Terry Lundgren, Federated Dept. Stores

NEW YORK — Imagine a great Christmas for retailers this year, with high single-digit gains. Or a “department store revival,” with exclusive merchandise covering most of the floor space. And what about no apparel...

NEW YORK — Imagine a great Christmas for retailers this year, with high single-digit gains. Or a “department store revival,” with exclusive merchandise covering most of the floor space. And what about no apparel deflation?

This story first appeared in the November 11, 2003 issue of WWD. Subscribe Today.

That might all seem too rosy, yet those were some of the provocative predictions made by a panel of industry heavyweights at a Fashion Group International luncheon Monday at the New York Hilton. Its theme was “success strategies in a challenging economy.”

Terry Lundgren, president and chief executive of Federated Department Stores, said the retailer wants more than half of its merchandise to be unique to its stores. “There needs to be a substantial change,” stated Lundgren. Currently, only 22 to 23 percent of Federated’s inventory is exclusive, including private brands, joint ventures and exclusives from vendors.

“How we go about getting exclusives is less important, but we need to get it up to 50 to 60 percent of the business,” Lundgren stressed. “We want customers to go into our stores and say, ‘Wow. I can’t get this anywhere else.’ That should be true for Macy’s and Bloomingdale’s.” Federated also operates Lazarus, Rich’s, The Bon Marche and Burdines, which have begun adding the Macy’s name to their logos and will likely one day just be called Macy’s. Burdines adds the Macy’s nameplate in February.

Lundgren didn’t put a time frame on the strategy, but Federated has been raising the exclusive percentage steadily for the last several years. Its biggest volume brand is Charter Club, which cuts across several apparel and home categories, while Federated’s single largest apparel-only brand is INC. Charter Club and INC are both Federated-owned brands. About 16 percent, or $2.5 billion, of Federated’s volume is via private brands. “Private brand is clearly the fastest-growing business that we have. It’s outperforming the brands,” Lundgren said.

Federated this year established a joint venture with American Rag to open exclusive American Rag shop-in-shops, and also will be launching the H collection from Tommy Hilfiger, with a yearlong exclusive before other retailers can sell it.

In the beauty arena, however, it’s tough to get exclusives. “This needs to happen in beauty,” Lundgren said. “Beauty is a challenging business.” Federated once developed its own cosmetics line, Souson, but it was discontinued.

In another provocative presentation, Carl Steidtmann, chief economist at Deloitte Research, said retail sales should register a 6.5 to 7 percent gain for the holiday season, based on the recent “rash of good news,” including rising GDP trends and gains in employment. “The consumer is well positioned to spend and spend aggressively. Cash in the household center is extremely strong,” the economist noted.

He expects consumers to continue their spending into next year. Contrary to worries that the economy might tilt back into a recession, Steidtmann said the current “expansion has legs. Will it sustain itself? It unquestionably will.” He characterized the U.S. economy as resilient and able to work through financial bubbles, terrorist attacks and war in Iraq. He sees a boon in production raising the standard of living and allowing the Federal Reserve to keep interest rates low. “We also see a bit of inventory growth next year, usually an early indicator of growth,” he said.

Steidtmann predicted an end to apparel deflation. The economist expects to see some inflation in prices of goods from China, which, in turn, places upward pressure on the price of imports. Coupled with a decline in the U.S. dollar and the challenge to get good-quality workers, Steidtmann concluded that as wages go up and benefits increase, the costs will rise, thereby pushing prices upward, as well.

Lastly, Steidtmann predicted a department store revival. “The younger consumers between ages 18 and 24 have defined the department store as their store of choice. We used to think it was the choice of the older [consumer]. What we see is the emergence of a 9/11 generation,” which is more conservative than their parents and likes department stores, he said.

William Lauder, chief operating officer of The Estée Lauder Cos. Inc., said the department store is still where the aspirational shopper shops, so firms such as Lauder have to brand themselves and their products differently to reach consumer segments. He suggested offering prices that can be guaranteed 10 days later, and marketing different brands to target different consumers. “At the Estée Lauder Cos., we are a family of 19 different brands for different consumers. Only one has the name Estée Lauder on it. If we buy any other brand, we won’t put the Estée Lauder name on it. Our [different] brands speak to their consumers individually,” he pointed out.

He noted that Prescriptives, a brand sold in 800 retail doors, also sells on home shopping channel QVC. Sales currently in a one-hour show on average are what its top 30 doors do annually.

“Those most likely to buy our brands will do whatever it takes to buy the brand that speaks to them. Shopping is not just consumption. It is about entertainment and the experience at retail,” he said.

Lauder also noted the recently announced exclusive deal with Kohl’s was not a shift in the firm’s brand strategy. “We’ve got to have our department store business; it is a bread-and-butter business. But Kohl’s was a unique opportunity with a uniquely positioned retailer between the mass [channel] and the department stores [where we can] establish a series of brands that we own and are available only in [Kohl’s] in the U.S., with the idea of being middle priced to consumers.”

Also speaking on the theme of exclusives was Hal Upbin, chairman and ceo of Kellwood, who said his company’s method of licensing brands is “a very definite way to offer consumer newness.” Kellwood is licensed by Phillips-Van Heusen to produce a moderate-priced women’s lifestyle collection under the Izod label, which has been launched with May Department Stores and subsequently will be distributed to other retailers. He said the Izod strategy helps fill the need for exclusivity.

Robin Lewis, president of Robin Lewis Inc., moderated the panel.

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