By  on February 12, 2009

The Blackbird boutique in Seattle’s historic Ballard neighborhood has a reputation as one of the best men’s specialty stores in the Pacific Northwest, offering a selection of directional brands like Acne, Corpus, Filippa K, Rag & Bone and Tim Hamilton.

Last August, shoppers began noticing a new label added to the mix — the retailer’s own Blackbird brand, on a small line of denim and shoes, with woven shirts to come this spring.

“What we’re doing is offering really basic product that we can make well ourselves, and cutting out the middleman,” said Blackbird owner Nicole Miller. “We’ve built a strong brand and we have a good eye for what these basics should be.”

With her nascent store label, Miller joins a growing number of independent specialty boutique owners who have started private label collections in an effort to tap a new revenue stream, leverage and expand their own brand equity and even wholesale to other retailers.

Trendsetting specialty stores such as Opening Ceremony, Oak, BBlessing, Aloha Rag, South Willard and Goods have all created private label collections in recent years. At some specialty retailers with older lines, including Steven Alan and Nom de Guerre, private label goods make up the bulk of their businesses.

As with major department stores that have long pushed in-house brands, the lucrative economics of private label is a big part of its appeal to smaller specialty retailers. The margins are usually much higher when a store sells its own product to customers. At Blackbird, for example, a Band of Outsiders shirt is initially marked up 140 percent, yielding a margin of 58 percent. A private label shirt, however, yields a margin of about 78 percent, Miller said. “That’s a very appealing factor for us,” she noted.

There’s a risk factor to diving into private label, as well, with the requisite investment of time and money to get the operation up and running. “There are production minimums to meet, and you have to put up a lot of money up front,” Miller said. “And what if the product is horrible and nobody buys it?”

That’s one reason Blackbird — and many of its competitors — stick to well-priced, basic product, rather than novelty and fashion items. “We don’t do anything crazy, we just stick to really simple stuff, like jeans,” Miller explained. “We sell them for $165, which is a great value for the customer, but also gives us a great margin.”

Sticking to narrow and deep production runs on basics that can sell for several seasons also helps with inventory management because stores can stock the product until it sells out. That stockpile of inventory might also come in handy when replenishment is an issue with third-party vendors.

“We deal with small brands and only get shipments twice a year from some of our resources,” Miller said. “For example, I can’t reorder APC jeans when I run out of sizes. But with our own jeans we have a large inventory available, so we don’t run out of sizes and don’t lose sales.”

Some independent retailers, however, have aggressively evolved their private label programs into full-blown fashion collections, such as Oak and Opening Ceremony. The latter, which has stores in New York and Los Angeles, now wholesales its private label brand to about 120 accounts, including Barneys New York, Satine and Ron Herman domestically, and Dover Street Market, Browns and Colette abroad. Opening Ceremony also operates its own multiline showroom to sell the line, along with outside labels like United Bamboo, Loden Dager, Patrik Ervell and fellow retailer Nom de Guerre.

“Our own line was part of our business plan from the very beginning, along with the retail store and showroom,” said Humberto Leon, who founded Opening Ceremony in 2002 with partner Carol Lim. “We always looked at ourselves as a small company with big ideas. We wanted the company to have a more dynamic dimension to it, and our own brand seemed like a natural extension.”

Despite the success of their brand, Leon and Lim maintain a wide range of brands in their two stores. Opening Ceremony carries more than 150 men’s and women’s labels, and the house brand only accounts for about 10 percent of total sales.

“We don’t want our own brand to engulf the store — if anything we try to downplay it,” Leon said. “We still want to be known as a multibrand retailer, because it brings a lot of energy to the store.”

Sean Shuter and Daniel Jackson, co-founders of BBlessing in New York, echo that sentiment, and the house label accounts for about 35 percent of sales at their Lower East Side store.

“One of the great things about having a multibrand store is that all the lines contextualize each other,” Jackson said. “It helps customers understand the mentality of the BBlessing label. It’s a symbiotic relationship.”

The BBlessing collection launched seven seasons ago with just T-shirts and sweatshirts but has since grown into a full men’s collection that is wholesaled to about 20 accounts, including Barneys New York, Ron Herman, Harvey Nichols in the U.K. and Loveless in Japan.

Selling to other retailers can make the investment in starting a collection more cost effective.

“You can expand your production run and get better deals from fabric suppliers and factories,” said Nin Truong, a partner in Goods, which operates three upscale streetwear stores in the Seattle area and is starting to wholesale its house collection. The store had offered Goods-branded T-shirts since opening in 2003, but the collection has since grown into a full range of sportswear and outerwear.

Aloha Rag owner Tatsugo Yoda plans to begin wholesaling his house label, called Garment House Mania, in the near future. The brand is now only available in his stores in Honolulu and New York, as well as on an e-commerce site. The house label was started a year ago as a denim range, with classic five-pocket jeans made in Japan from high-quality Okayama denim, which retail from $250 to $290. Since then, the store added double-layer T-shirts, polo shirts and military surplus-style trousers.

Denim was also the starting point for South Willard’s branded range, but the Los Angeles store doesn’t have any plans to start a wholesale business. The jeans are made in Japan and retail for $200, with a new line of shirts introduced last season selling for $150 to $230.

“We’re really trying to keep it exclusive to our store,” said Ryan Conder, co-owner of the shop. “Our goal is to just make a few things as perfect as we can, and provide good value to our customers. These pieces can be worn by a 14-year-old boy or a 70-year-old man. We never put them on sale and they always sell out.”

At New York’s Nom de Guerre, the store brand has grown to 90 percent of sales at the subterranean boutique. Founded as a multibrand retailer in 2003, co-founders Isa Saalabi, Holly Harnsongkram and Devon Turnbull launched a basics line in 2005 and have grown it into a full fashion collection based on a high-end army-navy surplus aesthetic. Nom de Guerre is wholesaled to Barneys New York, Opening Ceremony, Nomad in Tokyo, Liberty of London, Harvey Nichols in London and Beams International Gallery in Tokyo.

With specialty retailers often serving as starting points for trends and becoming high-profile destinations, store brands can leverage that brand equity — something Los Angeles-based Kitson has pursued aggressively. Rather than devote resources to starting his own line, however, owner Fraser Ross has licensed the store name to Tarrant Apparel Group for apparel, Lucas Designs for jewelry and accessories, and Itochu for Kitson-branded stores in Japan. A previous shoe license with Skechers recently ended after three years.

“In these hard times, it’s great to have another revenue stream,” Ross said of the royalties he earns. “We became a part of L.A. pop culture, and that’s valuable.”

Ross believes he could continue licensing the Kitson name, even if his seven stores were to close. “I think the brand could survive,” he said. “I mean, God knows how retail will turn out over the next two years.”

Steven Alan is one of the most successful pioneers among independent retailers launching their own collections. His label is the biggest part of his business, which includes nine stores and a multibrand showroom. Four of Alan’s stores in New York and Los Angeles are multibrand units, while five are dedicated only to the Steven Alan collection.

The first Steven Alan store opened in SoHo in 1999, and on a lark he began making men’s shirts and pants, which were picked up by Barneys New York in 2000. Now, Alan produces three men’s deliveries each season and four women’s deliveries, which are wholesaled to more than 250 accounts worldwide, including Mario’s, Apartment Number 9, Bird and United Arrows.

Although Alan never studied design and doesn’t sketch or drape, he credits his retail experience with honing his eye for great merchandise.

“I can figure out what needs to be changed or tweaked on a design, and we have technical designers to help translate that,” Alan said.

Running an in-house collection takes infrastructure, and Alan has a team of four designers and six production people on his staff.

Adding employees is just one element in the many complexities facing retailer starting a private label business.

“It’s a very romantic idea to have your own line, but it’s a lot of work,” said Goods’ Truong. “The line sheets, the sourcing, the fabrics, dealing with production, shipping and customs. There are a million and one headaches. And if one aspect of the process goes wrong, it can tarnish the business.”

However, for many independent specialty stores, the potential payoff is worth those headaches, and retailers like Odin in New York and Context in Madison, Wis., plan to throw their hats into the ring.

“We absolutely want to do it down the road, and we’ve already been approached by potential partners,” said Eddy Chai, co-owner of Odin. “But we understand that it’s a whole other business, and we want to do it right. If we’re putting our name on it, it has to be something that we’re proud of.”

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