STORES SEEK NEXT STEP FOR STATUS
Byline: Scott Malone
NEW YORK — Department stores over the past year have moved to take greater control of their floor space, pruning back the number of hard-concept shops that vendors use to push their own brand images.
This has left observers to suggest that stagnating sales of status-brand merchandise across many categories was to blame. However, some new numbers don’t back up that argument.
According to data recently released by The NPD Group, sales of designer merchandise, including the likes of Tommy Hilfiger, Polo Ralph Lauren and Calvin Klein, actually rose as a percentage of traditional department stores’ women’s wear sales in 2000, coming out to $1.64 billion at retail, or 8.9 percent of department stores’ total women’s apparel sales. That’s up from $1.31 billion, 7.3 percent of the total, in 1999.
Over the same time period, sales of private label merchandise actually declined as a percentage of overall sales. House-brand sales represented 11.5 percent of department stores’ women’s sales in 2000, compared to 11.9 percent a year earlier. Still, with retail volume of $2.11 billion, private label merchandise still represented a bigger chunk of overall sales than did designer merchandise.
In the year ahead, the growth of private label sales may well outpace that of status brands, as store executives are increasingly turning more of their attention — and dedicating more of their floor space — to their own sportswear lines. Numerous factors are driving this shift, among them being: recent stumbles by some of the status brands, greater control of margins and the fact that merchants feel they sometimes react more quickly to changing tastes than do their vendors.
Some retail executives contend that increasing their emphasis on private label goods doesn’t have to mean taking floor space, or market share, from the status brands. But not everyone agrees on that point.
“One and one adds up to two. The box is not getting bigger, and in terms of how they divide up their space, they are needing to reallocate,” said Arnold Aronson, managing director for retail strategies at Kurt Salmon Associates.
He said that department stores may well be wise to step up their private label efforts.
“There is no question that some major department stores have had big success stories with major private labels, like Federated with INC and Alfani,” Aronson said.
Still, he pointed out, department stores are in no position to abandon the status business, which has been a major part of their consumer drawing power for decades.
“We shouldn’t talk about absolutes,” he continued. “It’s a good move to show a sense of judgement and flexibility about it. It would be a bad move to undermine the whole relationship that department stores have developed with designer brands because that has been a huge hallmark of their success.”
Rather than walking away from the whole idea of status brands, a number of retailers said they’re looking to work more with less widely distributed labels that don’t face as direct competition with other department stores.
There’s a fair amount of such brands waiting in the wings at various price points.
The NPD Fashionworld Consumer study said that 52.9 percent of the $18.32 billion in women’s apparel that traditional department stores sold in 2000 was in national brands, including such players as Levi Strauss & Co. and Fruit of the Loom. That’s a $9.69 billion chunk of business and it was up as a percentage of overall sales since 1999, when it represented 51.7 percent of total women’s sales.
The survey also includes an “other” category, which was responsible for 26.7 percent of department stores’ women’s apparel sales, or $4.89 billion at retail.
Together, the national and other brands represent more than 75 percent of department stores’ women’s apparel sales — and some merchants see that as a ripe territory for developing sportswear departments that don’t mirror those of their competitors.
“What a lot of the status brands are coping with is that they’ve kind of reached the limits of where department store growth is going to take them,” said Conrad Szymanski, president of the 72-unit Beall’s Department Stores chain, based in Bradenton, Fla. “Some of them are developing lines for mass merchants and it has diverted a little design attention and resources away from the department store brands. As a result, their department store business has suffered.”
Disaffection with the status business has driven Beall’s to beef up its emphasis on moderate sportswear, Szymanski added, which has been showing a better gross margin return on investment lately.
“We drive a lot of these decisions based on GMROI analysis from prior seasons,” Szymanski said. “We generally will tolerate a little lower GMROI from status brands, but there are limits to our tolerance. Lately, we have had some sluggish performances.”
Szymanski declined to comment on what brands had been underperforming Beall’s expectations. However, he said, it’s been relatively easy for the chain to play down traditional status brands and beef up its moderate assortment because Beall’s stores never really bought into the rigid concept-shop strategy.
“We don’t have many hard shops, so we don’t have a formal space-adjustment process,” he said. “We generally allocate inventory between status and moderate and we have swung a little space back to moderate from status.”
The rigid concept shops that proliferated in the Nineties have proven to be something of a problem for many chains. Over the past two years, some department stores have worked to cut back the amount of floor space given over to vendor shops, which are decorated with the brand’s fixtures and signs, and sometimes painted and staffed by the vendor, complaining that the retailers’ own image was getting lost in the clutter.
In addition to the stores’ desire to maintain their own identity, some sources have acknowledged that hard shops become a particular problem when a brand falls on hard times and it tries to use the investment it has made in decorating the shop as a bargaining chip in space negotiations.
While Beall’s has beefed up its moderate department, it has also integrated new brands from outside the traditional department store channel into its status areas, including the outerwear and activewear lines Columbia Sportswear and Royal Robbins.
“Those are nice developing businesses for us,” Szymanski said. “They are in status price points, but aren’t the traditional status brands.”
Szymanski said there’s a clear advantage to stepping up his chain’s reliance on brands that aren’t universally stocked by department stores.
“The business doesn’t end up being as promotional,” he said. “These are young and emerging brands, which are giving their full-fledged design talent to what they’re doing.”
At Macy’s East, executive vice president and general merchandise manager Robert Jezowski, who now oversees all women’s fashion apparel for the New York-based chain, said his buyers are keeping a close eye on how their brands perform and allocating space accordingly.
“We have to be very intelligent in how we space vendors and that is always going to be a moving target,” he said.
“You look at it often. I don’t know if it’s monthly, but you do have to re-evaluate when new vendors come in and assess their potential,” he said. “Space is dictated by dollars-per-square-foot performance, both in sales and margins. It’s not just current business, but potential.
“We look at where we think the businesses are headed and try to be as equitable as possible with our best-performing resources without taking away from a vendor who’s having a difficult time, where we see potential for improvement,” Jezowski added.
While picking up a new line or increasing the floor space given to an existing vendor generally means taking away real estate from someone else, Jezowski contended that at Macy’s, space allocation isn’t always a zero-sum game.
“We’ve been able to gain some space in stores,” he said. “When we renovate, we’ve been able to gain some real estate as a whole and sometimes for apparel from home. We have a major opportunity in rebuilding women’s floors, which are generally a very under-spaced area.”
Macy’s East has added a few new status brands to its mix of late, he said, including Kenneth Cole Reaction, Anne Klein II and DKNY City, which has kept its status department turning in strong results, he noted.
He added that the status segment has been helped by the recent turnaround in the retail performance of the Tommy Hilfiger and Tommy Jeans lines, which have been redesigned to reflect the preppie style that is the brand’s heritage.
“Tommy’s performance has definitely turned around, both in misses’ and juniors,” Jezowski continued. “They let their eye off the ball and they went a little too far. But they are returning to who their real customer is and that is why they will be back to being successful.”
DKNY and XOXO have also performed well lately in the status area, he added, as has Guess, despite that brand’s troubles over the last six months at its own retail stores.
However, as Macy’s East tweaks its allocations of space among status vendors, the chain is definitely pumping up its emphasis on private label merchandise, he acknowledged.
“One of our best successes is private label,” Jezowski said. “INC has been unbelievable this month, with its black-and-white graphic prints. We’re doubling last year’s sell-throughs.”
Jezowski contended that the strong performance of Macy’s house brands, which also includes Alfani, hasn’t had a negative affect on the sales of its outside vendors, although he offered no details on what effect the space allocated to private label brands has on the amount of space available for outside brands.
“We’re gaining some business here,” he said. “INC can be more productive on its real estate, and it does have good real estate.”
The Proffitt’s and McRae’s division of Saks Inc. is also beefing up its private label assortment, said Toni Browning, president and ceo.
“We continue to be exceptionally pleased with our private brands,” she said. “We’ve hit on the right silhouettes and fabrics and we’re driving those very heavily.”
She said the Alcoa, Tenn.-based chain is increasing the amount of space it allocates to its private brands, which include Pursuits, Studio Works and Relativity, particularly for large-sized clothing.
Browning said she believed that retailers were quicker than vendors to pick up on the opportunity that large-sized clothing presented, which has made that a key area for private labels.
“We are very pleased with the large-sized business,” she said. “We’ve been focused on key items and the customer, and it has done well. There’s an unlimited opportunity. The branded guys have responded well for us, as well.”
Jezowski also said large-sized clothing has been a hit for Macy’s private label.
“The opportunity on the special-size segment of those businesses is unbelievable,” he said.
While she was enthusiastic about the prospects for Proffitt’s and McRae’s private labels, she also noted that Tommy Hilfiger’s sportswear sales have picked up this spring.
But she was also touting non-traditional status brands, citing Susan Bristol and Marisa Christina, as strong performers.
Out in San Francisco, Macy’s West has allocated “approximately” the same amount of space to its status brands as it did last year, according to Ruth Hartman, vice president and divisional merchandise manager.
She said that the retailer has planned its status assortment “conservatively,” and that sales of status-brand merchandise are experiencing single-digit percentage gains in comparison to last year.
She also cited the turnaround in Hilfiger’s sportswear business, noting that the brand is “performing better at regular price than [last year].”
“Their focused assortments and clean silhouettes, as well as key items, should help drive the business,” Hartman said.
In addition, she pointed out that Macy’s West has also stepped up its emphasis on private label merchandise, expanding space allocations “across the board” for its house brands.