It is not often that I get to speak to an audience that, almost exclusively, consists of manufacturing, sourcing and operations executives. But if this group is anything like your counterparts at Liz Claiborne, then you have probably spent the last several years trying to deal with unrelenting pressures to make and deliver your product for less money, in less time. Moreover, I expect you will spend the next few years trying to improve upon the standards you are currently setting in these areas.

Let me chat with you today about two things: why all this is necessary and why I believe all this is possible.

• The consumer is value-driven. Large segments of our population are focused on value because their economic circumstances give them no options. Other groups are focused on value because it is the smart thing to do. It has become “cool” to be value-conscious.
  
• Today’s consumer has abundant choices. She is no longer anywhere near as loyal to a specific apparel brand or shopping venue. Data indicate that the consumer, at any given time, is shopping in four of the six principal shopping venues. This means that brands and retailers must further sharpen their value proposition as they attempt to compete across a much broader spectrum than has ever been the case.
  
• The world is over-stored. We have known this for 20 years. It is getting worse. Between 1997 and 2000, retail apparel selling space in the United States increased almost 18%, while sales increased only 2% for the same period. Between 1997 and 2000, per capita selling space increased from 5.4 square feet to 6.1 square feet, an increase of 13%, while per capita sales remained relatively flat.
  
• Retail consolidation is an established fact of life. In the mid-1980s, Liz Claiborne’s top ten customers accounted for 45% of total sales. Today, that figure exceeds 80%.
  
• We are catching no breaks from the macro-economic environment. Despite six interest rate cuts engineered by the Federal Reserve, the U.S. economy still has not shown evidence of recovery. The collapse of the tech and Internet economies have vaporized the savings of large segments of the population. Daily reports of layoffs and write-offs have impacted consumer confidence. Life is more of a pressure cooker than ever. For the average consumer, it is harder to be more upbeat about the next 12 to 24 months than was the case just a short time ago. In this environment, do I really need that new top or updated bottom, that nightgown or pair of shoes?
  
• In such an environment, relationships between buyer and seller become more challenging than ever. Markdown requests continue to flow in at a record pace as retailers, under pressure to produce by Wall Street, take the lowest common denominator approach to price promotion and then seek supplier support to compensate for the inevitable margin deficiencies. Increasingly, retailers use chargebacks as a profit center, sending suppliers bills for infractions that are real, imaginative and punitive.

It should come as no surprise that the efficiencies I generate and the efficiencies you generate and the efficiencies that we generate together fund, at least partially, a lot of this activity. This is the way it has been. This is likely the way it will continue to be. As my friend Bob Zane says: "Vicious cycle. No end in sight."

So now that we have clarified all that is wrong with our world, why am I optimistic that right-minded and progressive companies can move ahead in the coming years as many of us have in the past few?

First of all, there is a plethora of new trade regulations which have helped to create new, even more attractive sourcing possibilities. These include NAFTA and Mexico, CBI, QWIZ and Jordan, and sub-Saharan Africa. These are facilitators and enablers which will continue to drive change in our environment, and which ultimately become an element of competitive advantage to those firms which optimize their performance within the context of these trade regulations.

There is certainly more to come, culminating in completely free trade on a global basis. If this is not the case by 2004 or 2005, then it will certainly be true by the end of the decade. This is not a question of if, but when.

Free trade is good for us all. I marvel at the power of the American economic system, providing jobs around the world and serving markets on an equally global basis. Seven times every second, 24 hours per day, 365 days per year, someone buys a product created by Liz Claiborne Inc. This means there is someone designing, building, shipping or selling one of our products even more frequently. As an industry, we are a global economic force.

Secondly, consolidation, both on the retailer side and manufacturer side, means that fewer enterprises buy more product. These ever larger pencils exert great influences in price. This creates risk … and opportunity.

Third, factory consolidation, an initiative of most manufacturers and retailers these days, leads to factory certification and results in greater capabilities and sophistication for the surviving firms.

Fourth, the technology revolution permits more efficiency at all levels of the supply chain. We have seen this most certainly in Liz. It is inevitable that this will be the case wherever technology is not only employed, but embraced.

And fifth, enhanced replenishment systems, even for “fashion” goods, and direct shipping are still to come. They can still impact the business and enhance the performance of those organizations which embrace their full potential.

While I express optimism, both for you and for us, I acknowledge that there is no silver bullet which will resolve all our issues. I do know, however, that fundamental change will be required, and that these changes will shake each and every organization in the industry to its roots. That has been the case at Liz Claiborne. That will continue to be the case at Liz.

We are often asked why Liz Claiborne is able to grow pretty consistently in a challenging economic environment, and in view of the fact that this retail segment or that one, or this manufacturer or that one, is having real difficulty. The truth of the matter is that we, like every retailer and every competing wholesaler and every one of our suppliers, is also being adversely impacted by the environment around us. At the same time, if you believe that the world has changed, then it is not unreasonable to expect that new approaches will be required to facilitate success in this new order. At Liz Claiborne, we are acting differently today in just about every way than was the case five years ago.

It is easy to point to the diversity we have added to our portfolio over the last several years. Liz Claiborne Inc. now serves every channel of distribution, upstairs and downstairs, in the United States. We operate both men’s and women’s businesses, and have substantial apparel and non-apparel segments. We are a wholesaler and a retailer, with operations both domestic and international.

This was not always the case. Our company has grown through acquisitions of growth businesses like Sigrid Olsen, Lucky Brand and Laundry, and by complementing our existing portfolio via the Monet transaction. We have entered into strategic licensing alignments with Kenneth Cole and DKNY. We have broadened our horizons internationally with the recent acquisition of Mexx.

We have also continued to internally develop new brands and new businesses. Whether it is our substantial Special Markets operation serving discount stores and national chains, or the expansion of our fragrance business, or the extension of our accessories business or broadened licensing arrangements, we have grown organically as well as via the acquisition and licensing route.

And we have remained committed to building our core businesses, the Liz Claiborne portion of the portfolio. New products. New approaches. New initiatives. This business is substantially larger than it was five years ago, although we have not added a single new door.

But beyond diversity, there have been a significant number of other changes which increase the likelihood that we can be successful with whatever hand the economy deals us. For example, we have continued our aggressive cost reduction efforts, reducing overhead, eliminating unnecessary layers in our organizational structure, consolidating real estate, and cost-justifying pretty much every investment. We have simplified our decision-making processes, improving controls while enhancing our ability to promptly address problems and capitalize on opportunities. We have infused new people who bring new approaches and new outlooks to the organization.

Over the last several years we have re-engineered virtually every process in this company. Once this was accomplished, we updated, upgraded and modernized every one of our systems and almost all of our logistics capability. We have invested importantly in areas such as global sourcing and supply chain management to secure long-term advantage. Since 1994 we have spent nearly $500 million on capital investment. Nearly two-thirds of this has been spent on improving our infrastructure - - at a point in time when many other firms have either been unwilling or unable to make such investments.

So it is hard to point to any one thing and say that this has been the central force in helping us navigate through challenging times. In truth, it has been many, many things, across a broad number of fronts, driven by many executives and associates in our company.

I mention these things not to tout the “goodness” of our company, but to illustrate very clearly the need for fundamental, ongoing change in response to a dynamic external environment.

It is possible to progress in this challenging environment, but not without a progressive outlook and an openness regarding new ways of doing things.

Those of us who look after the front ends of our business must increasingly partner with you who look after the back ends for more, for better, for faster and for cheaper. We seek more goods, in less time, with no diminution in quality, at a reduced price, using better ways, while adhering to the highest standards of human rights. For the great design and marketing companies of this industry who will be the survivors, we can afford to expect no less.

Since past is prologue, I have every confidence that you and us and our retail partners will continue to deliver a package of benefits which the consumer will find compelling even in light of abundant choices.