GETTING BEYOND THE HIGH-LOW GAME
Byline: Thomas J. Ryan
NEW YORK — The jeans business continues to run contrary to the conventions of apparel retailing, coexisting in various channels of distribution.
Denim is that rare category in which the same brand often can be found at a department store, in the mall at a specialty store and at a third spot down the street at an independent shop. Dealing with the inherent conflicts in selling to all these competitors is the daily toil of jeans suppliers. However, most have found sound reasons for selling to all of them, but not without a fair amount of stress involved in the process.
Suppliers face two headaches — sometimes simultaneously. First is the long-standing problem of what to do when one store discounts jeans and a nearby competitor either meets that price, at the expense of markup, or fails to do so, at the cost of a competitive edge.
Second, the mere presence of a jeans brand in a nearby store can spark problems, from local duels between independent stores to national feuds between department store chains.
The competition gets particularly vexing when specialty stores find themselves in competition with department stores.
“The big problem with the two is that department stores have this high-low pricing vehicle and specialty stores prefer to stay at the higher price all the time,” said Dick Gilbert, president and chief executive at Mudd, based in New York. “The big game is keeping everybody happy and I haven’t got the answers.”
Clearly, the point of selling to everybody — except pure discounters like Wal-Mart and Kmart, which increasingly have exclusive vendor brands or store brands — is building volume. That’s the main reason brands, even those with specialty-store roots, start shipping to department stores.
But denim suppliers must accept the less enticing aspects of selling to department stores, such as a less-than-stimulating selling environment, as well as chargebacks resulting from markdown allowances or shipping mistakes.
“That’s how you do the volume, you have to embrace them,” said Lisa Engelman, national sales manager at Los Angeles-based Paris Blues.
The chore of denim makers is striking the right balance between growing volume and maintaining a brand’s cachet.
Gilbert believes that reaching the status of a “great brand” requires selling across all “legitimate” channels — moderate chains such as J.C. Penney, Kohl’s and Sears; traditional ones such as Federated Department Stores and May Co., and specialty chains like Gadzooks and Wet Seal.
“If you want to grow a big business, you need them all,” Gilbert stressed. “To me, they all have different types of panache.”
He said the need to sell across different retail channels is partly due to consolidation over the last two decades.
“There used to be so many more specialty stores and department stores, but with all the consolidations and bankruptcies, there’s just not as many customers out there,” said Gilbert.
Like many others, Engelman prefers to sell to specialty chains.
“It’s a little more fun because they’re more open to edgier styling and more open to spending more money on a garment because they aren’t playing the high-low game like department stores,” said Engelman, adding that specialty chains are best for feedback and product testing.
Moreover, specialty chains, particularly the inner-city independents, add legitimacy to a brand and many lines are intentionally launched there to generate a buzz. Even brands like Hilfiger, DKNY and Nautica seem intent on building a credible presence at key specialty shops for marketing reasons.
Ron Gelfuso, executive vice president at Mavi America Sportswear U.S., based here, said Mavi launched in the U.S. five years ago by focusing on a few “premier” denim stores such as Villains in San Francisco, JMR Chalk Garden in Salt Lake City, E Street Denim in Chicago and National Jeans in the suburbs of New York.
“These people are truly in the blue jeans business,” said Gelfuso. “They make you or break you and determine the legitimacy of the brand.”
Mavi has since expanded to Nordstrom, Bloomingdale’s, Jacobsons, Von Maur and The Buckle, but Gelfuso said the firm is careful to make sure the brand is “housed properly” and remains aimed at the hip Generation Y female.
“People get greedy and they want to sell to everybody, but I think the channels of distribution are very quietly and separately defined,” he said.
Gelfuso said Mavi avoids some conflicts by making sure the brand is sold at places that only focus on selling at suggested retail prices.
“They don’t promote and if that’s going to be the situation, it’s not going to be one we’re going to,” said Gelfuso. “That gives us an even balance on our distribution. We’re very meticulous about that.”
Silver Jeans has long been growing through independent specialty chains, and only over the last two years has spread to chains such as Nordstrom, Buckle and Vanity, and more recently to department stores like Macy’s.
Michael Silver, president, said the Winnipeg, Manitoba-based firm parlayed its success at the independents to make it to the department store level, but he believes Silver has to remain entrenched at the independents.
“The independents give the most feedback the quickest,” said Silver. “The staff knows their customer and they know nuances from product to product. My roots are in specialty independents and specialty chains. I can’t exist without them because the fashion aspect of my line will get stale.”
Silver said specialty stores daily act as “price police” in tattling on stores that are not selling at the suggested price point.
“Generally everybody stays around the same price point,” said Silver. “We have maps up in all our offices and we always check who’s across the street. But most of the stores from the smaller to the largest department stores understand the situation. They understand that the only cachet to the brand is keeping a certain element of exclusivity.”
The Todd Oldham brand, which is owned by Jones Apparel, shifted gears this year in relaunching Todd Oldham Jeans as a classifications business in specialty stores after a miserable launch of the T02 line last year as a collections business at department stores.
“We wanted to be in the best, coolest stores where the kids are shopping,” said Chris Nicola, executive vice president. “The specialty stores really are the ones that will help launch the brand and really try to make things work. We’re at the Pacific Sunwears, Maurices, Buckles and Up Against the Walls, and our product is out there and selling.”
But Nicola said product has to perform at specialty stores, whereas that margin agreements can sway department stores to keep lines despite a bad season. Markdown money is virtually nonexistent at specialty stores.
“It’s all about price, as well as the product, and I have to be the best or they’re not going to choose me,” Nicola said. “You can’t buy yourself into this area and no amount of markdown money can secure that spot in the stores. It’s survival of the fittest.”
Nicola said that in order to reach the megabrand volume level, Oldham eventually will have to deal again with department stores.
Owning a hot brand provides ammunition with which to deal with department stores, and Silver said this has helped in negotiating less onerous selling terms. It also helps avoid channel conflicts.
Engleman said Paris Blues has constantly heard complaints about where it places its product.
“We protect the label by the type of stores we put it in, and I’m not going to not sell one account to protect another,” said Engleman. “I wouldn’t let a retailer dictate to me who to sell.”
With chargeback headaches and the promotion-driven climate, department stores have resulted in a rude awakening for many brands selling there for the first time. But Silver asserted that department stores are “great planners” and offer greater consistency in volume.
“A specialty chain doesn’t really know what may happen or be willing to plan, while department stores are almost an environment of planning,” said Silver. “That could be perceived as evil because it takes out fashion and it’s all numbers, but if you are planning production schedules, they will give you numbers and better planning.”
In some regions of the country, department stores are the only channel reaching their target customer.
Paris Blue’s Engelman noted that department stores enable a vendor to reach a more mature customer, and even the junior customer turns to department stores for a certain kind of product, even if a studded jean may sell better at a Wet Seal.
“Each retailer draws a different customer,” she said, adding that selling across various channels tends to spread out risks. The mom-and-pops are struggling to stay alive and, as much as you love to be there, they go out of business and often don’t pay their bills,” said Engelman. “But at the department stores, it’s all technology and if you don’t follow the rules to a T, you’re going to get hit. The reason we do business with everybody is you can’t put all your eggs in one basket.”