William McComb became Liz Claiborne’s (NYSE:LIZ) new CEO in November 2006 replacing Paul Charron who retired after 12 years at the helm. Even though earnings have dropped in recent years, the respected Charron wasn’t pushed. It was simply time for him to move on and do something else. The company went with McComb, a veteran marketer from the packaged goods industry and it’s hopeful he’ll bring a new dynamic to the business. Only six months into the job, more time is necessary to evaluate his performance objectively.

So what’s wrong with Liz? Does she have a small cold or is it something worse. In 2003, the company reported operating income of $471 million, an 11.1 percent margin. That’s a respectable number. Fast forward to 2006 and the company reported operating income of $436 million (also respectable) but a margin of only 8.7 percent. In three short years’ the operating margin has shrunk by 22 percent, never a good sign. The cause for such a drop; there are a few.

The first and most visible is the Liz Claiborne brand itself. Many consider it to have become dowdy and boring, very much like Talbots (NYSE:TLB). I’m no fashion guru but every time I walk by a Talbots store I shudder just thinking about my wife wearing their clothes. Thankfully, she doesn’t. When even your newly hired Chief Creative Officer Tim Gunn (Project Runway) thinks so, it has to be true. The company has brought in a new design team for the LIZ brand and they are feverishly working to make it relevant once again. Let’s hope so. In 2006, the LIZ wholesale business dropped nine percent and even more the previous year. The company has their hands full on this one.

The second problem in my opinion is the large number of brands under the corporate umbrella. It currently stands somewhere around 33. I couldn’t begin to tell you what some of those brands do. Since 1999, the company has bought Lucky Brand Dungarees, Mexx, Ellen Tracy, Juicy Couture, Enyce, C&C California, prAna, Mac & Jac and Kate Spade. That’s a lot of purchases. How many will become superstars is debatable. McComb has said recently that the company will allocate capital to those brands that have real growth potential. Read - Lucky Brand, Mexx, Juicy Couture, Kate Spade and Liz Claiborne. While not openly saying the rest are up for sale, it’s obvious he sees the need to reduce the focus. 

The final problem is the company’s past reliance on wholesale business, especially those in department stores. Businesses like J.C. Penney (NYSE: and Nordstrom (NYSE:JWN) see the benefit of developing private label in-house brands just like the grocery stores and that cuts into business. Fortunately, the company has met this challenge head on and in 2007 is bringing out Liz & Co., a line of women’s clothing exclusive to J.C. Penney. That’s a great move in my opinion.

Here’s what I would do to revitalize the company:

• Continue to expand the Lucky Brand, Juicy Couture, Mexx and Kate Spade retail stores.
• Grow the wholesale business through more private label deals like the J.C. Penney one.
• Focus a bunch of energy towards online shopping.
• Move aggressively into Europe and Asia developing new retail and wholesale business.

These aren’t exactly new ideas. Bill McComb has articulated in interviews he’s done that they are looking at all of these areas with interest. Liz Claiborne was and still is a great company. They have some fantastic brands and if they continue to focus on what will make them real money, the bottom line will brighten considerably.

I don’t own the stock but I should. It’s got that much potential.