiations. An agreement has not been signed, and the negotiations could still fall apart, one of these people cautioned. A final decision is expected in January, this person said.

The company is also looking for a designer to revamp the Liz Claiborne women's line. Though Liz Claiborne is said to have talked to numerous designers, including Tracy Reese, it is not clear whether a candidate has been chosen. Liz Claiborne executives, John Bartlett, and Tracy Reese were not immediately available for comment.

The recruitment of top design talent is part of a broader overhaul at Liz Claiborne (LIZ, Fortune 500), the $5 billion apparel maker that also owns Juicy Couture, Lucky Brand Jeans and Kate Spade. Chief Executive William McComb has tried to steer the company away from its roots as a supplier of mid-priced apparel to department stores and turn it into a fashion powerhouse - a strategy with potential upside, but one that also carries considerable risks.

Liz Claiborne is in the midst of selling a handful of ailing department store labels, including Ellen Tracy and Dana Buchman, while at the same time burnishing its image. The company hired Tim Gunn, the former associate dean of Parsons The New School for Design and host of Bravo's "Project Runway" and also bought a 50 percent stake in the Narciso Rodriguez fashion house.

Despite these moves, Liz Claiborne's shares have taken a beating, along with other apparel stocks over fears about the economy and bigger changes taking place in the industry. Once the Kings of Seventh Avenue, apparel manufacturers like Liz Claiborne have been loosing clout to department stores, which have grown through consolidation and rely increasingly on exclusive products and private label to the detriment of national brands.

But there are other concerns dragging down Liz Claiborne shares, which have fallen more in the past year than the stocks of many of its rivals. Since May, Liz Claiborne shares have lost 42 percent of their value, erasing $1.5 billion in market capitalization. The stocked closed on Friday up 27 cents, or 1.27 percent, to $21.46.

A plan announced by Liz Claiborne in July to sell 16 of its 36 clothing labels, worth $800 million in revenue, has run into roadblocks. After unloading the first batch of four brands in September to Li & Fung USA, a subsidiary of the large Hong Kong-based manufacturing and procurement firm, Liz Claiborne hoped to divest the remaining 12 brands as a group. But bids came in below expectations and many suitors made offers for just a single brand.

Now it looks like Liz Claiborne will wind up keeping some of the labels, including Dana Buchman and possibly Enyce, sources said. Meanwhile, the once-red hot Lucky Brand has started to cool. "We see solid profitability and successful store openings at Lucky, although for the first time in a very long time, we are seeing soft comps there," McComb said on a recent conference call, referring to the all-important retail measure of sales at stores open at least a year. Sales have also been anemic at Mexx, a casual clothing chain with stores mainly in Europe and Canada, though McComb said, during the same conference call, that the division is making progress toward a turnaround. And there are real questions as to whether Liz Claiborne can build Kate Spade and Narciso Rodriguez into sizeable businesses; both are tiny at the moment. Only Juicy Couture seems to be unstoppable.

Liz Claiborne has for years tried to revive its namesake brand with little luck. Once considered a beacon for working women looking for stylish clothes that would see them from the office into the evening, the Liz Claiborne brand has more recently been perceived as stodgy. The label suffered a public relations blow this year when the designer Liz Claiborne died at the age of 78, though she had not be involved with the company for years. Despite efforts by McComb to jazz up the label, including the unveiling last winter at the Museum of Modern Art a higher priced Liz Claiborne collection that included new a-line styles and richer fabrics, the brand has continued to flounder. Sales fell 9 percent in 2006, and have remained soft this year.

The addition of a designer such as Bartlett could help the Liz Claiborne brand regain its edge. The Harvard-educated Bartlett is known for preppy clothes, but he has in the past also brought an erotic sense to fashion (including an ample use of leather) that would likely have to be tamed for the more conservative Liz Claiborne customer.

"John is a great designer who understands American sportswear and has the ability to bring a much needed point of view to Liz Claiborne," said Robert Burke, the former fashion director of Bergdorf Goodman, who now runs his own consulting firm. Though Bartlett received much praise for his collections in the late 1990s, including a short-lived women's line, he closed his business in 2002, when his financial backers pulled out. After spending a year in Asia studying Buddhism, Bartlett returned to New York and launched a small men's line. He also served as the creative director of handbag maker Ghurka. He currently operates a store in Manhattan's West Village.

Whether or not a high-powered designer such as Bartlett is the answer for Liz Claiborne, McComb, who was named CEO in October 2006, will need to start showing the fruits of his strategy soon. If the stock continues to drop, Liz Claiborne could become a takeover candidate - or at least the target of an activist investor looking to shakeup management. If that were to happen, McComb might find the fashion runway to be a short one.