Mergers leave clothing brands with fewer outlets
This is an archived article that was published on sltrib.com in 2006, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

Walk into the Hecht's department store at Tysons Corner Center mall outside Washington, D.C., and the first thing you'll notice are all the Macy's signs going up. The next easily could be the prominence of the Ralph Lauren displays. Blink and you could miss the Tommy Hilfiger racks in the women's department.

There's a battle of the brands going on behind the scenes at a department store near you.

Some of the best-known clothing and accessories companies, such as Jones Apparel and Liz Claiborne, are dealing with fewer outlets to sell in thanks to department store consolidation.

Federated Department Stores bought May Department Stores last year and on Saturday, former May stores across the country (including in Utah) will become Macy's.

The mergers leave the clothing brands looking for new outlets, opening their own retail stores, and trying to quickly make friends with new buyers for the remaining department stores' names.

Arnold Aronson, an ex-CEO of Saks Fifth Avenue says retails stories and suppliers are asking themselves: ''How are we going to get better so we can survive? How are we going to get more customer-friendly and give better product for the price?''

Apparel companies' relationships with retailers are important to both sides' bottom lines. ''They need to work together to continue to gain share,'' says retail analyst Dana Telsey of the Telsey Advisory Group.

Department stores largely control how merchandise is displayed in their stores, how often it is promoted and at what prices.

The apparel companies negotiate the size and placement of their in-store displays. They also negotiate how much money they contribute to cover markdowns.

The Liz Claiborne company, which owns 43 brands ranging from Dana Buchman to Monet to Juicy Couture, planned ahead by opening more free-standing stores and diversifying its brands.

''I've got to bite a short-term bullet,'' Liz Claiborne CEO Paul Charron says of the Federated/May store closings. ''But those were not the best stores or the more profitable. I do not lay awake at night and worry.''

But some analysts say others, including Jones Apparel, Tommy Hilfiger, and Kellwood - owner of the Phat Farm and Sag Harbor brands - might lose plenty of sleep. The mergers could add to their mounting financial woes. Both Jones and Kellwood have cited consolidation as a reason for declining sales.

Jones CEO Peter Boneparth says his company has decreased its reliance on department stores from 80 percent of sales 10 years ago to 20 percent today, increased its business with lower-end retailers such as Kohl's and opened more of its own retail outlets.

With retail consolidation, ''you have to stand for something incredibly strong to sell into department store channels because there is so much competition,'' says analyst Jennifer Black of Jennifer Black & Associates.

Likely winners:

  • Polo Ralph Lauren. The brand, which is booming, made the decision to pull out of underperforming May and Federated stores before the merger, so it is far less affected by consolidation than some competitors. ''What kind of foresight is that?'' Black asks. Polo also has stand-alone stores and labels that target customers all the way up to those who buy couture.

  • Liz Claiborne. Aronson, now managing director of retail strategies for global consulting firm Kurt Salmon Associates, says Liz Claiborne brands are more favored by Macy's than they were at May stores. Its ''contemporary fashion'' will fit Federated's tendency toward ''suppliers that represent the higher end.'' The number of Liz Claiborne brands has increased tenfold since Charron took over 12 years ago. The percentage of sales from department stores has dropped from 90 percent to 30 percent.

  • Phillips-Van Heusen. The owner and distributor of Calvin Klein brands, the men's shirt behemoth is enjoying brisk sales in department stores despite consolidation. The company says Calvin Klein, Kenneth Cole and Geoffrey Beene brands are ''driving'' its sales growth.

    Possible losers:

  • Jones Apparel. Some of its brands could be a ''what's hot'' list from the 1980s. Evan-Picone, Pappagallo, Kasper and Bandolino are among them. Black says Jones suffers from having a ''very mediocre'' portfolio. Unlike Liz Claiborne, which has brands for every taste and pocketbook, Jones' brands tend toward the most competitive moderate tier. Boneparth says it's ''categorically untrue our brands are losing their relevance.'' Jones and Anne Klein remain highly visible brands at Macy's stores.

  • Kellwood. This apparel maker and distributor is hardly a household name, but some of the brands it manufactures are. After disappointing first-quarter earnings, CEO Robert Skinner said the company is ''revitalizing'' brands that include Sag Harbor and Koret. Several retail experts say Kellwood could be one of the hardest hit by consolidation, because it has made a lot of department stores' private labels.

  • Tommy Hilfiger. The Hilfiger brand, which lost many of its traditional customers with a foray into urban-oriented clothing, is trying to make a comeback. The ubiquitous brand is trying to become more of a specialty retailer, but many experts remain skeptical. In May, Tommy Hilfiger was purchased by funds advised by Apax Partners and taken private. A new management team was put into place and, this summer, the company shut down the Karl Lagerfeld label so it could focus on rebuilding the Hilfiger brand.

    One thing consolidation has done is to make it more important than ever for brands to be able to control their manufacturing and distribution through their own retail outlets, says Black.

    Apparel companies often prefer to have all of their line grouped together rather than to have a department store put their jeans with other makers' jeans and so on.

    Darrell Rigby, head of the global retail practice for consulting firm Bain & Co., says smart brands also will form partnerships with the strongest retailers and customize their offerings the way some already have with Macy's.

    Along with heavily promoting its private labels, Macy's this fall will have exclusive merchandise from Elie Tahari and Martha Stewart.

    Vera Wang announced a deal last week to create an apparel line for Kohl's, just as Isaac Mizrahi did for Target.

    Rigby says shoppers will benefit from some of the improvements made in a downsized retail environment. Among them: Apparel companies will need to shorten their lead times to help get the trends and fashions consumers want into stores.

  • Where to go? Display space competition among apparel lines gets stiffer as retailers consolidate stores
    Article Tools

    Photos
    Enter a search phrase.

    Specify a Range

    From  to

     

     
    Missing your paper? Need to place your paper on vacation hold? For this and any other subscription related needs, click here or call 801.204.6100.