By  on April 30, 2008

It's survival of the fittest in the better department, which has seen the exit of Nautica, O Oscar and Sigrid Olsen so far this year.

Better sportswear vendors are facing a perfect storm of the economic downturn, retail consolidation and pressure from new entrants. Then there's the customer, typically a middle-income mother, who may be trading down — or foregoing buying herself clothes entirely — to cope with rising gas and food prices.

Mainstay brands like Liz Claiborne and Jones New York are expected to come under increasing pressure, both from exclusive brands with department stores like Tommy Hilfiger, to which Macy's is promising to give prime real estate, and new arrivals such as a DKNY diffusion line and relaunches of Adrienne Vittadini and Rafaella.

Better stalwart Liz Claiborne's big relaunch under Isaac Mizrahi isn't until spring 2009, but Liz Claiborne Inc. does not view 2008 as a throwaway year for the $900 million better Liz Claiborne brand — even as it is "strategically reducing some distribution," according to Dave McTague, executive vice president of partnered brands for Liz Claiborne Inc.

"The issue is the performance in general in missy and in department stores," McTague said. "Traffic is difficult, and generally the first trigger retailers will use is promotions to drive traffic. If you only get people in with promotions, it's difficult to drive revenues."

Liz Claiborne and fellow better mainstay Jones New York are investing in grassroots marketing efforts to drive traffic to store floors. Liz Claiborne chief creative officer Tim Gunn is hosting in-store fashion shows for the Claiborne brand on a monthly basis, and Lloyd Boston is doing the same for Jones New York. Jones Apparel Group Inc. has also enlisted Nina Garcia to do in-store fashion shows for Anne Klein (Jones had no comment on how Garcia's up-in-the-air status at Elle will affect the partnership). Jones has maintained its investment in Jones New York and Nine West, but upped marketing spending for AK Anne Klein.

Wesley R. Card, chief executive officer of Jones Apparel Group, said orders and real estate for Anne Klein were flat for fall, though he noted Jones New York Signature picked up some casual space, and the company is redesigning the AK Anne Klein shop-in-shops."There's no question retailers are buying conservatively for fall and will order conservatively until they start to see something picking up," Card said. "The fall line for Jones New York Collection in a different climate would have done great."

Lavelle Olexa, Lord & Taylor's senior vice president of advertising, sales promotion and public relations, said her better floors are considerably more edited, with reduced inventory, but sales of the product on the floors are trending well. She highlighted the Michael Kors diffusion line as a standout, and J. McLaughlin as a new introduction.

The survivors on the better floor appear to be the more updated designer diffusion lines, like Michael Michael Kors and Kenneth Cole. Michael Michael Kors is growing 45 percent this year, with 25 percent real estate growth in accounts like Lord & Taylor, Macy's, Nordstrom and Dillard's, according to John Idol, Michael Kors ceo.

"The Michael Michael Kors better business is one of the company's strongest-performing segments," Idol said. "Overall, the nation's economy has proven difficult but, given that, we have experienced growth of 45 percent against last year. That proves that, if the product is desirable, the customer will buy regardless of the economic situation."

Kenneth Cole's better women's sportswear is gaining space in its approximately 300 doors. For fall, the label is changing from Kenneth Cole Reaction to a Kenneth Cole New York cream label, differentiated from the higher-priced Kenneth Cole New York black label carried exclusively in the company's own retail doors.

"We've just stopped designing for everyone," said Doug Jakubowski, Kenneth Cole New York president of apparel and retail corporate relations. "Sometimes brands have gotten so big they no longer feel true to their original DNA and they have become confusing to the customer. We've spent a lot of time finding our customer and trying to stay true to the Kenneth Cole style, as opposed to the trends. The key is great product and dressing her in a more modern way at the office — the world is not the way it used to be with women wearing black suits and white shirts to work."

Polo Ralph Lauren Corp. declined to comment about how its Lauren by Ralph Lauren line is doing but, according to its 2007 annual report, it's "the number-one brand in its category and continues to have strong retail sell-throughs," plus Lauren saw sales gains last year.Calvin Klein's better line is not faring as well. The diffusion line continues to be the worst-performing Calvin Klein license, according to Calvin Klein parent Phillips-Van Heusen Corp., and both PVH and licensee Kellwood Co.'s new parent company, Sun Capital Partners Inc., are said to be disappointed in its performance.

For Rafaella, which is relaunching for fall under a new "Form + Function" banner, the line hopes to grow in its 30 top doors, of the approximately 1,100 department stores it sells in, with shop-in-shops of 600 to 1,500 square feet. "Had we not done it, I don't know where we would be — we needed to be on the offensive," said Christa Michalaros, ceo of Rafaella. "The customer is not in the stores shopping as much or parting with her money as much as she has in the past, but where she doesn't have a trend in her wardrobe and it's compelling and new enough, she's willing to spend."

The key to sales in the better department is color and newness, according to vendors. Yellow and green are big for spring, and purple and green are expected to be strong for fall. Prints are also important. The customer is walking away from basics and toward items not already in her wardrobe, such as jackets in the new boxy or cocoon shapes, novelty knitwear and wide-leg pants. She also wants multifunctional pieces that she can wear to work, out at night and casually on the weekend.

"We have to push the envelope and give her more fashion product," said Michael Warner, president of Republic Clothing Group.

Warner said Republic Clothing's better portfolio, which includes Chelsea and Theodore, is seeing a 17 percent sales increase in 2008. Republic also holds the license for the relaunched Adrienne Vittadini line, which projects it will do $30 million in wholesale volume in its first season, during which it will be carried in 400 doors, including Lord & Taylor, Dillard's and Macy's.

These new lines are taking over space from collections that closed: Sigrid Olsen stopped shipping after holiday, O Oscar finishes this spring, and Nautica's last delivery is for summer — signs of the ills in the category, according to sources.While VF Corp. has found success in women's apparel across almost every channel — from mass to midtier to contemporary to outdoor — it found such trouble in women's better that it shuttered Nautica's women's wholesale business less than two years after relaunching it.

"I think the traditional department store kind of better sportswear lines are really, really struggling, and that's where I think you've seen some of the other companies really struggle," said Eric Wiseman, VF's president and ceo, on its first-quarter earnings call last week. "We struggled to get a foothold in that space while we launched the Nautica women's initiative into what probably couldn't have been worse timing in that space in the department store pad."

There are also simply fewer department store doors selling better product. Most stores either went higher-end, like Saks Fifth Avenue, or lower-end, like J.C. Penney, and retail consolidation has left Macy's as one of the few accounts still in better — and even that retailer is reducing total door count.

"With so few department stores to sell a better line to today, it's hard to create enough critical mass for a company like VF to justify being in the business," said Allan Ellinger, senior managing partner at Marketing Management Group. "People are coming to the conclusion that selling branded product in the department store channel is a challenge and may not be worth it, particularly with the economy like it is."

Even before the economy tanked, business was slow in the better department. Many of the traditional better brands didn't change fast enough with the times, executives observed, still offering coordinated collections instead of separates.

"In better, the situation is dire," said Catherine Sadler, president of the New York marketing firm Catherine Sadler Group. "Not only can she not find what she wants, she's more hesitant than ever to buy, translating to staggeringly slow traffic and inevitably steep markdowns. Classic brands are particularly suffering, as the hesitant consumer wants something fresh and exciting if she is going to spend at all."

The same woes seen on better floors in department stores are evidenced in their specialty retail counterparts, like traditional better resources like Talbots, Chico's and Ann Taylor.The question is whether this woman has stopped shopping, faced with tightening the family budget, or whether she has transferred her apparel budget elsewhere?

One possibility is she's shifting her apparel spending to less expensive and more casual active apparel, an increasingly acceptable substitute for sportswear. According to a 2006 survey by Lucy, which VF Corp. bought last year, two-thirds of American women dedicate at least half of their closets to activewear. Brands like Lucy, Lululemon, Nike and Adidas all seem to be soaring despite the economic downturn, and it's possible women are choosing to buy a pair of yoga pants — which can be washed, instead of dry-cleaned, and which are less expensive than better sportswear — instead of dress pants.

"When gas goes to $4 and you have to pay more for food, it affects everyone, and this woman is being more selective," said Andrea Goldreyer, better market analyst for The Doneger Group, the fashion merchandising consulting firm. "Business is challenging, and everyone is all about inventory control. Overall, the more modern zone is gaining space because that's what the customer is reacting to. It's a significant movement, but even our more classic resources are updating with more sophistication and color."

Better dress resource Donna Morgan is seeing its sales maintained at around $35 million, even as sell-throughs slip by up to 50 percent and the line is slightly reducing its door count to around 1,000.

"There are no consumers in the stores," said Kathleen McFeeters, ceo and president of Donna Morgan. "For fall, retailers are being very cautious, trying to figure out where is the breaking point for the customer between gas prices and the recession."

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