NEW YORK — Branded vendors are feeling the sales squeeze as retailers sharpen their private label programs.
This story first appeared in the November 26, 2003 issue of WWD. Subscribe Today.
For the most part, the major apparel manufacturers’ largest customers — mostly department store players — were tighter with their pocketbooks in 2002, the most recent figures available, making up a smaller percentage of their total sales than the year before. The flurry of recent launches in the better price zone, though, could help loosen those purse strings somewhat.
Several circumstances emanating from the wholesale and retail sectors are responsible for the shift, including declining department store sales, the increasing importance of private label and the vendors’ drive to diversify their businesses.
Still, the numbers are striking.
Dillard’s Inc., for instance, bought less from Tommy Hilfiger Corp., Polo Ralph Lauren Corp. and Liz Claiborne Inc. last year.
Despite being significantly smaller than May Co. and Federated, Dillard’s was Hilfiger and Polo’s largest customer in 2002, representing about 13 and 6 percent of those firms’ revenues, respectively. In 2001, the chain accounted for 15 percent of Hilfiger’s and 8 percent of Polo’s overall revenues.
Vendors report the percentage of sales that came from their top customers in annual reports to stockholders. (For an extended listing of vendors and their top customers over the last two years, see the accompanying chart.)
For Hilfiger, at least, the declining sales trend looks to be continuing at Dillard’s. The two firms recently said they were reevaluating their strategies for distribution, which most likely means less Hilfiger merchandise will be sold in Dillard’s stores, as reported.
While reporting stronger second-quarter earnings recently, David Dyer, Hilfiger’s new chief executive officer, said the firm would be opting for more selective distribution.
“What we need to do is bring the supply and demand — market by market, door by door — back to a realistic level where we all can make money, at least those that choose to carry our brand in the broad-based way that it needs to be carried,” he said.
Hilfiger expects its U.S. wholesale volume to drop by about 20 percent in the second half.
Part of the overall decline in business between the major vendors and retailers is likely caused by the merchants’ drooping sales. Revenues at Federated dipped 1.4 percent last year to $15.44 billion, May Co.’s fell 2.8 percent to $13.49 billion and Dillard’s sales were off 2 percent to $8.23 billion.
Some vendors, though, are less dependent on the traditional department stores than others. Kellwood Co.’s top two customers last year were J.C. Penney and Wal-Mart, each representing about 11 percent of the firm’s sales. Penney’s, with its focus on moderately priced goods, is generally considered a national chain, along with Sears and Kohl’s.
This channeling doesn’t guarantee increases, though. While the firm’s business with Wal-Mart grew about 15 percent to $236 million last year, its sales to Penney’s slid 4.3 percent to $245 million.
Sears, Roebuck was Kellwood’s third largest customer for the last two years with 7 percent of sales during both periods. Dillard’s accounted for 5 percent of the firm’s sales in 2002, up from 4 percent in 2001. May Co. and Federated made up 4 and 2 percent, respectively, of Kellwood’s total sales, last year.
While vendors’ sales to their major clients in some cases fell more steeply than the overall department store falloff, Jones ceo Peter Boneparth attributed this to deeper declines in certain product categories at retail in 2002, rather than market-share changes.
As Jones grows, the ceo said, “Department stores will always be a very important part of our business.” The firm’s long-term strategy is to have the sector represent 30 to 40 percent of its overall sales.
Department stores have invigorated their private brand programs in a bid to differentiate their selling floors and grab margin that would have otherwise gone to the vendor. At Dillard’s, private brands made up 18.2 percent of total sales, from 15.4 percent a year earlier.
Federated is widely considered to have the strongest store-brand program, with names such as INC and Alfani well established in consumers’ minds. Private branded merchandise is the firm’s fastest growing business and accounts for roughly 16 percent, or $2.5 billion, of its volume.
Sales of exclusive product, including private brands, joint ventures and exclusives from vendors, account for 22 to 23 percent of the retailer’s sales. One way or another, the department store operator wants to pump up its exclusive offerings until they represent 50 to 60 percent of its business.
“Private label is very well developed in the stores,” Boneparth said. “It’s a meaningful and very respectable competitor. I don’t believe the strategy for any of the department stores is to substantially increase their private label penetration on the soft goods side. What you see is much more of a move toward branded differentiation — what the market can give them that’s proprietary to their channel and their store.”
A.G. Edwards & Sons retail analyst Robert Buchanan said much of the “low-hanging fruit” for department stores lies in producing private label moderate-priced goods.
“Where the vendors can add value today is the better price points and perhaps a little bit above better,” he said. “That’s where the department stores, by and large, haven’t had success.”
Producing better goods, he said, “requires more talent and you have a higher risk profile.”
Accordingly, most of the new initiatives vendors are launching into the department store channel are in goods priced in the better zone and up.
In addition to the acquisition of Kasper A.S.L. — a deal scheduled to close early next month — which sells better and bridge product to department stores, Jones is launching Jones New York Signature, the better line that will help fill the void left when Polo reclaimed its Lauren by Ralph Lauren label.
Since sales of the Lauren label previously produced licensing revenue for Polo, the shift increases Polo’s direct exposure to the department store channel.
The new and much anticipated Calvin Klein better sportswear line will increase Kellwood’s department store profile. The line will be produced under license and in conjunction with G.A.V.
At Liz Claiborne, spring will bring the launch of the Realities and Intuitions better lines. Intuitions, which launches exclusively in Dillard’s stores, should also help Claiborne recoup its business with the retailer. Sales from Claiborne to Dillard’s declined 2.9 percent to $335 million last year.
Also answering the department store calls for differentiation, Hilfiger is launching its revamped H Hilfiger better line exclusively at 100 Federated doors for spring. Last year, Hilfiger’s sales to Federated dropped 16 percent to $189 million.
In another strategy, Claiborne is ramping up its own specialty retail operations, which produced sales of about $706 million last year, or 19 percent of the firm’s overall take. In addition to Lucky stores, the company branched out this year with its first signature stores for Ellen Tracy and Sigrid Olsen, and brought its Mexx concept to the U.S.