The interior of American Rag Cie’s World Denim Bar

American Rag Cie is evolving from specialty retailer to manufacturer.

To boost profit margins in a competitive retail market, the Los Angeles-based company is moving to produce clothes under two new private label brands. With 321, it’s offering basic knits that are thin and light enough to be easily layered, often in solid colors. For Fadeless, it’s veering toward pieces that can pair with jeans, like $295 men’s distressed blue denim jackets and $235 women’s zipped leather high-top sneakers. With T-shirts starting at $45 at retail, the emphasis is on affordable pricing for the contemporary shopper.

“That’s what the market is asking for right now,” said American Rag co-owner Mark Werts. Indeed, the trend for private labels is washing over many corners of the fashion and beauty business.

Of stratifying the styles between the two labels, which hit stores this month, he noted, “There are no fast rules.” What is clear, he said, is the drastic change in the way that stores sell their wares and consumers shop for them.

“Basically, vertical brands are becoming more and more important in the retail landscape these days,” he said. “You can create things for your specific clientele. Another reason is that vertical brands tend to have more margin. And since landlords are not getting any less greedy and maybe getting more greedy, we have to find products that have a little more margin to them. The third one is, it’s a reflection of your vibe, how you see the world.”

The strategy also allows American Rag to stock its growing network of 14 stores in Asia. In addition to units in Japan, Thailand and Indonesia, it opened one in Shanghai last month. Werts said the China business is already scouting locations for the second store in Shanghai, and Beijing, Shenzhen and Hong Kong are next on the list. Stateside, it operates its flagship on Los Angeles’ La Brea Avenue, another shop in Fashion Island in Newport Beach, Calif., and its e-commerce site.

Designed with a value proposition for shoppers, both 321 and Fadeless have the majority of the products made in Los Angeles. It’s also using Japanese manufacturers that have set up factories in China. “It’s about style, [more] than where it’s made,” Werts said. “Our customer is worldly so he doesn’t care where it’s made.”