NEW YORK — Thank goodness for the small firms.
This story first appeared in the June 12, 2002 issue of WWD. Subscribe Today.
Responding to repeated criticism of being too similar and even boring, some of the key department store chains are placing more focus on differentiating their product mix and making room for lesser-known companies. Many of these companies have had to build their businesses in specialty stores because they’ve been kept out of the matrix. This doesn’t mean that breaking into the department store list of approved vendors has become easier, but for mainstream brands whose product attracts the attention of buyers, the challenge of getting into a major chain such as Lord & Taylor or one of the Saks Inc. divisions has become more achievable.
“Department stores are looking to differentiate a portion of their selling floor, and they are looking for resources that are doing product that is different than their regular vendor mix,” said Kathy Bradley-Riley, merchandise manager for sportswear at The Doneger Group, the large New York-based buying office, adding that retailers are looking to increase their open-to-buy and floor space for these newcomers.
“At all levels, they are evaluating their vendors and making sure everybody is being productive. Retailers and vendors have to take more risks.”
Lord & Taylor is a leading example of a store that’s trying to reinvent itself and stand apart from its competition. Jane Elfers, chairman and chief executive, said the 175-year-old L&T is on a four-year repositioning plan to go back to its specialty store roots.
“Really the two key words are edit and focus,” Elfers said.
She joined the 86-unit store as a buyer in 1989, rising to district merchandise manager, general merchandise manager and executive vice president before her most recent promotion in June 2000.
“We are editing and focusing our assortments to what the customer needs and we are much more focused on product,” Elfers said.
A key component of this strategy is to search for new vendors with limited distribution that are more specialty store driven, said Elfers, adding that private label is another major push at the store.
“We certainly have a list of vendors that we always buy from, but the limited-distribution vendors have become a much bigger percentage [of the pie],” she said. “We’re really open to look at everyone. We want to find the best merchandise for our customers, and that involves looking at all opportunities. The buyers are really going into the market and being the agent for our customers.”
The Saks Inc. stores have also put a strong focus on product differentiation since George Jones took the helm about a year ago, and Bloomingdale’s executive vice president of ready-to-wear, Frank Doroff, said the store also is placing more of an emphasis on finding new resources.
“I’m not trying to discount all the people we’ve done business with, but business has changed,” said Doroff, saying the full effect of this new buying philosophy should be realized soon.
Another agent for change has been the emergence of chains such as Zara and Hennes & Mauritz, which offer runway looks at better and moderate prices, causing department stores to reevaluate their merchandising strategies.
Vendors that can provide quick turns and strong sell-throughs are needed, said Steven Feinstein, principal at Vision Apparel. The company owns eci, a one-year-old better label that recently started selling to Federated, Dillard’s, Proffit’s and Nordstrom. Feinstein estimated that for the first six months of shipping, the line should do about $10 million at wholesale.
“The reality is there’s not a lot of difference between what’s selling for $3,000 and what’s selling for $20 today,” said Feinstein. “Today, it’s all about who’s got the best product at the best value. Every department store was starting to look the same, so they wanted to use these [newer and smaller] brands to attract customers to something other than the big brands.”
The difficult retail environment of the past year or so has also made retailers look at new ways to stimulate sales, said Alan Madoff, executive vice president of the five-year-old moderate firm Versaille Ltd.
“All that matters is the bottom line and if they repeatedly have low gross margins, then the buyers have to look elsewhere,” he said, adding that for spring, Versaille broke into The Bon Marche, Burdines and Proffitt’s.
This increased exposure has led sales to double last year to $30 million.
“Years ago, it was relationships, and it’s not that way anymore,” Madoff said.
Today, breaking into department stores can happen surprisingly fast for some vendors. Take the label Ninety, which in the past year has gotten orders from Federated and Saks Inc. chains. Its established relationships with Nordstrom, Bealls and Parisian likely helped attract their attention.
Still, Jamie Gorman, vice president of sales for the moderate-priced label, said she has never seen such quick action from retailers.
“It’s because we had the right product — a younger look, different prints and quick turns,” Gorman said of Ninety, which originated 13 years ago as a suit manufacturer only to be reincarnated about five years ago, with business just taking off recently.
The company’s volume is expected to reach about $25 million this year, doubling from last year.
“I’ve been in business for a long time and I’ve never seen [store buyers] act as fast as they did,” Gorman said.
Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates, a management consulting firm, said: “It’s basically a survival of the fittest and the new buzz word is newness. Among the sea of mediocrity, stores have to find a way to create an edge, a differentiating edge, and it’s very hard to find that edge with all these mega-resources who distribute to everybody. Whether it’s a new style, new label or new silhouette, they’re really pushing the envelope to get there.”
Still, with all the red tape and logistical systems, it might be easier said than done for stores to obtain these newer, less-capitalized firms, Aronson said.
“But the action starts with product and if [stores] don’t have the right product with the right edge, they are going to sink further back,” he said. “And their competition is not just with other department stores, it’s with Target, Abercrombie [& Fitch], Zara, H&M — all of them.”
“Eliminating redundancies” is how George Jones, president of Saks Inc., the umbrella company over Carson Pirie Scott & Co., Proffitt’s, McRae’s, Parisian, Herberger’s, Bergner’s and Boston Store, refers to his strategy of product differentiation — something he has placed intense focus on since joining the Saks group.
“We want our buyers to look at the sales floor through the eyes of a customer — what makes sense, what is duplication. Merchants should plan their assortments from that point of view by culling redundant performers and poor performers,” said Jones, adding that this strategy doesn’t necessarily mean eliminating core resources. “Some core vendors may lose some items or programs, but they may also benefit…because the pie will not be cut into as many pieces.”
So focused on bringing renewed zest to its selling floors, Jones said the company has allocated a “significant” amount of open-to-buy specifically toward developing new resources — even more enticing are vendors with limited distribution who have not sold to department stores before. Saks Inc. still has a “vendor matrix,” which Jones said has flexibility.
Jones is also intent on building the stores’ private label business, which accounts for about 11 percent of its current mix, to about 15 to 20 percent over the next three years. About 17 percent of sales last year came from “differentiated” product, and the company hopes to grow that amount to 22 percent this year — including private label.
“Our stores have been overassorted and too crowded,” he said. “We’re trying to create an environment for these specialty store vendors. You find some of them and they say they don’t sell to department stores, so we’re trying to bridge those gaps and be sensitive to their concerns. There has to be a balance between fresh, new product and maintaining important relationships with large key resources.”
For a long time, however, it seemed department stores were only interested in the large key vendors, perhaps because they were the only companies who could afford the financial demands placed upon them, said Steven Sall, president of Republic Clothing, which produces sportswear under the better-priced Grace label, and Sandra King, sitting at opening-better prices.
“For many stores, their old method isn’t working anymore and they’re looking for something different,” said Sall, whose seven-year-old business just entered department stores within the last two years, first with Parisian, followed by Nordstrom, Dillard’s and Macy’s East.
The company’s volume, which also includes private label, is about $80 million, up 15 percent from last year.
“Stores are more open to buying new product because they have to attract a new customer base,” Sall said.
There is no vendor matrix at Nordstrom, and the lack of one allows buyers to consistently look for new vendors and the next “hot little resource,” said Monica Ward, vice president of corporate merchandising for bridge apparel.
“We do have logistics and compliances that vendors have to follow, but we also have a service desk that can help a small vendor — there are a lot of options,” Ward said. “We try to run the store as a collection of small boutiques and we pride ourselves on having a small-store mentality.”
While the matrix approach has become more flexible at many chains, vendors said the giants, such as Federated Department Stores and May Co. divisions other than L&T, still maintain tight controls over what vendors get into its stores and what level of performance and support is expected in return for those that do.
Andy Jassin, partner of the Jassin-O’Rourke group, a retail consulting firm, said the financial challenges stemming from markdown and chargeback issues are probably too overwhelming for new, up-and-coming vendors to withstand.
“Not only are you fighting with the competition in department stores, you’re fighting with private label and with space,” Jassin said. “Are you getting positioned properly — in the front or back — those issues become important.”
Overall, Jassin said it remains difficult, but not impossible, to tap into the buying matrix as some buyers spend more time acting as financial analysts than merchandising experts.
“Selling to department stores might not be the best thing, but it does afford the luxury of bigger orders and bigger distribution — that’s the seduction,” he said, adding that smaller vendors should also keep in mind they are expected to comply with technical and logistical requirements to communicate with retailers’ sophisticated computer systems.
But with business being so tough, it’s hard to say no to retailers knocking on the door, said Tracy Geller, director of marketing and public relations at Lynn Ritchie, a 12-year-old better sportswear firm that broke into Nordstrom, Parisian and Bloomingdale’s for spring.
“We saw a big interest this spring from department stores,” said Geller, adding that the firm did about $8.5 million last year and will perform above that this year. “We weren’t going after department store business, but they are seeking out new vendors that are capable of delivering them product and quality. And we are fully equipped to handle EDI [electronic data interchange], as well as all the computer systems they are using.”
After 13 years of selling to specialty stores and mass merchants, Gary Bennett, executive vice president of Milano Manhattan, a moderate sportswear line, just got orders with certain divisions of Saks Inc., as well as Boscov’s.
“Department stores remain hard to tap into until you have the right item and you’re exposed to the right channels,” Bennett said. “If they feel the product fills a void, then maybe there’s an interest. But we don’t want it to consume our business because you have to maintain a profit margin, so you wind up making less money with them.”
Regardless of how alluring selling to the big name stores might be, Angie Seldon, North American managing partner for Accenture, a consultant to department and specialty stores, said vendors must first clearly understand which customer the department store is catering to and how the store is trying to differentiate its business.
“If that’s not consistent, then it’s not a good place for the vendor to put their line even when business is difficult,” Seldon said. “Vendors have a finite amount of financial resources to make their product line successful and if they spread their opportunities too thinly, none of them will yield the appropriate results. The question vendors need to answer is `where can I be most successful,’ and try and build those relationships into the most successful venues.””