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Moderate: The Squeeze in the Middle

It might not be in the white-hot center of fashion, but moderate apparel is where many vendors pay the rent and consumers stretch their dollars.

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NEW YORK — It might not be in the white-hot center of fashion, but it is where many vendors pay the rent and consumers stretch their dollars.

Moderately priced apparel — often overlooked, but not to be underestimated — is where women on a budget can get their money’s worth and where some of the industry’s most powerful manufacturers keep their cash cows.

Keeping up growth can prove to be a tall hurdle for moderate vendors, though, especially in an economy where a highly promotional atmosphere has squeezed margins and eroded profits.

The ornery economy has helped make the competition even stiffer in the moderate realm. Large, publicly held firms, such as Liz Claiborne Inc., Jones Apparel Group and Kellwood Co., each with a rainbow of brands under their corporate umbrellas, have size and momentum on their side. Competing for the same sales dollars, though, are a scrappy group of smaller vendors elbowing their way into stores.

“All the stores are looking for differentiation from each other so that they are not bumping into someone’s promotional marketing cadence,” said Lynne Fish, president of Jones’ moderate sportswear. “Everyone seems to be getting on the bandwagon.”

The moderate portion of Jones’ business, which includes names such as Gloria Vanderbilt, Evan Picone, Norton McNaughton and LEI, produced sales of $1.1 billion, or just over 25 percent of the firm’s overall revenues last year.

A year ago, noted Fish, the department stores all wanted to be set apart from the national chains. Now, they want to be differentiated from each other, as well. While Jones, along with its large competitors, has the capacity to produce several different lines simultaneously, putting out a handful of brands in the $30 million range is considerably more difficult than one $250 million line.

Increasingly, manufacturers are finding they need to offer different spins on their major lines for different retailers. This differentiation raises operating costs as it forces factories to make more adjustments. The larger firms with many lines are able to better control these costs, but cannot get around the basic fact that it’s less efficient to make several lines or versions of the same line instead of one larger run.

Trudy Sullivan, executive vice president of Claiborne, in an e-mail said the firm’s plans to tweak the offerings of its larger brands for individual retailers “is really an acknowledgement that the individual needs of different accounts can be accommodated even within our ‘megabrands’ by using our sophisticated technology and our customer intimacy to preplan assortments that are tailored to the core strategies of different chains.

“So, although the brand is ubiquitous, the product is diverse,” she noted.

This desire to attract customers with exclusive offerings also has pressured moderate vendors to produce broader lines so retailers can pick and choose more easily. In addition, vendors small and large are butting up against retailers’ efforts to differentiate through their own private label programs.

Helen McCluskey, group president of special markets at Claiborne, which includes brands such as Crazy Horse, Villager and Axcess, said private label programs are a force in the market.

“I don’t underestimate their capabilities at all,” she noted. “They’re doing a fine job and keeping us on our toes on price-value and making sure we continue to innovate.”

As a branded resource, McCluskey said she has to stay ahead of the game and also work with the stores to make sure the branded and private label offerings complement one another. On top of this, she noted, “there continue to be more entries into the moderate arena. There always seems to be new lines popping up.”

Still, McCluskey said, “there’s room for all of us. It is competitive. It is crowded.”

To meet this challenge at Claiborne’s special markets, “we just have to continue to innovate and move forward,” said McCluskey.

Some stores have differentiated their offerings through acquisition, such as Sears, Roebuck & Co., which bought Lands’ End last year.

Meanwhile, the sector looks for signs the moderate customers will start buying with gusto again. While all indications are that she’s been caught in the doldrums, along with other shoppers stymied by the economy, the war in Iraq and unseasonable weather, especially in the Northeast, there’s still been some optimism lately.

J.C. Penney Co.’s department stores, a favorite stop for moderate shoppers, said last week the combination of an improving retail environment, tax rebates and trend-right moderate products bodes well for its back-to-school, fall and the third quarter in general.

Penney’s moderate customer, said chief executive officer Allen Questrom, “is about spending what she gets, and when she has it, she’s going to spend it on her family.”

The company plans to continue balancing basics and fashionable trend-right products with national, private and exclusive brands. Penney’s sold about $1 billion in private label apparel in the second quarter. Private and exclusive brands represent 40 percent of Penney’s sales.

In addition to differentiating offerings, stores hope their private label offerings will help them pick up the margin that would have been the vendor’s.

Retailers, though, also want to have national brands provided by large vendors to drive traffic. So the mix of private label ebbs and flows according to the retailer’s current view of what the right mix is. Over the last couple of years, stores have increased their forays into private label.

One of many challenges stores face with their own programs, along with sourcing and design, is building up an image to accompany their offerings that resonates with the customer.

“A lot of the moderate zone has a higher penetration of [the] store’s own private label and they’ve had mixed results on it this year,” said John Henderson, president of Sag Harbor, which is a part of Kellwood. “As they attempted to execute the more fashionable part of the business, they slipped,” in some cases having trouble with elements such as fit or color.

“The stores greatly underestimate how difficult it is to execute a branded line,” he said. “We have great brand identity. How do you get that? It’s consistency.”

Sag Harbor is working on its branding by extending its licensing program into categories such as watches and handbags.

“Expanding the brand equity in moderate is a relatively new concept and we’re having good results, but it goes back to the one thing you have to have — the right product,” said Henderson.

The fashion content in moderate also has been heating up, in its own way, recently. Last year, the call to arms for the sector was fashion at moderate prices. That drive is refining itself now with suppliers making sure they are providing fashion that the somewhat cautious moderate consumer can understand.

In the not-so-distant past, looks such as the classic blazer with matching pleated pants were synonymous with the zone. Today, moderate can mean much more, though it still isn’t likely to push the fashion envelope too far. For instance, moderate’s fashion pallet has expanded to include looks such as novelty denim, but strays away from racier cuts.

The moderate shopper is looking for something with a little more oomph with more embellishment, said Sameer Ramani, vice president at Contrepoint Industries.

“People want more,” he said. “We have a smarter buyer now. We have smarter shoppers now. Fashion is taking it to another level.”

There are also opportunities to fill some needs in the market.

Jackets, which have been particularly strong at Sag Harbor, are a good example of this. Henderson said the moderate customer “has not been buying jackets for a number of seasons in any depth. There’s a void in her wardrobe.”

Henderson said in both novelty and classic, “our jacket business so far in the last three weeks has been really dynamic,” prompting reorders in three of the four lines Sag Harbor ships.

In addition to understandable fashion, moderate customers, whose frames represent the average American, not supertall and lanky models, need apparel that suits their body type.

Lisa Minardo, owner of Biyaycda (Believe in Yourself and You Can Do Anything), which has volume of roughly $40 million, noted of the moderate customer: “It’s really important that they get fashion that still fits.”

Ken Sitomer, principal at Apparel Holdings Group, which launched the Caribbean Joe moderate brand in 2002, said, “We try to stay one step ahead of the curve. It’s not just basics. If you don’t have the fashion then it’s like everybody else’s.”

Caribbean Joe is now sold through more than 850 misses’ and petite in-store shops throughout the country. The brand’s sales in women’s, which constitute about half of the firm’s volume, have been growing rapidly, from $60 million its first year in women’s to about $125 million this year and up to as much as $225 million next year, should Sitomer’s projections come to bear.

Joel Ratner, head of sales at AGH, owed the success of Caribbean Joe to “the tremendous amount of time spent insuring fit is correct. If a customer puts on a pant once and it doesn’t fit, they’ll never come back.”

On the flip side of the coin, he pointed out, a proper fit can win repeat customers.

While fashion and fit are being sharpened, the moderate zone also is focusing on key items much more this year than last. Key items are expected to turn quickly and often help the rest of a line move through the virtue of their versatility.

Stephen Ruzow, president of women’s wear at Kellwood, from his perch atop of one of the zone’s largest vendors, said, “Key items have found their natural levels.” Despite three years of a “horrible” business climate, Ruzow said he is still able to maintain a strong outlook.

“The emphasis over the past few years has been on the product,” said Ruzow. “We’re seeing the product get better and better. You’re getting a lot for what you’re paying.”

Fashion, fit and the proper balance of key items are important, but it’s by no means enough to live on for a moderate vendor. Consultant Emanuel Weintraub stressed vendors’ need to be complete players.

“The fashion demand never goes away and without creativity in fashion you’re not going to sell product,” he noted. “But fashion by itself does not carry the day, so underlying fashion comes incredible sourcing.”

In addition to style and quality, firms selling to demanding retailers need to be on time with orders and have the nuts and bolts of the supply side worked out.

“I have to have consistent newness on a month-to-month basis to keep stores updated,” stressed Jamie Gorman, president of Only Nine, a $30 million supplier of moderate apparel. “That’s why they come to us because we have different stuff at great prices and provide a lot of newness to the market.”

Only Nine turns its product in three to four weeks, manufacturing solely in Brooklyn. Gorman stressed the importance of being a quick, high-quality and reliable resource for retailers.

“A lot of these big retailers don’t have time for that,” she said. “If you’re not a player, then you can’t do business with some of the bigger guys.”

The pressure is on, especially since retailers are consolidating their moderate resources.

“You have to be in the top five or 10 suppliers,” Gorman said. “It’s difficult for a new company to come in and get on the matrix and get a vendor number.”

Not all of moderate’s new entrants are starting from the bottom, though.

“The moderate zone feels that they need a shot in the arm of something,” said Suzanne Karkus, president of Izod women’s wear, which launches in November. “Izod is exactly that shot in the arm.”

Produced by Kellwood under license from Phillips-Van Heusen, the women’s side of the brand could eventually match the men’s annual take of $500 million, making Izod a $1 billion name.

No doubt there are others who also are looking to be that shot in the arm, but Izod does bring with it what few others can boast: an established brand.

“We embrace the casual lifestyle with an updated look that has…all the cachet of a brand name, yet at a moderate price,” said Karkus. “We are a lifestyle collection that is item driven.”

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