NEW YORK — If there's one constant in the apparel industry, it's that business trends follow the money — especially money spent by consumers.
But consumers are finicky, and can change loyalties to a brand, retailer or fashion look in a flash. To succeed in this market, vendors and retailers have to tap into trends that can maximize sales and profits. Over the past year, profitable trends that have emerged include the growth of premium denim as well as private label brands, say several factoring firms who track trends on the retail and supplier side of the industry.
In the past 18 months, factors have seen robust growth in the denim market, especially at the high end. And the factors agree that there's still opportunity in the segment as denim evolves into the foundation of a women's wardrobe.
"We talk a lot about the elimination of the specialty store, but there's this renaissance in the denim market. For example, the boutiques have gotten a little resurgence and they are able to differentiate themselves, although there are certainly not as many as there used to be," said Dave Reza, senior vice president, western region, Milberg Factors.
Reza said start-ups that do well are having success with premium lines.
"Did any of us ever envision $175 blue jeans having a life? Seriously? We thought it was a flash in the pan. Denim is now like the little black dress; pair it with a T-shirt, a shirt, a jacket — it's accepted everywhere," said Jeff Enoch, vice president, Rosenthal & Rosenthal of California Inc.
Despite the continued popularity of the segment, factors caution that market positioning is still key.
"As is the case when you see any 'hot' segment of the marketplace, you see a lot of companies rush toward that segment. I think we're beginning to see a little bit of fallout from [premium] denim. There are some companies out there that maybe weren't as well geared to enter the marketplace that just frankly aren't doing well with it. That will be one of the issues we have to deal with in 2006," said Kevin Sullivan, executive vice president, western regional manager, Wells Fargo Century. In particular, companies without expertise in the denim market who try to jump on the bandwagon will fall out, he predicted."There are very sensitive price points for premium jeans where once you go over a certain market, you lose a whole segment of buyer," Enoch said. Simply adding detailing to cheaper jeans to try to capitalize on the trend won't get a brand very far, he said.
"I've seen some clients trying to create a junior premium, which would be the price point mom and dad are OK with, but it's still higher than normal. It's not $150 a pair, maybe it's $88," Reza said.
Price points for some denim lines might go up more before coming down, but among brands with more market recognition, the factors agreed. Reza cited a brand he saw selling at a luxury department store recently for $1,000 a pair.
Another area with market growth potential for apparel manufacturers is private brands.
"The private brands concept will only increase because to the retailers it's all about recognition on the part of the consumer. If you've got a name that is recognizable and marketable, the question is going to be, are you getting to the right distribution channel," said Sullivan.
Recognizable brands that have evolved into private label successes include Joe Boxer and Mossimo. But the intrinsic value of a well-recognized name is most visible in the recent trend of designers moving down market. They include Isaac Mizrahi and Luella Bartley at Target, Karl Lagerfeld and Stella McCartney at H&M and Nicole Miller at J.C. Penney. Factors expect this trend to gain more steam as it brings affordable designer goods to the masses.
"The nomenclature is no longer designer label equals luxury brand. There's a designer label like Isaac Mizrahi, but he's no longer a luxury brand. Consumers don't see the distinction," Reza said.
As long as the money is there, Enoch said, you'll continue to see these deals. As always, the consumer is king. Another consumer-driven trend factors see in the retail marketplace is a move to more intimate shopping experiences, despite an industry that has shown unprecedented consolidation in the last few years.
"There's a huge block of consumers who want service. You just don't get that at certain places," Enoch said. The larger retailers have started to respond to consumer drive for a small boutique feel with individual departments built around brands, another area where private brands stand poised to affect the market."Look at a company like Nordstrom. They've done a great job of being a big operator and yet still providing this high level of service that people are willing to pay for. That's the experience the consumer gets at the small independent retailer. They've managed to do both, and I think that's what is going to be the benchmark for the rest of the industry," Sullivan said.
If larger retailers are unwilling or unable to respond to a consumer desire for a more intimate shopping experience, smaller retailers will proliferate to meet the consumer dictum, he added.
Large department stores, mass retailers and apparel manufacturers also need to guard against losing sight of their customers in the face of investor pressure, factoring sources said. Pressure on apparel manufacturers will only increase as they face up to the realities of retail consolidation, consumer demands and economic challenges.
There are a number of options open to smaller companies with a successful niche, but for companies that go public, factors said, there can be additional challenges because the focus of the business shifts. "When the vendors or retailers go public and have to meet the expectations of Wall Street as opposed to doing what they do best, which is great fashion, you often find that a lot of the entrepreneurs aren't necessarily sure that they made the right decision," said Sullivan.
"The agenda is different," said Enoch, adding that a closely held private company might value a company culture and handcrafting of garments, but that might not be a high priority for a public company with shareholders to answer to.
The reality is that Wall Street pressure can shift the focus of a manufacturer, or a retailer, Sullivan said. That can prove especially challenging for business people in the apparel industry, many of whom are in the industry because they love what they do, sources said.
"Companies that are run by true entrepreneurs, or start-up entrepreneurs, have a particular psyche. They're used to treating their company as their alter ego. To all of a sudden be told, 'No you can't do that, the board didn't approve it ... ' Those are challenging things for entrepreneurs to come to terms with," said Reza. "I don't think Wall Street necessarily is in love with the apparel industry," he added.Reza said it can be difficult for a young company to see past the allure of raising money in the public arena, which is why factors offer alternative financing for independent niche brands.
"[Apparel] is still a very vibrant industry. We are seeing more start-ups coming into the marketplace. I think that's positive. There are a lot of people coming into the business for good reason who have great vision. The ones that really get into it because they have a real passion about what they do will ultimately be successful," Sullivan said.
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