The search for a moderate-price bright spot has found a ray of light: exclusive brands appear to be withstanding the test of the economy.
After some rough going initially, retailers said the growing numbers of exclusive brands, including several launches last fall and this spring, are performing above plan and are among their stores’ bestsellers in an environment in which sales are struggling mightily against lower consumer spending.
With the success of recent partnerships, including Tommy Hilfiger at Macy’s, Allen B. at J.C. Penney, L.E.I. at Wal-Mart and Dana Buchman at Kohl’s — compounded by vendors searching for ways to expand their volume or simply save their businesses — merchants anticipate additional partnerships.
“We’re getting more and more interest on the part of our vendors in terms of us taking their brands exclusive,” said Terry Lundgren, chairman, chief executive officer and president of Macy’s Inc. “It is definitely possible that we could launch one or two exclusive brands in the very near future. I would love to see a great handbag line that would be exclusive, and I would love to see more in the category of women’s apparel. These are two obvious places where I believe we can have a breakthrough.”
Macy’s isn’t alone.
“We are having more people come talk to us, and working on a number of those things, some as early as this fall,” said J.C. Penney Co. Inc. president and chief merchandising officer Ken Hicks. The retailer is particularly interested in juniors, young men’s, home and potentially men’s and women’s apparel.
“There obviously is an opportunity with diffusion lines, such as I [Heart] Ronson, Allen B. and Fabulousity,” Hicks said. “But we also are seeing people who have seen their distribution shrink because of retailers downsizing or going out of business, and they see J.C. Penney as a survivor that would provide security to partner with.”
Exclusive and private brands make up about half of Penney’s business. As the company steps up exclusive efforts, Hicks said Penney’s is “pulling back on secondary and tertiary national brands that people don’t know and that aren’t as important.” He said some of these brands are asking to be exclusive and have offered to bring in design partners, which can make the deal desirable for Penney’s.
“It’s good for both parties,” said retail analyst Jennifer Black. “Being exclusive allows the brand to be very focused from the company perspective, and from the consumer perspective, it creates some excitement — a reason for the consumer to go to the store.”
Not all exclusives have worked. The high-profile O Oscar line at Macy’s folded last year and the introduction of American Living at Penney’s was less than impressive.
“Exclusivity is important, but I would rather have the right merchandise at the right price and right style,” Hicks said. “Having the wrong stuff all by myself doesn’t help.”
The theory for exclusives lines being desirable in this economy is pretty simple: On the retailer side, the company can control the supply, flow and markdown of product. With inventory issues and markdown wars at top of mind, these issues seem more important than ever.
“One of the challenges of the overall business today is that there is too much supply,” Lundgren said. “When a brand is just yours, you have supply and demand that is completely aligned.”
On the vendor side, struggling brands can latch onto a partner in hopes of being saved (even downstream), and more upscale designers can expand their volume and distribution with a more mainstream-priced diffusion line that’s controlled at one retailer, which is especially appealing as luxury is hit hard.
These brands traditionally haven’t had the highest margins, but that is changing for some lines with the innovative arrangements emerging in this market.
“Stores are signing different deals that are taking more control to use their private-label companies to build the product themselves, which makes much higher margin,” said John Henderson, a director at Net Worth Solutions Inc., who worked at Kellwood Co. “In these deals, the vendor does fittings, color and fashion direction, which is superior to private label, because retailers — because of where they are located or how they are investing — often lack the creative talent.”
Among some of the key partnerships, L.E.I. went downstream to become exclusive with Wal–Mart last summer, added Norma Kamali in the fall and partnered with Russell Simmons to launch American Classics this spring.
Macy’s took Tommy Hilfiger exclusive for fall 2008, and it quickly became one of the chain’s top-selling apparel brands. The exclusive Martha Stewart brand is Macy’s best home furnishings performer, with positive comps even in the hard-hit housewares market. The exclusive Donald Trump business is doing well in all its categories (Donald Trump cuff links is Macy’s number-one volume cuff link brand), and the introduction of Lush in 40 Macy’s doors is outperforming the retailer’s cosmetics business, Lundgren said. Exclusive or very limited distribution brands make up about 20 percent of Macy’s revenues, with private brands making up another nearly 20 percent.
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