NEW YORK — Reinvention or extinction.
That is the challenge facing major moderate brands as they come under increasing pressure from America’s shifting retail landscape. Companies such as Liz Claiborne Inc., Kellwood Inc. and Jones Apparel Group are rushing to adapt their moderate labels to the uncertainty created by the consolidation of Federated and May and Sears, Roebuck & Co. and Kmart; Bon-Ton’s acquisition of Carson Pirie Scott; the potential sale of Parisian by Saks Inc., and the cloudy future of Lord & Taylor, which Federated has put on the block. In addition, the desire for exclusivity at retail is making it increasingly difficult, if not impossible, for mainstream vendors to build their businesses in multiple channels.
The news that Jones has put itself up for sale is causing even more anxiety about what might happen to the moderate brands in its portfolio, such as Bandolino, Pappagallo, Gloria Vanderbilt and Nine & Company.
As the face of moderate sportswear changes to become more fashion-forward and competition from specialty stores such as Chico’s, Ann Taylor and Gap heats up, traditional moderate brands need to step up their product mix in order to survive.
And the competition doesn’t end there. There is also major pressure from stores such as Target, which carries exclusive brands from designers such as Isaac Mizrahi and Mossimo; Kohl’s, with its Daisy Fuentes and Axcess brands, and J.C. Penney, which has updated its mix with Nicole by Nicole Miller. Then there’s the department stores themselves, which seem to be making their better floors a major focus and de-emphasizing moderate sportswear.
A snapshot of the challenges facing modern brands is provided by one of the biggest of them all, Sag Harbor, the $400 million division of Kellwood and its most profitable brand. But Sag Harbor was dropped from Federated last year, since the brand was too widely distributed. The retailer also abandoned Kellwood’s Izod Womenswear brand after the company sold its merchandise to J.C. Penney once its exclusivity with May Co. ran out.
“Federated is focusing on their better areas and the development of their own brands,” said Andrew Jassin, managing director of the Jassin O’Rourke Group, a consulting firm here. “While there are still some moderate brands on the floors that seem to perform well, like Caribbean Joe, for example, in order for these companies to stay afloat, they have to distinguish themselves from what’s selling at stores like Kohl’s and J.C. Penney.”
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Jassin said customers who used to shop the moderate floors are finding more of what they need at retailers such as Kohl’s and Penney’s. And when it comes to department stores, consumers are looking more to the better and designer floors to make their purchases.
“In the customer’s mind, it’s much better to make a purchase on sale in the better or designer areas than it is to buy in moderate,” he said.
Asked to comment on the fact that Sag Harbor is no longer being carried at Federated, the retailer issued the following statement: “As Federated and May integrate to form the new Macy’s, we are mindful that our customers desire distinctive merchandise set in a distinctive and exciting retail environment. To meet our customers’ needs, the new Macy’s will favor brands that limit their distribution. As a result, some brands will increase, while others will diminish. Ultimately, it is our customer that makes the decision regarding the merchandise that we sell.
“Federated has an excellent relationship with Kellwood and its other brands and we look forward to continuing our partnership with them,” the statement continued.
As major department stores de-emphasize moderate price points, Sag Harbor seeks to recoup business by opening its own full-price retail stores, beginning next year.
Donna Weaver, Kellwood’s vice president of corporate communications, emphasized that the impact of the lost business with Federated had been exaggerated.
“There are many rumors circulating in the marketplace about volume lost from the May-Federated merger,” she said. “The truth of the matter is Sag Harbor’s volume loss…is approximately 10 percent.”
Sag Harbor is now sold at retailers such as Penney’s, Boscov’s, Belk, Kohl’s, Mervyns, Bon-Ton and Proffitt’s, according to the brand’s Web site. In addition, the company owns and operates seven outlet stores, two of which launched last month.
Weaver said there are plans for full-price Sag Harbor stores to open next year. She declined to discuss locations. “The seven [outlet] stores that we recently opened are not new stores for Kellwood,” she said. “Formerly, they were David Brooks outlet stores in premium outlet mall locations. After we closed our Kellwood New England business unit, we decided to use these locations to test Sag Harbor outlet stores.”
Department store retailers are generally reluctant to talk about their moderate departments, which indicates the intense pressure they’re under in this area.
Of the $19 billion women spent on apparel in department stores from February 2005 to January, $813 million went toward sportswear, said Marshal Cohen, chief industry analyst at NPD Group, the research firm based in Port Washington, N.Y. — a gain of 11 percent from the previous year. In the moderate sportswear area, women spent $283 million, up 8.5 percent from the year before. But he pointed out that doesn’t mean the moderate sportswear departments in certain department stores are growing. He said Penney’s and Kohl’s have been performing well because they offer a large amount of exclusive merchandise and brands at prices consumers can easily afford.
“Consumers are saying, ‘If I can find what I want at J.C. Penney and Target, then why would I want to go to another store?'” Cohen said. “Consumers are spending more money at mass retailers and, for a while, department stores were ignoring this customer altogether. It’s going to be a lot harder now to get them back.”
Analysts believe moderate brands need to reinvent themselves to compete in today’s challenging environment.
Elizabeth Montgomery, analyst at Cowen & Co., said, “I think it could be a three-pronged approach, where most of these companies increase their retail exposure [through freestanding stores] in select portfolios for brands that are viable as full lifestyle brands. For the more moderate brands, the success of these apparel brands [could entail] a partnership with Kohl’s or J.C. Penney, where the companies find a hole in the space and can offer better expertise in fashion, something in which the retailer may have a harder time doing. You also will have Liz [Claiborne] learning from the sell-throughs of Juicy and Lucky Jeans and creating a brand specifically for a particular channel’s price points.”
Montgomery isn’t sure that opening separate stores for certain moderate brands is the way to go, either because some brands help drive foot traffic to a department store or consumers expect certain brands in a channel of distribution because of the value inherent in those brands.
Bud Konheim, chief executive officer of Nicole Miller, which sells its Nicole by Nicole Miller line exclusively to Penney’s, said the moderate customer is looking for a quality product and that is something that has never changed. Konheim said Penney’s approached him with the idea of targeting this customer, one they have been missing.
“They did consumer research and came to us with about 800 hours of tape of women who weren’t satisfied with their store,” he explained. “We watched about eight hours of that tape and found that this was a fashion customer who was being ignored. Bisou Bisou was good for her daughters, but not for her. This was a customer that J.C. Penney was calling the ‘missing middle.'”
Konheim said for many years customers were bored by the mix at Penney’s. They knew they could get products for lower prices than some of the other stores, but that still did nothing to excite them.
“These women already have clothes, so the idea is to give her clothes that she gets excited about,” he said. “And that’s something that design has always been about. It’s not about the price, the customer already knows she’s going to get cheap things at J.C. Penney. But the customer isn’t looking for cheap and moderate. She wants inexpensive and fashionable. The worst thing you can do is look at something and say, ‘That looks moderate.’ No one wants to look moderate. It’s the mind-set that needs to change.”
Elaine Hughes, ceo of search firm E.A. Hughes & Co., said apparel executives will have to take an in-depth look at what may be best for each moderate brand, whether it is through “limited distribution in a channel such as Stage Stores, Belk or Carson Pirie Scott; opening a new avenue of distribution such as freestanding stores or selling the brand through its own Web site, or shutting the operation and turning the business into a licensing model that is proprietary at a certain retailer, such as the availability of White Stag only at Wal-Mart.”
Sherri Mitzmacher, a market analyst at The Doneger Group, agreed. “We have been in a fashion cycle for some time now,” she said. “Some of the traditional moderate brands have been cut because they haven’t changed in order to differentiate themselves to offer more fashion items. Times are changing and you have to keep up with the times.”
Karen Murray, group president at Liz Claiborne Inc., said keeping up with customer needs is a major priority.
“It seems that there is a general movement away from traditional lines and more toward updated,” Murray said.
Claiborne has an array of moderate brands that account for 11 percent of the company’s $4.85 billion volume, and are made specifically for the stores they are sold in: Villager, Axcess and Stamp 10 for Kohl’s; First Issue for Sears, and Crazy Horse and Tint for Penney’s.
Murray said that, while it is always good to provide stores with exclusive brands, it isn’t all about the brands alone, but more about the product. “Villager at Kohl’s is more of a classic brand, so it isn’t growing as aggressively as the other two, which are both updated lines,” she said. “The most important thing is to have that great relationship with the store to make sure you do what you can to give them what they are looking for at the right time. It isn’t so much about the exclusive brand.”
Analysts said there is hope for moderate brands, as long as firms know how to diversify themselves.
Jennifer Black, of Jennifer Black & Associates, wrote in a research note March 1, “In our view, Liz Claiborne has the strongest portfolio of brands in the apparel industry and the company remains fundamentally solid. Furthermore, its diversified portfolio enables the company to better weather uncontrollable environmental factors that cause extreme duress on some of its key competitors, particularly those that have more exposure to one consumer segment. Not only has Liz diversified its exposure to different consumer groups, the company has lessened its exposure to the department store environment by way of building its own retail businesses.”
Black added that, as its own retail operator, Liz will be able to have more control over its brands’ destinies and drive a higher consolidated operating margin rate.
— With contributions from Vicki M. Young and David Moin