In its latest effort to help extricate itself from the recession, Liz Claiborne Inc. (LIZ) is turning over its sourcing operations for $83 million in cash to global apparel exporter and supply chain specialist Li & Fung (0494.HK).

Li & Fung will be responsible for identifying and conducting negotiations with vendors to make Liz Claiborne products and merchandise - except for jewelry - and monitor quality.

The agreement encompasses all of Liz Claiborne's brands including the Isaac Mizrahi line it is just starting to roll out in department stores like Macy's Inc. (M) and Dillard's Inc. (DDS).

The accord is a financial shot in the arm for Liz Claiborne.

"Of course, we want to do whatever we can do to pay down debt and improve our credit metrics," spokeswoman Dana Stambaugh said. "We are also interested in improving our inventory turn rate, margins and profitability - this partnership affords all of those."

The sweeping move means that Liz Claiborne may be ceding some control, but the company will likely save money by having a more consolidated approach and potentially will be able to bring merchandise to market more quickly, analysts said.

Liz Claiborne will still handle the artistic end of things, like design, as well as merchandising, although analysts say it isn't clear what will happen to the hundreds of Liz Claiborne employees who had been handling sourcing until now.

The move is an about face for Liz Claiborne, which hired Li & Fung in November to be the sourcing agent to help fix its troubled Mexx line, but told analysts at the time that there would be no such plans for the rest of its brands.

But times quickly changed. "Within two months of the deal, we already see significant improvements in costing, speed-to-market and calendar adherence," Chief Executive William McComb said.

So Liz Claiborne felt the "partnering with Li & Fung is the ideal solution," on a broad basis, McComb said. "This is the optimal way to address the issues with our current sourcing infrastructure and a significant strategic opportunity that will enable us to deliver high quality product to our consumers and retailers around the world."

Liz Claiborne has continued to struggle as a slump in consumer spending has battered the retail industry. In addition to seeing slower sales at its own stores, Liz Claiborne has suffered as department stores cut back inventory.

Liz Claiborne in December said it will eliminate 725 jobs, or 8% of its work force, citing the "highly uncertain" economic environment.

In the past two years, the company has closed six distribution centers, cutting 2,200 jobs, and streamlined its brand portfolio by selling, closing or licensing 14 brands. The company has focused on developing its "direct" brands - Liz Claiborne New York, Kate Spade, Lucky Brand, Juicy Couture and Mexx.

By forming a partnership with Li & Fung, "Liz is doing what they have to do to make themselves more viable, even if it means giving up some control," said Howard Davidowitz, chairman of Davidowitz & Associates, a retail-consulting and investment-banking firm.

Brian Sozzi, equity research analyst with Wall Street Strategies, said the accord with Li & Fung "is the type of measure a company often does too late, when operating results have come under pressure."

Liz Claiborne "has been struggling for about three years getting goods to key department store customers in an efficient manner," Sozzi said. "Companies such as Macy's and J.C. Penney Inc. (JCP), which carries a Liz Claiborne line, want fresh goods on the floor, and for an apparel maker like Liz Claiborne there are lead times associated with getting supplies for new merchandise" and the Li & Fung arrangement may speed up the process.

Liz Claiborne may end up reducing costs fairly substantially, because the company will now pay a fee to Li & Fung, which in turn will tap a supply network that is much vaster and more efficient than Liz Claiborne's.

"Over time, the improved cost structure should begin to be evidenced in lower cost of goods sold, and subsequently, higher gross margins," Sozzi said.

Liz Claiborne's move "is a step in the right direction," said Hana Ben-Shabat, a partner with consulting firm A.T. Kearney.

"There is no silver bullet solution for anything retail right now," Ben-Shabat said. "You have to do many things and this may be an important one."

At the moment, Liz Claiborne's merchandising priority is getting its Isaac Mizrahi-designed namesake line into stores including Macy's, Bon-Ton Stores Inc. (BONT) and Belk Inc.

The Macy's rollout is occurring at a staggered pace.

About half of the 250 stores in Macy's eastern region are carrying it, Macy's spokesman Jim Sluzewski said.

Expansion into other stores in the region "depends on what the response is," Sluzewski said.

Liz Claiborne shares were recently up 4 cents to $2.37.

 
   -By Karen Talley, Dow Jones Newswires; 201-938-5106;     karen.talley@dowjones.com