The repercussions of retail consolidation, particularly Federated Department Stores acquisition of May Department Stores, is creating uncertainty going into 2006 for many small and independent innerwear firms.
NEW YORK — The repercussions of retail consolidation, particularly Federated Department Stores acquisition of May Department Stores, is creating uncertainty going into 2006 for many small and independent innerwear firms.
The key concern is among companies that mainly produce private label goods, firms that have innovative merchandise but lack a strong marketing and advertising program and vendors with limited sourcing capabilities.
However, the major companies and big brands that have the financial muscle, slick marketing and a worldwide presence also could be caught in a wait-and-see scenario, industry experts said. The brands and products selected by the new Federated most likely will be the best items that fulfill the needs of what the company will be developing for Macy's signature stores. In addition, while megabrands have strong national exposure, they might represent the same cookie-cutter formula of dozens of others labels.
"This is definitely a wait-and-see period for not only the intimate apparel industry, but other apparel industries, as well," said Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates. "It's really Darwinian and it will be the survival of the fittest."
Many manufacturers who sell to Federated stores, most of which will feature the Macy's template, as well as May divisions such as Lord & Taylor, said they are in a difficult situation. It is especially difficult for suppliers who have dealt with May stores for decades, said vendors who noted that deliveries to those stores will continue through May, although May Co.'s senior management and its buying team will be dissolved in March.
Two big questions will continue to frustrate manufacturers until then: Will their brands and products become part of Federated's monolithic new matrix? How will the decrease of department stores business, compounded by the Sears-Kmart merger, the Bon-Ton-Carson's deal and Saks Inc.'s recent sell-off of its department store unit, affect the apparel industry overall?
A majority of industry experts said they believe one retail segment in particular will most likely profit from a reduced department store presence: specialty stores that provide personalized service, an edited depth of product and a wider breadth of sizes and colors from a select number of labels.
Addressing the impact of consolidation on vendors, Norman Katz, a consultant and a 40-year veteran of the innerwear industry, said: "Everybody is concerned how the Federated deal is going to work out. Some people are really going to get hurt."This will be an extremely challenging time for all department store resources because the total department store business is going to decrease," Katz said. "That's the biggest worry that's keeping executives up all night. This will be a time when every manufacturer will have to analyze and retool their businesses to stay alive."
Mel Knigen, president and chief executive officer of Movie Star Inc., said, "No one is telling us if programs with May Co. will come to an end or will continue. But I think March will be the telling month. I don't think [Federated] is playing a cat-and-mouse game. I really don't think they know yet what is going to happen."
Maintaining vigil over lean inventories will be an integral part of the Federated equation, said Allan Ellinger, a partner at consultancy Marketing Management Group.
"I'm not so sure about post-Christmas blues for manufacturers," Ellinger said. "It's really going to be about inventory in the marketplace, and other mergers like Saks Inc. and Carson's-Bon-Ton. There's a lot of energy, but also a lot of uncertainty because of the consolidation, and the question of Federated's intention to stay with its private label business at the expense of branded business."
Regarding a changing retail climate, Ellinger said: "It's all cyclical. Since 1969, I've seen the industry go from the specialty store business to department stores, when a lot of vendors couldn't have cared less about their specialty stores business. Now consumers are moving back to specialty stores. But this time, it's specialty stores as the brand."
Charles Nesbit, executive vice president and chief operating officer of Chico's, indicated there may be an upside for manufacturers through a burgeoning number of major specialty stores.
"Clearly, specialty retailers continue to evolve and grow with additional stores, and they continue to siphon off department store business," Nesbit said.
Nesbit, a former executive at Sara Lee Branded Apparel, said key players in the intimate apparel specialty store arena include Victoria's Secret, Lane Bryant and its Cacique intimates stores, Gap Body, American Eagle, Abercrombie & Fitch and Soma by Chico's, which will open 20 units next year, totaling 35 lingerie doors.James Mogan, an industry consultant for companies including Gelmart Industries, said, "I feel all of this consolidation will be crushing for some companies, but I really believe there will be opportunities with specialty retailers, catalogues and e-commerce businesses."
Richard Leeds, chairman of Richard Leeds International, said originality and innovation will be the best elements for success next year.
"When it comes to sleepwear, robes and loungewear, store brands are becoming more important," Leeds said. "But you have got to have something a retailer cannot do themselves, like a national brand, a character license or a name for the young contemporary market.
"We are very big in juniors in Wal-Mart, Kmart, Mervyn's, Kohl's, Penny's and Sears, and specialty stores like Fred Segal and Kitson's. Quite frankly, we are not interested in the department store business because we are not interested in their price structure or lack of inventory control management."
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