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CompanyLiz Claiborne (NYSE: LIZ)
Submitted byksiu1
Member Rating92.97
Submitted on4/2/2011
Stock Price at Recommendation$5.30
Liz Claiborne Profile
Star Rating (out of 5)**
HeadquartersNew York City
IndustryApparel
Market Cap$538 million
Competitors

Cherokee (Nasdaq: CHKE)

Aeropostale (NYSE: ARO)

Urban Outfitters (Nasdaq: URBN)

Sources: Capital IQ (a division of Standard & Poor's), Yahoo! Finance, and Motley Fool CAPS.

This week's pitch:
Keeping my focus within my sphere of knowledge. I think Liz will continue to struggle as it's caught between two conflicting forces. First is its agent agreement with Li & Fung which is a public company listed in Hong Kong. Li and Fung's primary source of manufacturing is Asia. As inflation on that continent increase, so will costs and Li & Fung isn't going to be the one taking the hit on that. They're simply going to tell Liz "Here's the price" and Liz will be paying a % of it to Li & Fung. And it's not like Liz can shop around since according to their annual report they [are] pretty locked in. Further conflict of interest is that Li&Fung owns brands that they sell to dept stores themselves. It's in their best interest to use their best suppliers and lock up the most affordable raw material prices for their own brands.

If that wasn't bad enough Liz also has to contend with their retail partners J.C. Penney [(NYSE: JCP)] and QVC. While I'm not a retail expert I know that retailers these days aren't partners with their wholesale sources. They will squeeze first and ask questions later. They may even be justified in doing so given Liz's challenges in sourcing quality product at reasonable prices that I mentioned above.

Finally they're operating from a position of weakness when their fundamental focus has to be on managing their brands and merchandising. Their exec's are busy trying to manage cash flow and are probably distracted. It's a vicious little cycle. Soon they'll be selling brands to raise money.

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The Motley Fool is investors writing for investors. Dan Dzombak did not have a position in any of the companies mentioned in this article. Pitches must be compelling, made in the past 30 days, and be at least 400 words. The Fool owns shares of Aeropostale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. The Motley Fool has a disclosure policy.