By  on October 17, 2006

New York — What a difference a decade makes.

Apparel manufacturing giants Liz Claiborne Inc., Jones Apparel Group and Kellwood Co. were riding high in the Nineties as consumers demanded the moderate brands they pedaled and shopped the department store floors they dominated. But today's challenging retail environment is about more than the department store, and the three companies are rushing to adapt to the new landscape.

Perhaps they should take a page from VF Corp., another of the industry's manufacturing giants. Over the last 10 years, the group has shed its reputation as a conservative, domestically focused manufacturer of commodity products, such as denim and intimates, to become the largest apparel company in the U.S., with sales of $6.5 billion a year. It has done so by acquiring and growing a portfolio of lifestyle brands that exist outside the department store channel and have global distribution.

Several industry changes have shaken the formula Kellwood, Jones and Claiborne had perfected, among them:

  • Retail consolidation: The number of department stores — the primary channel of distribution for their brands — has shrunk drastically, not only reducing the number of retail clients, but also empowering retailers with more buying clout.

  • Private label: Their biggest customers now double as their primary competitors, as stores develop more in-house or exclusive lines, from INC and O by Oscar de la Renta at Federated Department Stores Inc. to Vera Wang at Kohl's. Retailers demand only what they can't make for themselves: destination brands. "To be a profitable business you have to do something for your retail customer that they can't do for themselves," said Emanuel Weintraub, of the consulting firm that bears his name. "What is it that moderate can do for the retailer that they can't do for themselves? The answer is increasingly less and less."
  • Cross-shopping: Department store customers — particularly moderate consumers — have replaced the one-stop department store with comparison shopping at the Wal-Marts, Targets and H&Ms of the world. And while Wal-Mart and Target want brands, most of their apparel is dominated by their own labels — from Metro 7 at Wal-Mart to Isaac Mizrahi at Target. While Metro 7 is sourced from Pacific Alliance, increasingly these mass market behemoths are sourcing themselves rather than through a third party.

And it's not that Jones, Kellwood and Claiborne haven't tried to diversify their portfolios. They've snapped up brands in the belief that if one segment is having a rough time, another will be hot and make up for the shortfall.But analysts worry the three firms have done too little too late. Across the pond, European giants with multibrand portfolios, like LVMH Moët Hennessy Louis Vuitton and Gucci Group, have fared better than their American counterparts. Why? Luxury is soaring while moderate is holding on for dear life. Domestic flagship labels, such as Liz Claiborne, Jones New York and Sag Harbor, plus a roster of lower-profile moderate lines, are aimed at a market that continues to lose ground.

Analysts suggest strategies to survive in today's challenging environment:

  • Invest in destination brands: Trade moderate brands for ones with a personality and a following that differentiate them from private label offerings, allowing for increased margins. Although some of the companies have acquired such labels, in many cases, they have failed to market them aggressively enough.

  • Find alternative channels: As department store demand tapers, find new buyers, whether specialty stores, e-commerce or a label's own store. VF, for instance, has cultivated alternative avenues of distribution with its The North Face, Vans and Kipling lines.

There is hope. These are multibillion-dollar companies that have survived decades of market ups and downs, and their size uniquely positions them to capitalize on buying power and back office operations.

But perhaps their very size and diversity makes it difficult for these companies to adjust to marketplace changes, suggested Eric Beder, an analyst with Brean Murray, Carret & Co. "The question is, what is the reason for them?" he said. "At the end of the day, if you could sell it to a private equity firm, there is probably more value to these publicly held companies if they were split, so the brands could revitalize themselves if they were stand-alone brands that could be more agile. Are these [megabranded] companies better off dead than alive?"

Here, a look at the strategies the four apparel industry giants are taking to succeed in a difficult marketplace.

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