Overlooking one of the world’s most venerable retail streets, Ugg Australia’s showroom is perched on the top floor of the elegant Crown Building on New York’s Fifth Avenue.
It shares the block with Bulgari and Prada and is steps from Louis Vuitton, Gucci and Tiffany & Co. The brand has a trio of prime stores located in SoHo and on the Upper East and Upper West Sides, which all in all, is not too shabby for a company known for a sheepskin boot.
Looking to grow beyond its utilitarian image, Ugg is in the process of positioning itself as a lifestyle brand with the help of its recently launched in-house produced handbag line and a high-end shoe collection, both of which retail for between $500 and $2,000. The challenge Ugg faces is earning a reputation outside of its famous no-frills boot — or “the money maker” as it’s called by Ugg staff — to forge an identity as a true lifestyle brand in the fashion world.
But Ugg, which was acquired by Deckers Outdoor Corp. in 1995, isn’t the only one aiming to make such a leap. Armed with extra cash, accessory brands are expanding beyond their core products into other segments of the category. Although nothing in retail is ever 100-percent recession proof, accessories has held its own during much of the economic slump as the engine of the fashion world, making extension into other markets a safer bet.
According to The NPD Group, women’s accessories sales, including jewelry, watches, sunglasses and handbags, totaled $29.38 billion in the 12 months ended August 2011, which reflects a 3 percent increase since 2009. In the same two-year period, men’s accessories slid 2 percent to $10.2 billion this year, while footwear sales increased 1.6 percent to $10.28 billion. For women, footwear rose 4.2 percent to $19.51 billion.
But jumping into a new category is trickier than it seems. Becoming a lifestyle brand, much less a well-rounded retailer, involves winning the trust and acceptance of the consumer — and sometimes that can be a tall order.
“There’s a lot of serendipity in getting to the point of becoming a lifestyle brand,” Michael Moriarty, a partner at consulting firm A.T. Kearney said, explaining that in addition to “luck,” it “takes genius.”
“It takes a Lew Frankfort [Coach], a Steve Jobs [Apple], a Giorgio Armani, a Ralph Lauren, a Calvin Klein, a Howard Schultz [Starbucks],” he said. “It’s the LVMH [Moët Hennessy Louis Vuitton] message: ‘You just have to tell the story and keep on task and run your operations very tight.’”
That may be true, but according to Ugg president Connie Rishwain, the brand’s foray into luxury and even fashion, is “natural.”
“We don’t want to do something that’s a complete disconnect from our brand, but we’re allowed to play in other categories that make sense” she said. “We definitely describe ourselves as accessible luxury. Coach is an equal brand.”
Howard Feller, a partner in investment banking and strategic advisory firm Marketing Management Group, agreed that on price, not merchandise, Ugg is similar to Coach.
“At the end of the day, it really does boil down to product,” he said, explaining that Ugg will be successful if its upscale collection creates a “halo effect to elevate the overall brand.”
“I think the name [Ugg] does resonate enough with the luxury consumer that they have enough credibility to pull it off,” he said.
Started in 1978, Ugg is a toddler compared with the titans that share real estate on Fifth Avenue. Accessories brands have often taken decades to become true lifestyle brands: Prada was founded in 1913, Gucci in 1921 and Louis Vuitton in 1854. Even American’s premier accessories giant, Coach, has a lifestyle story that has taken 70 years to build.
Founded in 1941, the family-run company took its inspiration for handbags and leather goods from a tanned leather baseball glove. It took nearly 50 years for the company to move into the apparel category with the launch of outerwear in 1992. Coach entered watches in 1998 and then footwear a year later. Jewelry and eyewear were introduced in 2001 and 2003, respectively, and fragrance was launched in 2007.
“We have generally remained focused on our core women’s handbag and small leather goods categories which still represent over 85 percent, while adding certain complementary categories such as footwear, sunwear, jewelry and fragrance,” said Coach president and chief operating officer Jerry Stritzke. “Generally we have found that the consumer is willing to give us trial in complementary categories such as footwear and jewelry. Outerwear has been in Coach’s assortment for more than a decade, but we still regard it as a flanker category to provide halo to the brand.”
“Analysts have always wanted Coach to do apparel...but that’s a risk,” said Needham & Co. analyst Christine Chen, who explained that while the company’s jewelry collection “can be bigger,” it’s more prudent for Coach to stick to its heritage.
Sometimes heritage can be more than category, but also price point. For high-end or aspirational labels, retail experts warned that brands run a greater risk of tarnishing their image if they try to reach a more mass audience with newly created categories.
Tiffany, which closed its lower-priced pearl jewelry brand Iridesse in 2009, can testify to the difficulty of entering a new segment of the market. Some observers say that had Tiffany indicated to the consumer that it was behind the brand, which lasted five years, it might have been more successful. At the same time, others say Tiffany was smart to keep the two brands separate because that protected the flagship label from suffering any long-term damage. Perhaps a better suited venture came in 2009, when Tiffany acquired Lambertson Truex, which filed for Chapter 11 bankruptcy protection that year. The deal gave Tiffany a well-versed, upscale partner for its first foray into handbags.
But no matter the company, a common theme to broadening a brand’s appeal is still winning over the consumer. Activewear-maker Under Armour Inc. learned that lesson in 2009 when it haphazardly jumped into the running shoe market, according to industry sources.
During much of 2009, Under Armour execs called out the weakness of its footwear category, with company chairman and chief executive officer Kevin Plank admitting in the second-quarter that there’s a “learning curve associated with any new business.” Chief financial officer Brad Dickerson forecasted footwear revenues to be down in 2010 — and they were. Shoe sales fell 6.6 percent to $127.2 million that year, marking the only down category for the firm. The company’s total net sales rose 24.2 percent to $1.06 billion.
The aggressive footwear launch left a handful of execs in its wake as the company worked to retool the now-thriving category, which recently posted a 24.8 percent rise in sales to $98.3 million for first half of 2011.
One of those executives was Raphael Peck, who was Under Armour’s senior vice president of product creation and merchandising. He resigned in 2009. Currently the vice president of global apparel, footwear and accessories at Oakley, Peck is working to turn his new company into a lifestyle brand with an apparel offering. Known for its sporty goggles and sunglasses, Oakley dipped into women’s apparel three-and-a-half years ago, but it was a flop.
“It was humbling for us,” Peck said. “We’ve learned a lot, we’ve stubbed our toe a lot.”
Those lessons included listening to the consumer and finding an opportunity in the market. For Oakley, that has meant following its brand heritage by developing clothing to accessorize its core offering — namely, eyewear.
“You can’t spread yourself too thin. You need to stay close to your nucleus. Our nucleus is accessories,” Peck said. “At the same time, women are critical to the growth of this brand.”
Currently, the women’s business represents 10 to 12 percent of total revenues, or north of $25 million. This spring, Oakley, which is owned by Luxottica SpA, is putting out what Peck calls its “most meaningful launch,” which includes a “post-workout” women’s apparel lifestyle collection. Peck said he hopes Oakley’s women’s collection, along with a host of other initiatives, will help grow the women’s business to between 30 and 35 percent of total sales in the future.
For companies that have found success building a 360-degree brand, it’s been all about understanding the brand through the consumers’ eyes, and staying true to its core values.
Staying in tune with consumer demand is something that contemporary apparel and accessories brand Rebecca Minkoff understands. Founded in 2005, the brand started with handbags and has since expanded into apparel, footwear, and for 2012, jewelry, eyewear, cold weather gear and scarves.
“We didn’t want to get pigeonholed as just a handbag brand. We’ve always wanted to be a lifestyle brand,” said ceo Uri Minkoff, who said that from 2007 to 2010, sales rose 564 percent.
Despite the broad offering, the brand is still best known for its bags, which make up 80 to 85 percent of annual sales. Minkoff expects that percentage to shift to between 60 and 65 percent next year, as consumers shop the brand’s new categories.
Even though the company has experienced early success, the designer’s brother still wasn’t ready to call the brand a true lifestyle player.
“We’re trying, we’re trying, we’re trying,” he said with a chuckle. “All the categories give Rebecca Minkoff a whole new meaning in the marketplace. The brand means so much more to the consumer.”
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