The Lost Generation of American Workers

The Washington Independent

An International Labor Organization’s report released today shows that young workers are among the worst-hit by the global recession. All in all, there are 620 million people aged 15 to 24 who want to work. 81 million are unemployed, the highest level and the greatest number since the ILO started keeping track 20 years ago. Globally, the youth unemployment rate hit 13 percent in 2009, up from 12 percent in 2007. The organization expects the youth unemployment rate to continue rising until 2011.

In the report, the ILO warns of “significant consequences for young people as upcoming cohorts of new entrants join the ranks of the already unemployed” and of the “risk of a crisis legacy of a ‘lost generation’ comprised of young people who have dropped out of the labor market, having lost all hope of being able to work for a decent living.”

Despite its relative wealth, the situation remains parlous for young workers in the United States as well. The unemployment rate is 26.5 percent for teenagers, and 15.7 percent for workers aged 20 to 24. The rate rises to a whopping 47.8 percent for black male teenagers, the demographic group with the highest jobless rate. Despite this, across the country, summer jobs programs for young people were slashed, as Congress failed to re-up federal funding provided in the Feb. 2009 stimulus bill.

Lawmaker Wants Hearing into Fannie Allegations

Associated Press

A House Republican is calling for a hearing into a former Fannie Mae employee's allegations that the mortgage giant fired her after she criticized how the company was running a government loan assistance program.

The former Fannie Mae executive, Caroline Herron, made the allegations in a lawsuit filed in June. It was disclosed Friday by the Washington-based Center for Public Integrity.

Fannie Mae executives, the lawsuit alleges, resisted Herron's calls to require borrowers to provide proof of their incomes up front before entering into loan modifications. Fannie Mae, she alleges, had a financial incentive to resist because the company was eligible for government payments.

She also charges that Fannie Mae executives ignored her efforts to develop a Web-based system for collecting information from borrowers' seeking loan assistance.

Rep. Spencer Bachus, the top Republican on the House Financial Services Committee, asked for the hearing in a letter to the committee's chairman, Rep. Barney Frank. Lawmakers, he wrote, need to examine whether Fannie Mae "mishandled and mismanaged" federal programs designed to combat foreclosures.

A spokesman for Frank declined to comment. Brian Faith, a Fannie Mae spokesman, said the company hired an outside law firm earlier this year to investigate Herron's charges. "The investigation found no merit to her allegations," he said,

The lawsuit is the latest problem for the $75 billion Obama administration program, called the Home Affordable Modification Program. It has been widely criticized for failing to help hundreds of thousands of homeowners at risk of losing their homes. More than 40 percent of U.S. homeowners who initially signed up for the program have dropped out, while about 30 percent have received permanent help.

U.S. Changes Plan for Capturing Emissions From Coal

NY Times

 

The Energy Department abruptly shifted course on Thursday on a flagship federal effort to capture and sequester carbon dioxide from coal-fired power plants, saying it would not finance construction of a new plant in Mattoon, Ill.

Instead of underwriting that project, which would have turned coal into a hydrocarbon gas, filtered out the carbon and burned the hydrogen, the government said it would contribute $737 million to remake an obsolete oil-burning plant in Meredosia, Ill.

In the new design, the plant would be fed pure oxygen and burn coal, and the exhaust gas would consist of almost pure carbon dioxide. That carbon dioxide would then be piped 170 miles east to Mattoon and injected underground, possibly along with contributions from an ethanol plant in Decatur, Ill., and other industrial plants along the way.

It is the latest twist for FutureGen, a federally supported venture to demonstrate the most advanced ways to convert coal to a gas, capturing pollutants and burning the gas for power.

Despite warnings that pollution from power plants contribute to global warming and that the United States should promptly build several prototypes using different technologies, FutureGen has been repeatedly delayed by drawn-out federal procedures for choosing a site and then by sticker shock in Washington.

The Bush administration cut off money, saying the costs were too high. But President Obama included $1 billion in last year’s stimulus bill. Now that there is money in hand, his administration opted to support a more advanced technology that some officials described on Thursday as FutureGen 2.

Although the planned retrofit involves an old oil-burning plant, the new approach could be a way of converting dozens of big old coal plants around the country, said Matt Rogers, a senior adviser to the energy secretary, Steven Chu. If successful, Mr. Rogers said, this would allow the coal industry “to remain competitive on a global basis.”

With new Environmental Protection Agency rules scheduled to take effect limiting power plants’ emissions of conventional pollutants like nitrogen oxides, mercury and particulates, he said, many older coal plants are candidates for re-powering.

Senator Richard J. Durbin of Illinois, who has been a strong supporter of the Mattoon project, said in a conference call that the gasification strategy no longer made sense because it was no longer the best or newest option. “That happens when you wait six years,” he said.

The largest plant for burning oxygen is 10 megawatts; the plant in Meredosia would be 200 megawatts and the first of a commercial scale, officials involved in the project said.

Under the new structure, the original FutureGen coalition would still manage the sequestration portion of the project and would arrange experiments with different types of coals to gain experience that could be useful around the world.

The oil-fired plant belongs to Ameren, which is based in St. Louis. It has not run much in recent years and has not generated any power since 2009, said a spokeswoman, Susan Gallagher. The plant operates in the competitive Illinois market, and any profit or loss would fall to Ameren shareholders and not its customers, she said.

Some of the oxygen will be supplied by the French energy company Air Liquide, which relies on a conventional technology, chilling the air until the oxygen turns to a liquid at 297 degrees below zero Fahrenheit. The energy required to accomplish that has always been considered a drawback to the technology.

Mr. Rogers said the project would also test a membrane that could sort oxygen from nitrogen without consuming much energy. And a plant burning oxygen would not need to use much energy to clean up other pollutants, like nitrogen oxides, which cause smog, and mercury, he said.

Babcock & Wilcox will do the engineering. The project is expected to capture 90 percent of the carbon dioxide, or 1.3 million tons a year.

Two other efforts to capture carbon dioxide from coal burning are under way. Duke Energy is building a coal-fired plant in Edwardsport, Ind., that will cook coal into a gas that is a mixture of hydrogen and carbon monoxide. Tentative plans call for it to be outfitted with equipment that sorts out the carbon dioxide and burns the hydrogen, although there is no firm commitment yet to do that.

And American Electric Power is testing a system at its Mountaineer plant, on the Ohio River in New Haven, W.Va., that uses ammonia to scrub the carbon dioxide out of gas in the smokestack.

The government recently gave a $417 million tax credit to another coal project in Illinois, the Taylorville Energy Center, in exchange for a promise to capture 65 percent of its carbon. That plant would turn coal to natural gas and then burn the natural gas.

Global warming experts say that coal is certain to be burned around the world for decades, and that limiting carbon dioxide concentrations in the atmosphere will depend in part on finding inexpensive ways to capture the emissions from coal-fired plants.

Yet the United States has been off to a slow start in the field. An alternative is switching to natural gas, which has about half as much carbon as coal per unit of energy. But that would be inadequate to reach the goal espoused by President Obama, a reduction of 80 percent in emissions by 2050.

Foxconn Group to Raise China Workforce as Much as 40% in a Year

Bloomberg

Foxconn Technology Group plans to hire as many as 400,000 workers in China in the coming year and will build factories closer to employees’ homes after a spate of suicides at the maker of Apple Inc. iPhones and Dell Inc. computers.

The Taiwanese company aims to boost its China workforce to 1.2 million to 1.3 million people after revenue jumped 50 percent in the first half, Louis Woo, special assistant to the chief executive officer, said in an interview today. Foxconn will expand to inland provinces Henan and Sichuan because that’s “what the new generation of workers wants,” he said.

Foxconn’s hiring plan, equivalent to more than three times the combined workforces of Microsoft Corp. and Apple, signals an improving outlook for electronics demand as the global economy recovers. The company is shifting away from Shenzhen, the southern coastal city that’s a magnet for migrant workers, after the suicides of at least 12 workers this year prompted it to install safety nets to prevent employees jumping to their deaths.

“They will need more workers for their notebook business, while Apple also has very aggressive targets for their iPhones,” said Vincent Chen, who rates Foxconn’s Taipei-based flagship Hon Hai Precision Industry Co. “hold” at Yuanta Securities Co. in Hong Kong. The plan “may create management problems as they have workers more spread out. It’s easier to manage workers when they’re all in the same area.”

Monks, Wage Increases

Chairman Terry Gou in June denied Foxconn was running a sweatshop and blamed personal problems and compensation packages offered to bereaved families for most of the suicides. The deaths prompted the company to hire monks and counselors to help employees, while it doubled the base wage for workers in Shenzhen. Clients also hired suicide experts to visit the company and talk with workers, Woo said today.

Foxconn and its employees’ union held rallies across China today with more than 100,000 workers signing a pledge entitled “Treasure your life, care for your family,” it said in a statement.

“We hope employees will express their concerns through established and proper channels,” Chen Peng, president of the workers’ union, said in the statement. “We also want to ensure that employees understand that suicide is a cowardly act.”

Fewer in Shenzhen

Around half the company’s 900,000 workers are in Shenzhen, and that ratio will drop to one-third, Woo said. The headcount in Shenzhen will decline by about 170,000 over five years as production moves inland, he said in a later briefing.

“If the circle of friends and family are closer, then it will be a lot easier to talk things over,” Woo said. Improving meals and providing more entertainment areas is also helping to improve morale, he said, although “we cannot drive suicides to zero.”

The Shenzhen facilities will focus more on research and development, product testing and new-energy technologies, Woo said. Around 20 percent of its China workforce is from Henan in eastern China, he said.

Global revenue for contract manufacturers of electronics will climb 8 percent this year to $281 billion, driven by orders for cheap desktop computers and flat-screen televisions, according to El Segundo, California-based researcher iSuppli Corp.

Hewlett-Packard Co., the world’s largest computer maker, on June 1 said it will eliminate about 9,000 jobs as it seeks to cut costs. Foxconn in August last year signed an investment agreement with China’s southwestern Chongqing City to build a factory for making HP discount notebooks.

Cupertino, California-based Apple, which contracts Foxconn to make its iPhones and iPads, employed 34,000 at the end of September, while Microsoft, the second-largest U.S. technology by market value had 89,000 workers as of June 30, according to Bloomberg data.

Baseball Caravan to U.S. Diamonds Helps Mizuno Hit Against Nike

Bloomberg

 

Mizuno Corp., the Japanese maker of baseball gloves and bats for major league stars Ichiro Suzuki and Hideki Matsui, is on a summer road trip to win a better position on U.S. baseball and softball diamonds.

The company has deployed a caravan of royal blue-and-white vans bringing gear and glovemakers to stadiums, amateur fields and sporting-goods stores in California, Ohio, Indiana and Kentucky as it tries to boost its sales in the $1.8 billion diamond-sports retail market by 33 percent within five years.

Mizuno is fighting Nike Inc., Rawlings Sporting Goods Co. and Spalding for shelf space after the Osaka-based company’s baseball sales in the U.S. peaked at $75 million in 2008 -- almost doubling from 2000. The company aims for sales of $100 million by 2015, and it pulled out of Europe and Latin America to funnel resources into that effort, said Hideki Tsuruoka, director of its baseball division.

“The company who rules the U.S. market can rule world markets,” said Tsuruoka, who played baseball at the University of Washington in Washington state. “We will fight with gloves and spikes.”

Mizuno ranked No. 6 in the U.S. baseball and softball retail market last year with an 8.2 percent share, according to data compiled by SportsONESource LLC of Charlotte, North Carolina. Easton-Bell Sports Inc. led with 22 percent, followed by Rawlings, Wilson Sporting Goods Co. and Nike, the world’s largest athletic-shoe maker.

Players Decreasing

Mizuno’s overall sales dropped to 148.7 billion yen ($1.74 billion) in the fiscal year that ended March 30, down from 162 billion yen a year earlier, as demand for golf products declined and shoe prices fell. The company, which also makes running shoes, skiing and tennis equipment, had net income of 1.6 billion yen.

Mizuno is making its baseball push as the number of U.S. players declined 13 percent to 13.8 million last year from 15.8 million in 2000, according to data from the Sporting Goods Manufacturers Association. The company is willing to accept narrower profit margins because baseball is the “flesh and blood of our business,” Tsuruoka said.

The field also is getting more crowded. Spalding, based in Bowling Green, Kentucky, is returning to the market after a 10- year absence.

All-Star MVP

“Baseball is kind of a no-brainer with our heritage,” said Dave Coradini, senior director of diamond sports for Spalding, founded in 1876 and now a division of Atlanta-based Russell Corp. “Mizuno and Rawlings are certainly the two strongest in terms of entire baseball-equipment brands. Now we are going to compete against them.”

Russell was acquired in 2006 by Warren Buffett’s Berkshire Hathaway Inc.

Rawlings, owned by Jarden Corp. of Rye, New York, makes the official baseball for Major League Baseball and is endorsed by Derek Jeter of the New York Yankees. Jarden had revenue of $5.15 billion in 2009, down from $5.38 billion a year earlier.

Mizuno’s efforts in the U.S. also rely on its MLB ties, Tsuruoka said. About 170 players -- including Suzuki of the Seattle Mariners, Matsui of the Los Angeles Angels and last month’s All-Star Game Most Valuable Player Brian McCann of the Atlanta Braves -- have contracts to use Mizuno gear.

“We must make better use of 51 and 55 to penetrate our targets,” Tsuruoka said, referring to the uniform numbers of Suzuki and Matsui, respectively.

Those players, stars in Japan’s Nippon Professional Baseball league before moving to the U.S., appear in Mizuno advertisements. The company controls about 40 percent of the Japanese market, which the Yano Research Institute Ltd. in Tokyo said will be worth an estimated 78.2 billion yen this year.

Former Yankee

“I’ve been using Mizuno since my childhood because of its quality,” Matsui, a former Yankee, said in an e-mail. “Some of my teammates have come up to me and said, ‘I want to try that’ or ‘I want to borrow that.’”

Mizuno started in 1906 selling sundries, including baseballs, from an Osaka storefront. It moved into the U.S. market in 1969 and launched its first caravan nine years later.

Recreational vehicles carrying equipment and glovemakers traveled to every MLB team to pitch their wares and repair gloves and cleats, Tsuruoka said. The first major leaguers to wear Mizuno mitts included Pete Rose and Bobby Valentine.

“It was very difficult for a foreign company to enter the baseball world,” said Valentine, who managed the Texas Rangers, New York Mets and Japan’s Chiba Lotte Marines. “The craftsmanship was so spectacular and all of the details were made to perfection. Many players appreciated that.”

Mitt Steamers

The company has increased its number of field representatives, who work with schools and baseball leagues, to 11 from two and will install glove steamers at U.S. shops to help customers break in their mitts. It installed about 500 steamers in Japan since 2000, said Noriko Ueda, Mizuno’s spokeswoman.

Mizuno USA also has a new marketing plan for its website and social networking sites that will start in the fourth quarter of this year and extend into next year, Bram Krieger, vice president of sales for diamond sports, said in an e-mail.

“There’s a huge amount of respect now for Japanese baseball among American sports fans,” Jim Small, MLB’s vice president for Asia, said in Tokyo. “People are saying, ‘Hey, look at that guy. He’s cool, he’s using Mizuno.’”

Leaky Delhi Stadium Seen as $1 Trillion Boon for GMR, Reliance

Bloomberg

 

A day after the delayed opening of the weightlifting hall for New Delhi’s Commonwealth Games, workers in white helmets climbed across its roof to fix leaks.

The stadium, built by the Central Public Works Department, and 16 other arenas were supposed to be ready by March. Prime Minister Manmohan Singh on Aug. 14 told organizers at an emergency meeting to finish all construction before the games’ Oct. 3 start and ordered an investigation into the preparation for the event. By contrast, a new airport terminal, run by GMR Infrastructure Ltd., was built on time in March and started flights on July 28, Delhi International Airport Ltd. said.

Delhi’s efforts to stage the 71-nation games for $7.9 billion contrast with the $70 billion makeover of Beijing for the 204-nation Olympics in 2008. While state control in China ensured the city was ready for rehearsals, Delhi’s government- run efforts have been mired in delays, accusations of corruption and mismanagement. That could lead to a bigger share of India’s $1 trillion planned infrastructure spending for private companies such as GMR and Reliance Infrastructure Ltd. that are on schedule, according to fund manager Viswanathan Vasudevan.

“The biggest learning for India is that the only way to execute major infrastructure projects is through public-private joint ventures,” said Vasudevan, who helps manage $350 million in assets, including Indian stocks, at Aquarius Investment Advisors Pte in Singapore. “The experience from the games shows a clear path of how they should take it forward.”

Accelerate Growth

The nation of 1.17 billion people has to improve infrastructure to accelerate economic growth, Singh has said. While the economy has expanded at an 8.5 percent clip in the last five years, poor transport and other facilities could cost 1.1 percentage points of growth, or $200 billion in fiscal 2017, McKinsey & Co. said in a report last year.

The nation’s Planning Commission said India will need to spend $1 trillion on highways, ports, airports and utilities between April 2012 and March 2017, twice the amount it recommended in the previous five years. At least half the investment should come from private companies, compared with about 34 percent between April 1, 2007 and March 31, 2009, the commission said in March.

“If the government’s budget situation is not that good, it will need to rely on private participation for funds,” said Gernot Schrotter, who helps manage $319 million in Asian assets, including Indian stocks, at Erste Sparinvest KAP in Vienna. “If you look at the efficiency gains, it is very smart for India to go for the public-private partnership model.”

Expanding Network

That would be a boon for construction companies like Bangalore-based GMR, Mumbai-based Larsen & Toubro Ltd. and Reliance Infrastructure that have gained experience and reputation on Delhi’s projects.

For the Commonwealth Games, a contest that includes Britain and its former colonies and dependencies, the Indian capital added the airport terminal and is expanding the metro network, constructing an express rail link to the city center, restoring 46 monuments, and augmenting water and electricity supplies.

The airport building was ready in 37 months, faster than the 45 months Beijing took to complete its terminal ahead of the Olympics. Delhi airport is run by a venture consisting of Bangalore-based GMR, state-run Airports Authority of India Ltd., Frankfurt-based Fraport AG and Malaysia Airports Holdings Bhd.

A venture between billionaire Anil Ambani’s Reliance Infrastructure and Spain’s Construcciones y Auxiliar de Ferrocarriles SA will operate the 23 kilometer rail link, cutting travel time by at least a third to 19 minutes. State-run Delhi Metro Rail Corp. built the viaduct and tunnel for the link.

Next 10 Years

The 29 billion rupee ($620 million) project, due to start next month, will help Ambani’s group bid for metros in India that may be worth 750 billion rupees in the next 10 years, said Krishna Maheshwari, director, Delhi Airport Metro Express Ltd.

“Considering the very nascent stage in India there is a huge opportunity,” said Maheshwari. “This project will demonstrate the ability of Indian infrastructure companies to deliver iconic projects in a timely manner.”

Billionaire G. Mallikarjuna Rao’s GMR, in partnership with Malaysia Airports, won a contract in June to build and operate an airport in Male in the Maldives for 25 years.

“With the knowledge gained, the local companies will be able to pick new projects on their own,” said Juergen Maier, who helps manage $1.3 billion of assets, including Indian stocks, at Raiffeisen Capital Management in Vienna. “It also puts them in a position to win projects overseas.”

Airport Experience

Larsen, India’s biggest engineering company and concrete contractors, expects to use the know-how gained from the Delhi airport terminal for other ventures, said K.V. Rangaswami, president of construction.

“It is the largest project ever handled by us,” he said. “It has enhanced our engineering design capability.”

Larsen won the bid to build and operate the metro rail project in the southern city of Hyderabad, the state government of Andhra Pradesh said on Aug. 6.

Shares of Larsen rose as much as 1.3 percent in Mumbai trading before falling 0.2 percent to 1,773.55 rupees at the 3:30 p.m. close. GMR also gained 1.3 percent intraday before sliding 2 percent to 59.95 rupees. Reliance Infrastructure added 0.8 percent and then dropped 1.3 percent to 1,032.75 rupees. The stocks fell in line with the fall in the Bombay Stock Exchange’s benchmark Sensitive Index, or Sensex, which rose 0.5 percent earlier and then declined 0.01 percent to 18048.85 at close.

Dug Up Sidewalks

In Delhi, with 47 days to go before the games sidewalks are still dug up and debris and construction material has spilled on to arterial roads, disrupting traffic.

State entities are building 39 training venues, 917 kilometers (570 miles) of lane resurfacing, 29 overpasses and 424 kilometers of street lighting, according to the ministry of youth affairs and sports.

Junior Sports Minister Pratik Prakashbapu Patil told parliament in December that 17 of the 18 venues would be completed by March, with the athletics stadium ready in June. One is still to be completed. The table tennis venue is expected to be ready by Aug. 18, Rahul Bhatnagar, joint secretary, ministry of youth affairs and sports, said yesterday.

The government’s Central Vigilance Commission said the quality of some public works is poor after examining 15 projects including stadia, overpasses and street lighting.

‘Financial Irregularities’

The Organising Committee suspended two top officials for alleged “financial irregularities,” while a third resigned, the panel’s spokesman Lalit Bhanot said on Aug. 5.

Prime Minister Singh told ministers and organizers on Aug. 14 there’d been “slippages in the time schedules of some of the concrete construction works and deficiencies” in completed projects, according to the Press Information Bureau’s website.

Singh directed ministers to investigate “all the complaints that have been received of procedural and other irregularities,” and impose “severe” punishment on anyone found guilty, the official release said.

At the weightlifting venue, B.K. Chugh, the Central Public Works Department’s director general of works, said the leaks were external and were being corrected.

“The finishing may not be very good,” Delhi Chief Minister Sheila Dikshit told reporters on July 21. “But I can assure the government engineers and contractors are very careful about the stability of the structures.”

'Super Angels' Fly In to Aid Start-Ups

The Wall Street Journal

Aydin Senkut, in his office in Palo Alto, Calif., last week,

plans to announce a $40 million super-angel fund.

 

 

Much of the venture-capital industry is undergoing a shakeout. But a growing breed of start-up investors dubbed "super angels" is rapidly raising new money—and ratcheting up competition with established venture capitalists in the process.

Aydin Senkut, a former Google Inc. executive, plans to announce that he just closed a $40 million super-angel fund from institutional investors and wealthy individuals including hedge-fund manager Peter Thiel. His fund follows a $20 million super-angel fund by start-up investor Ron Conway in May and an $8.5 million fund from by former Google executive Chris Sacca in June.

Meanwhile, former PayPal Inc. executive Dave McClure is raising a $30 million super-angel fund, according to a regulatory filing. And super-angel investor Mike Maples, who raised a $33 million fund in 2008, is raising a new $73.5 million fund, according to a regulatory filing.

Many super angels started out just as mere angels, wealthy current and former Silicon Valley entrepreneurs and executives who invest their own money in technology start-ups.

What elevates super angels into an unofficial upper class generally is the magnetic effect their participation in a deal has on other investors—a main reason entrepreneurs like to do business with them.

And for super angels, investing has evolved into something more than a hobby. These players are now raising funds with outside money, investing full time and competing with VCs.

While their funds tend to be small, super angels have had an outsize impact on Silicon Valley. As many traditional venture capitalists retreated after the tech bust last decade, super angels filled the gap, investing small amounts of $25,000 to $1 million in dozens of new start-ups such as Facebook Inc., Mint.com and Zynga Game Network Inc. Super angels also work with established venture capitalists to bring them new deals.

As these micro-cap venture capitalists now raise their own funds—giving them more ammunition to participate in later financing rounds of a start-up—they are siphoning off more investment deals and fund-raising dollars from larger venture firms.

Judith Elsea, a managing director at Weathergage Capital, a $250 million fund-of-funds firm that invests in venture funds, says she recently invested in Mr. Senkut's new super-angel fund and has also put money into Mr. Maples's super-angel fund—at the expense of traditional venture funds.

"It's been pretty spotty" performance from regular venture funds, says Ms. Elsea. So "we have material exposure to several of these [super angel] managers."

Investing in super-angel funds can pose risks in that they typically invest in far-less-proven start-ups than venture capitalists do. And unlike venture capitalists, who have hundreds of millions to invest, super angels generally don't have enough money to fully fund a company to fruition.

Still, super angels are increasingly jockeying with established venture capitalists for stakes in start-ups. Geoff Yang, a venture capitalist at Redpoint Ventures, which closed a $400 million fund earlier this year, says his firm has been "squeezed" into a smaller ownership share in some investments because super angels wanted a bigger slice of the deal. While angels have brought many new start-ups to Redpoint's attention, "every [venture capitalist] is trying to figure out what their strategy is" with them, he says. "Are these guys friend or foe?"

Some start-up entrepreneurs say super angels have thrown them lifelines they couldn't secure from venture capitalists. Ryan Howard, chief executive of San Francisco online health-care start-up Practice Fusion Inc., says venture firms turned him down in 2008. They "want no risk," he says.

Super angels wrote Mr. Howard checks for $25,000 to $100,000, so that he was able to raise $1 million by early 2009. "Their network is mind-blowing," says Mr. Howard, whose firm raised a venture round from Morgenthaler Ventures late last year.

The super-angel activity contrasts with the rest of the venture industry, which is winnowing out after a decade of poor returns amid a lackluster initial-public-offering market for start-ups. The number of active venture firms is nearly one-third less than the 1,326 in 2000, according to research firm VentureSource.

Super-angel Mr. McClure says he tends to make dozens of small start-up bets and can comfortably make money if just a few of the start-ups are bought by larger acquirers for less than $100 million.

In contrast, big venture funds—often sized at several hundred million dollars and up—need bigger paydays to turn a profit on their huge funds.

"We have a whole different set of exit criteria," says Mr. McClure, whose biggest exit to date is Mint.com, the financial website that Intuit Inc. bought late last year for $170 million.

Mr. Senkut, who has invested in more than 60 start-ups as an angel investor since 2005, says he raised a super-angel fund because he wants to shift from being a minority investor in start-ups to taking majority stakes more often. With the new fund, the 40-year-old is growing from a one-man shop to a larger operation by hiring two staffers.

Having seen 10 acquisitions of start-ups in his portfolio over the past year—including Mint.com to Intuit and social search service Aardvark to Google Inc. for $50 million in February—Mr. Senkut says he is exiting from his start-ups three months to three years after the initial investment. By contrast, most venture-backed companies now either go public or get sold after a median time of 9.4 years, according to VentureSource.

Fed Buys $2.551 Billion Treasuries in Resumption of Purchases

Bloomberg

 

The Federal Reserve bought $2.551 billion of Treasuries in the first outright purchase of U.S. government debt since October to prevent money from being drained from the financial system.

The Fed bought 14 of the 25 securities listed for possible purchase. The notes mature from August 2014 to February 2016, the Federal Reserve Bank of New York said in a statement today on its website. The New York Fed conducts open-market operations to implement the policies of the Federal Reserve System.

“The Fed’s choice to reinvest the maturing coupons has put yet another structural buyer into the market, suggesting that this lower-yield environment is here to stay for the foreseeable future,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “That information was anticipated, priced in and we’ve now moved back to trading the fundamentals.”

The Fed plans to keep holdings in the System Open Market Account, or SOMA, at about $2.054 trillion, the amount it held on Aug. 4, by using the proceeds from maturing mortgage-backed securities to buy Treasuries. The purchases are the Fed’s first attempt to bolster the economy in more than a year.

The benchmark 10-year note snapped a two-day advance, pushing yields up from the lowest since March 2009, generic data compiled by Bloomberg show. Yields climbed 7 basis points to 2.63 percent after falling 11 basis points yesterday in New York, according to BGCantor Market Data.

Purchase Plans

The purchases should average about $2 billion per operation, according to Wrightson ICAP, a Jersey City, New Jersey-based research unit of ICAP Plc that specializes in U.S. government finance.

Dealers tendered $20.95 billion today, according to the New York Fed’s website.

“By maintaining the SOMA portfolio at the same level, the Fed will stem the gradual ‘quantitative tightening’ that would otherwise occur, while also furthering its goal of moving toward a Treasury-only portfolio,” JPMorgan Chase & Co. strategists Srini Ramaswamy and Kimberly Harano wrote in a report Aug. 13. “On the face of it, this change seems minor, and almost operational in nature. However, it is not insignificant.”

JPMorgan Chase strategists estimated the Fed will buy about $284 billion in Treasuries during the next year, or more than the combined purchases of Japan and China during the year ended May. Analysts at Credit Suisse Group AG forecast purchases of $307 billion, with $47 billion coming from the proceeds of maturing agency debentures.

Nine Operations

The Fed last week announced nine outright purchase operations, including one for Treasury Inflation Protected Securities, for the month ended Sept. 13, for an estimated $18 billion in total. The Fed will report its purchase schedule in one-month increments, with amounts based on the principal payments from the Fed’s agency debt and agency mortgage-backed securities.

The Fed maintains a 35-percent-per-security limit of the amount outstanding for each specific Treasury it holds in the account. The central bank makes the securities available for loan to dealers against Treasury general collateral on an overnight basis. Dealers bid in a multiple-price auction held every day at noon New York time through its securities lending program.

The central bank last week left the overnight interbank lending rate target unchanged in a range of zero to 0.25 percent, where it’s been since December 2008.

Last year’s Treasury purchases were the first outright of U.S. government debt by the Fed since the 1960s. The central bank completed purchases of $1.45 trillion in mortgage-backed and housing agency debt in March 2010.

Wholesale Prices Rise on Higher Food Costs

Associated Press

 

Wholesale prices rose last month for the first time since March on higher costs for food, autos, pickup trucks and pharmaceuticals.

Still, the increases were modest and show that the weak economy isn't spurring significant price rises.

The Labor Department said Tuesday that the Producer Price Index, which measures price changes before they reach the consumer, rose by 0.2 percent in July, after three months of declines. The rise matched Wall Street economists' forecasts, according to a survey by Thomson Reuters.

Excluding volatile food and energy costs, so-called "core" producer prices rose by 0.3 percent in July, the ninth straight increase. Core prices have risen by 1.5 percent in the past year.

The report comes after the Labor Department said Friday that consumer prices also rose in July for the first time in four months. The two reports have eased fears that the economy is about to experience deflation, a widespread and painful drop in prices and wages. The U.S.'s last serious case of deflation was during the Great Depression.

Concerns about deflation grew after both consumer and producer prices fell for three straight months. Most economists don't believe deflation will happen. But they are watching the government's price indexes closely for any signs of it.

At the same time, economists said Tuesday's report shows that inflation is unlikely to accelerate anytime soon. The Producer Price Index illustrates the price changes companies face and can give a rough indication of what consumers will confront in the coming months.

"We ... anticipate that consumer price inflation will ... remain quite low over the year ahead," Ryan Wang, an economist at HSBC Securities, wrote in a note to clients.

Over the past year, producer prices have risen by 4.2 percent, above June's figure but down from this spring, when the index increased by more than 5 percent in March, April and May.

That's a bigger increase than consumer prices, which rose by only 1.2 percent in the past year. That shows companies are reluctant to pass on their higher costs to consumers, who are already reluctant to spend due to high unemployment, tight credit and weak wage growth.

One big driver in higher producer prices was fresh and dry vegetables, which jumped in price by 9.8 percent, the most since March. Peas jumped by almost 81 percent, the most since October 2007. Tomatoes, which have been volatile for much of this year, soared by 68.6 percent, also the largest increase since March.

Egg prices rose in July by 19.4 percent, the biggest jump since April 2009.

Another big driver of the higher index was a 1.5 percent rise in the price of pickup trucks, SUVs, minivans and cargo vans. That was the largest increase since January.

Pharmaceutical costs, meanwhile, rose by 0.7 percent.

Tame inflation allows the Federal Reserve to keep the key interest rate it controls at a record low of nearly zero percent in an effort to bolster economic growth. The Fed usually fights rising inflation by raising rates.

Gas and other energy prices fell last month, the department said. That contrasts with Friday's report on consumer prices, which were driven up partly by a sharp increase in gas and other energy costs.

The contrast is largely a result of the different things the two indexes measure, a Labor Department analyst said. Prices at the gas pump rose in July, according to the consumer price index, but refiners appear to have reduced their prices at the wholesale level.

Pimco’s Gross Urges ‘Full Nationalization’ of Housing Finance

Bloomberg / Business Week

 

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said the U.S. should consider “full nationalization” of the mortgage- finance system as the Obama administration plots the revival of a market that was at the center of the 2008 credit crisis.

“To suggest that there’s a large place for private financing in the future of housing finance is unrealistic,” Gross said today at a U.S. Treasury Department conference in Washington. “Government is part of our future. We need a government balance sheet. To suggest that the private market come back in is simply impractical. It won’t work.”

Treasury Secretary Timothy F. Geithner and Housing and Urban Development Secretary Shaun Donovan gathered housing- industry stakeholders to seek advice as the administration prepares a housing-finance overhaul to be delivered in January. The position taken by Gross, whose firm is among the biggest holders of U.S.-backed mortgage debt, is at odds with industry and government officials who have urged a smaller federal role.

Geithner said the government must reduce its role in housing markets and ensure Fannie Mae and Freddie Mac, the mortgage-finance companies operating under U.S. conservatorship, won’t require future bailouts.

“We will not support returning Fannie and Freddie to the role they played before conservatorship, where they took market share from private competitors while enjoying the perception of government support,” Geithner said today at the conference.

There’s “no clear consensus” on how to design a new system, he said.

Financial Regulation

“The government’s footprint in the housing market needs to be smaller than it is today,” Donovan said at the conference, adding that Fannie Mae, Freddie Mac and the Federal Housing Administration guarantee more than 90 percent of all mortgage loans. “We need to work to foster a strong but healthy market for private capital to harness the vitality, innovation and creativity in our system in a responsible way.”

Fannie Mae, based in Washington, and Freddie Mac of McLean, Virginia, have been sustained by almost $150 in Treasury aid since September 2008 when they were seized by the government amid soaring losses on mortgage investments. The U.S. has promised unlimited support for the two companies.

‘Smaller’ Role

“We need to begin the process of weaning the markets away from government programs and make room for the private sector to get back into the business of providing mortgages,” Geithner said. “We need to continue working to keep overall mortgage rates reasonably priced.”

The Treasury chief also said that plans to reduce the portfolios of Fannie Mae and Freddie Mac should proceed “in a careful way.” The government wouldn’t back away from the companies’ current obligations, Geithner said.

“We need to make it absolutely clear that we will make sure the GSEs have the resources to meet their financial commitments,” he said.

An explicit government guarantee against catastrophic losses could help attract private capital to the housing-finance system, said Mike Heid, co-president of Wells Fargo Home Mortgage.

The major policy challenge will be “how to marry this government guarantee with the maximum use of private capital in a way that minimizes the risk to the taxpayer, encourages competition, and ensures no one institution is too big to fail,” Heid said.

Geithner said the administration “will not support” a system that relies on taxpayer funds to backstop the gains of private shareholders.

“Fixing this system is one of the most consequential and complicated economic policy problems we face as a country,” he said. “This is a test for Washington. The stakes are high. The housing industry supports millions of jobs. For many Americans, their home is their largest financial asset.”

U.S. home ownership rate fell to 66.9 percent in the second quarter, the lowest level since 1999 and down from a peak of 69.2 percent in 2004, according to Commerce Department figures.

Battered, Bargain-Hungry Buyers Keep Retail Sales Weak

The Wall Street Journal

 

Shoppers showed caution about everyday purchases in July, underscoring the U.S. economy's weak trajectory for the second half of the year.

Overall retail sales rose 0.4% in July, their first gain in three months, the Commerce Department said Friday. But when increases in gasoline and automobile sales are excluded, sales were down 0.1%. Grocery, clothing and electronics stores all posted declines.

The retail numbers added to growing evidence that the economic recovery is losing steam as consumers, weighed down by high unemployment and meager wage growth, show less interest in opening their wallets.

The University of Michigan reported Friday that its index of consumer sentiment barely improved in July, rising 1.8 points to 69.6, keeping it in a weak range that has persisted for more than a year.

"It's a fight every day" to draw people into stores, said John Goodman, executive vice president of apparel and home fashion for Sears Holdings Corp.

Consumer Prices Increase Modestly

J.C. Penney Co. lowered its full-year profit guidance Friday, to $1.40 to $1.50 a share from $1.64, based on what management called "an uncertain consumer climate." Kohl's Corp. trimmed its outlook as well. "We do see a cautious consumer. We see one that's reluctant to spend," Chief Executive Kevin Mansell said on a call with investors Thursday. Luxury goods such as plumeria jewelry have seen sluggish sales figures for months.

Retailers say shoppers appear focused on bargains, forgoing brand loyalty in search of lower prices. "Consumers are really in no mood to go shopping at full price right now," said Sung Won Sohn, an economist at California State University, Channel Islands, and vice chairman of retailer Forever 21. "They're going from shop to shop looking for promotions, otherwise they simply do not buy."

The constant promotional environment has encouraged comparison shopping and an overall hesitancy to buy. To counteract that trend, Sears, which also operates Kmart, has adjusted its pricing structure to offer so-called "everyday great value," signaling to shoppers a consistent price on a given item such as push reel mowers throughout the season. "It's not promotional, it's for the whole season," Mr. Goodman said. "The price stays at that price."

Reluctant consumers are keeping most prices under pressure. U.S. consumer prices rose 0.3% in July from June, the first gain in four months, largely due to higher gas prices, the Labor Department said Friday. Excluding food and energy, prices rose just 0.1%. Consumer prices on durables such as kitchen appliances were up 1.2% from last July, and stood 0.9% above the year-earlier level excluding food and energy.

The July retail sales numbers put consumer spending, the main component of U.S. economic growth, on track to grow at an annualized, inflation-adjusted rate of 1.25% in the third quarter, down from the 1.6% pace of the second quarter, according to J.P. Morgan Chase. Consumer spending grew more than 3% a year through most of the 1990s.

The Federal Reserve Bank of Philadelphia's survey of 36 professional forecasters, released Friday, showed the broader economy growing at a rate of 2.3% in the third quarter, down from the 3.3% estimate in May. Pennsylvania home remodeling is down across the state.

A key cause for the weak outlook: consumers are focused on paying down debt and trying to rebuild savings. Unemployment, at 9.5% in July, is expected to remain high—and perhaps rise further—in coming months with employers reluctant to hire amid economic uncertainty.

The housing market is showing few signs of recovery. As a result, sales of building materials and furniture each dropped 0.3% in July from June in Friday's retail-sales report.

Alice Splawn, 65 years old, and her husband have lost two-thirds of their family income since she was laid off as a business analyst in February. To cut costs, Ms. Splawn now sews her own clothing and hunts deer for dinner, and her budget has become even tighter in recent months, she said. There are no plans for new Christmas tree storage bags this year.

The Splawns, who moved into their Biwabik, Minn., home in January 2009, were able to partially renovate its unfinished basement until it became too costly to buy materials. Other costs, such as health insurance, had to come first, Ms. Splawn said. "We are afraid to finish," she said. "We have to be very careful with what we do and don't do as far as working on the house."

Kevin McBee, 24, of Winston-Salem, N.C., is paying off student loans while saving up for returning to school in September to boost his computer-design skills, in the hope of landing a job in computer graphics for videogames and film. He has started biking to work to cut transportation costs and eats most meals at home. "This is the zenith of my saving spree, so to speak," he said. Students across the country are having a more difficult time paying for Michigan college education.

Folks like the Splawns and Mr. Mcbee are making business tough for Tom Wyatt, president of Old Navy, the bargain-priced apparel chain and Gap Inc.'s largest division by sales. The practice of drawing shoppers in with a few low-priced items, in the hopes they will buy higher-margin items once inside, isn't working anymore, he said.

"They come in to buy the value, but if the other product surrounding it is not the value they perceived it to be, they don't buy it," Mr. Wyatt said. "That halo is more difficult to get today."

Targeting Younger Buyers, Liz Claiborne Hits Snag

The Wall Street Journal

Isaac Mizrahi raises the gavel with William McComb, right, during closing bell ceremonies at the New York Stock Exchange April 28, 2009.

 

 

This month, J.C. Penney Co. is launching a new Liz Claiborne clothing, home and accessories line in all 1,100 of its stores, its biggest brand launch ever.

But while the exclusive collection is considered a coup for Penney, it could mark the final chapter in the story of the 34-year-old Liz Claiborne brand.

Liz Claiborne, once the No. 1 vendor at American department stores, has effectively ceded control of its iconic brand to Penney as part of the deal. The agreement—which calls for Claiborne to give up production and marketing and convert the label into a mass market line in exchange for royalties—was struck only after Macy's Inc. slashed its Claiborne orders last year. The deal gives Penney the option to buy U.S. rights to Liz Claiborne's name in five years.

"For Penney, this is wonderful," says Candace Corlett, president of New York retail consultancy WSL Strategic Retail. "It's Liz I wonder about."

The company that pioneered career apparel for a generation of working women, Liz Claiborne Inc. has seen its fortunes decline precipitously in the past few years. Since Chief Executive William L. McComb took over in 2006, the company has posted 11 consecutive quarters of red ink. Liz has seen its credit ratings fall from investment grade to junk and the S&P 500 removed the stock from its index. Its stock closed at $4.82 on Friday, compared with $43 when Mr. McComb joined the company.

The recession took a toll on all clothing makers, and even before Mr. McComb took over Liz Claiborne the company faced an aging consumer base and a flagship brand in decline for years. Profits and revenue were slowing, and Mr. McComb inherited a bruised relationship with an important client, Macy's department store.

Mr. McComb's strategy, to move the company away from its core baby-boomer roots, hasn't solved those problems so far, and it has stirred up a few new ones. The company's woes show how tough it can be to rejuvenate an iconic brand.

Founded in 1976, Liz Claiborne grew explosively by providing stylish career apparel to the droves of women who entered the workforce in the 1980s. Many of those women, born between 1946 and 1964, now are starting to retire and not spending as much money on clothes as younger women do.

In an effort to attract a younger audience, Mr. McComb decided to focus on the company's contemporary brands with the most potential, including Juicy Couture, Kate Spade, Lucky Brand Jeans and Mexx. But he made a series of strategic blunders including hiring a star designer, Isaac Mizrahi, at a hefty salary and veering away from the Liz Claiborne brand's trademark career apparel. He sold, discontinued or licensed several boomer brands—including Ellen Tracy, Dana Buchman and Sigrid Olsen—that weren't performing well but represented major sales volume.

The decision to realign the company's portfolio "was a disaster waiting to happen," says Bruce Greenwald, a finance professor at Columbia Business School.

Mr. McComb assumed he could replace the lost sales volume "in a market that's an extremely competitive, fast growing, young person's market," Mr. Greenwald said.

Mr. McComb concedes that he has made some mistakes. At Mexx, for example, he recently replaced the management team after an earlier overhaul failed to captivate consumers.

But he remains confident of his overall strategy. "If we had not had that incredible realignment in the summer of 2007, there's no way we would have made it through the storm, from a working capital perspective," he says. "I am so bullish about where we are going to be."

The new business model with Penney enables the company to turn a money-losing business into one that generates profits, he says. A lower-priced Liz & Co. line that Penney launched in 2007 has been very successful, both companies say.

Although the baby boomer fashion market is notoriously difficult, several of Claiborne's competitors have been able to retain the older consumer while attracting younger women. Retailers say Calvin Klein and Ralph Lauren, for example, have succeeded by being consistent in style and offering quality clothes that fit well and are a good value for the money.

At its height in the early 1990s, Liz Claiborne generated $2 billion in annual sales. After founder Ms. Claiborne and her husband Art Ortenberg retired in 1989, sales began a slow decline. Specialty retailers such as Ann Taylor and Banana Republic picked off consumers who preferred mixing and matching to a whole Liz Claiborne "look." Department stores slashed inventory levels, demanded exclusive merchandise and pushed their own higher margin, private-label brands.

To fuel growth in the late 1990s and early 2000s, then-CEO Paul R. Charron went on an acquisition spree, collecting a portfolio of 46 brands. The expanded group masked the reality that the core Liz Claiborne label was losing momentum.

A charismatic industry outsider, Mr. McComb was hired in 2006 from Johnson & Johnson, where he ran its orthopedics and neurologics division. Known for his flamboyant management style, he quickly differentiated himself from his predecessor.

On an early trip to see the company's Juicy Couture brand in Los Angeles, Mr. McComb wore a blue velvet Juicy blazer with a jacquard novelty shirt. Mr. McComb once got down on the floor, in front of gawking employees, and kissed the feet of Liz Claiborne's general counsel, Nicholas Rubino.

At a meeting with his management team, bankers and consultants in early 2007, Mr. McComb belted out "Climb Every Mountain" from "The Sound of Music."

"He is an optimist with boundless energy. He takes bad news in stride," says Arthur C. Martinez, a board member and former chief executive of Sears Roebuck & Co. "He is an incredible motivator."

Soon after being hired as CEO, Mr. McComb said that the company's portfolio was overweighted in what he called the "missy boomer quadrant" and vowed to bring the average age of the Liz Claiborne customer down by broadening the brand's appeal. Female consumers between the ages of 25 and 34 shop more often and spend more money on apparel than any other demographic group, making them an attractive target for any fashion company.

In 2007, a month after Ms. Claiborne died, Mr. McComb eliminated, sold or licensed out 16 brands accounting for $800 million in annual revenue. Many of those brands appealed to boomer consumers at department stores. Mr. McComb's goal, he said, was to focus the company's cash and attention on its more promising contemporary brands, which operate their own retail stores and are less tied to department stores.

But most of the contemporary brands haven't taken off as expected. Although Kate Spade posted a sales increase of 25% to $42 million for the quarter ended July 3, overall the "U.S.-based direct brands" business segment—which includes Kate Spade, Lucky Brand and Juicy Couture—posted an operating loss of $13 million in the period. Mexx, a European brand, lost $26 million on top of a $33 million loss for the same quarter in 2009.

One of Mr. McComb's top priorities was relaunching the Liz Claiborne brand and in 2008, he lured celebrity designer Isaac Mizrahi away from Target Corp. to be creative director. Mr. Mizrahi signed a five-year contract worth about $6 million a year, according to people familiar with the contract, significantly more than he was earning at Target. Liz Claiborne officials declined to comment on the dollar value of the contract, saying "it had fixed and variable components."

As part of the deal, Liz Claiborne hired Mr. Mizrahi's entire design staff of about 25. Claiborne also agreed to fund elaborate fashion shows for Mr. Mizrahi's personal Isaac Mizrahi high-end brand, for approximately $1 million each season, according to a person familiar with the matter.

While considered a steep price of entry, the Mizrahi deal granted Mr. McComb access to the rarefied world of high fashion.

Indeed, Mr. McComb was dazzled by the more glamorous aspects of the fashion industry, according to some people who worked with him. His first acquisition was a $12 million investment in the high-fashion label Narciso Rodriguez. When, a month after the acquisition, Mr. Rodriguez declined to accompany the CEO to the black-tie gala for the Council of Fashion Designers of America, Mr. McComb emailed Mr. Rodriguez to say he was "sad, disappointed and deeply disturbed." Claiborne and the designer severed their relationship 18 months later. Mr. Rodriguez had no comment.

For his first Liz Claiborne collection, Mr. Mizrahi said he wanted to inject a shot of youthfulness into a line he considered "a little granny." He designed a colorful collection featuring dirndl skirts with tulle crinoline, bright floral cardigans and nipped-waist shirtdresses. Prices, lower than in the past, ranged from $30 for shirts to $250 for coats.

Unlike at Target, where Mr. Mizrahi collaborated with a team of merchants, Claiborne gave the designer lots of leeway in determining the direction of the line, according to people familiar with the matter. Mr. McComb publicly called Mr. Mizrahi "a master" and hung a painting of the designer in his office.

Claiborne's largest client, Macy's, however, was worried about the aesthetic of the line, which was considered fashionable but not geared toward working women, the brand's core constituency.

Mr. McComb had inherited a rocky relationship with Macy's, after his predecessor announced the low-priced Liz & Co. line for Penney, Macy's archrival, in 2006.

At a March 2008 lunch at the Museum of Modern Art's restaurant, Macy's CEO Terry Lundgren and the company's then-head merchant, Janet Grove, told Mr. Mizrahi that the new line needed to make a big splash to reverse its plummeting sales—which had fallen to a total of about $200 million by the end of 2007 from more than a $1 billion a decade earlier.

"It better be different" from the Liz & Co. line at Penney, Mr. Lundgren warned Mr. Mizrahi, or Macy's might drop it, according to a person who was at the meeting. Mr. Mizrahi assured Macy's that he was determined to make a break with the past.

Mr. Mizrahi's designs hit stores in January 2009, generating media buzz and positive reviews from fashion critics. Michelle Obama was photographed in one of his outfits and Vogue ran a profile of Mr. Mizrahi.

But the collection launched in the midst of the recession. Claiborne's core baby boomer consumers rejected it, forcing aggressive markdowns. In the first quarter of 2009, Claiborne's "partnered brands" division, the largest component of which is the flagship line, posted an operating loss of $40 million.

Mr. Mizrahi's looks, such as a gingham dress with a big crinoline slip attached, confused Carol Orsborn, a 62-year-old author and marketing consultant who used to wear Liz Claiborne. "I wasn't sure where or when the traditional Liz Claiborne woman would wear that," she said.

Stephen Reily, CEO of a Boomer networking site called VibrantNation.com, called the Mizrahi look for Liz Claiborne "a kind of madcap Auntie Mame style when applied to women 50-plus."

Mr. Mizrahi declined to comment.

During the first season, as sales fell short of expectations, Liz Claiborne discussed an exclusive deal with Macy's, in an effort to get better exposure and terms in the future. The company simultaneously began pursuing deals with other retailers, including Kohl's Corp. and Penney.

In September, Macy's told Liz Claiborne that it was cutting distribution to 28 stores from 300, effectively dropping the brand after 30 years. People familiar with Macy's thinking say that the collection was too fashion forward to appeal to Claiborne's consumer base.

"We could not justify expanding it," Macy's spokesman Jim Sluzewski said.

Liz Claiborne's executives were shocked by the magnitude of the reduction, according to people familiar with the matter.

In October, Mr. McComb called a meeting of a team of 100 designers and merchants at Mr. Mizrahi's studio for what he called "bittersweet, but great news," according to people who were there.

His announcement: Under a new licensing agreement, the brand will only be sold at J.C. Penney and will be manufactured and marketed by the retailer. Several designers who had worked at the company dating back to Ms. Claiborne wept. Mr. McComb told them that in 60 days they would no longer have jobs, according to people who were at the meeting.

Penney CEO Myron E. Ullman III said the Liz Claiborne brand was a way to steal market share from mainstream department stores, particularly Macy's, its biggest competitor. The company did research and found that half the women who buy Liz Claiborne at other department stores would follow the brand to Penney.

Citigroup analyst Deborah Weinswig thinks it could bring in $300 million to $400 million in sales in its first year—and Claiborne would get an undisclosed percentage of sales and profits with a guaranteed minimum annual royalty. Penney wouldn't comment on specific figures, but said it expects sales to double in five years, at which point it has the option to buy U.S. rights to the brand.

The deal was contingent on Claiborne's willingness to sell the brand name, Mr. Ullman said. "I think if they had their choice, they would probably not have agreed to sell it," he said.

Mr. McComb continues to have the support of his board, which last summer renewed his contract for three more years. "The strategy is exactly right and the board is fully in support of it," says Mr. Martinez.

If the company continues to show losses a year from now, "absent some cataclysmic economic event…we would be obliged to question the leadership and the path that we are on," Mr. Martinez says. For now, though, he says "there is an overwhelming vote of confidence" in the strategy set forth by Mr. McComb, who once described board members as having "brass balls and brass bras" for sticking with him.

Mr. McComb says he's now considering changing the company's name. Liz Claiborne is "a misnomer strategically," he said.