NEW YORK — As department stores fall increasingly in love with better, moderate sportswear is developing an identity crisis.
Names such as Tommy Hilfiger and Calvin Klein have captured much of the spotlight as they roll out better-priced sportswear collections, joining mainstays like Liz Claiborne and Jones New York, while moderate has adjusted to heightened competition with more fashion and more private labels.
Analysts and vendors see at least some traditional department store chains inching further into better brands and away from moderate apparel as competition from moderate chains such as J.C. Penney and Kohl’s, along with mass market leaders Target and Wal-Mart, lures customers away.
Bloomingdale’s, part of Federated Department Stores, and more recently Lord & Taylor, a division of May Department Store Co., have left the moderate category entirely in a bid to attract a more affluent customer. Meanwhile, even those stores that plan to hold their ground in moderate — sportswear priced at about $20 to $30 — are asking vendors to serve up more fashion content, while their private label programs cover more basic offerings.
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“It really depends on the department store group,” said Stephen Ruzow, president of women’s wear at Kellwood Co.
Federated, for instance, is moving more toward the upper-price bracket of the moderate category, said Ruzow, adding that Kellwood does very little business with Federated in its biggest moderate brand, Sag Harbor.
Part of this is due to Federated’s strong private label program, including brands such as INC.
“They’ve done such a good job with INC.,” said Ruzow. “They have the luxury of walking away from the moderate vendors.”
Last year, Terry Lundgren, chief executive officer of Federated who was unavailable to comment, said about 16 percent, or $2.5 billion, of the firm’s volume comes from its owned labels.
“Private brand is clearly the fastest-growing business that we have,” he said at the time. “It’s outperforming the brands.”
Echoing a widely held view in the vendor community, Ruzow conceded, “Our biggest competition is the stores’ private label.” He noted that the category is ripe for some changes, and said, “There has not been a lot of excitement in moderate. The offering from everyone has been similar.”
Kellwood, with sales of $1.41 billion in women’s sportswear last year, the majority from moderate brands, is meeting the private label competition with a higher fashion quotient through licensed brands such as O Oscar and Izod.
O Oscar, situated at the upper end of moderate, is set to roll out for fall with a national ad campaign in fashion magazines. The combination of the designer cachet provided by de la Renta and the marketing push helps give O Oscar a special place in the zone, said Ruzow, adding that lower-priced moderate brands will not be able to fund a campaign like O Oscar’s.
“Federated embraced the O Oscar line in a big way,” said Ruzow. “If you do something really right, the stores are open-minded enough to look at opportunities.”
Moderate vendors, he said, have to live on brand awareness and fashion at a price. “With brands like Izod and O Oscar, the consumer’s really going to find fashion that they won’t find in Wal-Mart and Target,” said Ruzow.
Increasingly, discounters are selling fashions that fit into the moderate category. On Target’s Web site, for instance, a pair of Isaac Mizrahi tricotine pants recently sold for $28, while a striped shirt from the brand went for $17.99.
Wal-Mart’s prices are generally somewhat lower. The discounter also has upped the ante on apparel by putting significant muscle behind its George line, which analysts have said started off too fashion-forward before becoming more mass friendly. There are also reports of the discounter adding cashmere sweaters into its mix for fall.
According to STS Market Research, which looks at a sample group of consumers and extrapolates results for the larger market, shoppers spent $3.5 billion on tops costing $20 to $30 last year. Specialty stores picked up 32 percent of those sales, and department stores garnered 20 percent, while national chains accounted for 17 percent and discounters made up just 5 percent of the market. Expenditures on pants in the price range totaled $2.1 billion, with 29 percent going to specialty stores, 23 percent to national chains, 17 percent to department stores and 8 percent to discounters.
“A very slight percentage growth for [Wal-Mart] in apparel is going to be injurious for others, including the department stores,” said A.G. Edwards & Sons analyst Robert Buchanan. “Whenever Wal-Mart’s competing against you, you have to improve your value equation. The competitive response by department stores is to buy more direct and otherwise sharpen their pens.”
Buchanan said department stores overall aren’t about to abandon moderate to more value-orientated chains, since the stores get most of their gross profit dollars from moderate apparel.
“Your gross profit dollars are nowhere near in the upper price points what they are in the lower price points,” he said.
Stores generally don’t break out profits or sales by product category.
“There may be some slight reduction over time [in moderate], but what I’m seeing is substitution of private label moderate for branded moderate,” said Buchanan.
Perceptions of the moderate customer are changing, along with the business.
Until recently, the market generally has looked on the moderate shopper as a mature woman, said Dan Shamdasani, ceo of Public Clothing Co., noting there are underserved moderate shoppers between the ages of 30 and 50 who are “starved for fashion.”
To help address this customer, Public in 2000 launched French Cuff, an updated misses’ collection. The line is distributed in about 550 traditional department stores, such as those owned by Federated, May Co. and Dillard’s, and pulls in annual sales of more than $50 million.
“Design’s almost been commoditized,” said Shamdasani, pointing to the iPod and the new Volkswagen Beetle as examples. “People expect great design and they don’t want to pay a lot of money for it, and they expect that in fashion now. In the past, we’ve treated the moderate customer as a basic customer driven by price, and she’s evolved into a customer that expects great design and value, and that’s a niche that I think the department stores are filling.”
Andrew Jassin, managing director of the Jassin-O’Rourke Group, a fashion consultancy, said in challenging vendors to not produce the same basic looks of yesteryear, “department stores have thrown the gauntlet down,” which creates some risks.
“When you have fashion, you might have markdowns because it’s experimental, it’s more cutting edge, it’s not predictable,” Jassin said.
Department stores, national chains and discounters have much on the line, in the form of foot traffic and profits to be won or lost, with so much of the apparel business concentrated at the moderate price point.
“There’s really a big fight for this consumer,” said Jassin. “The lines have been drawn, and ultimately, the consumer wins this game.”
For their part, retailers said they weren’t yielding their moderate businesses, which have been trending up, to mass and discount chains.
Peggy Eskanasi, president of private brands for the 241-door Saks Department Store Group, said, “Private brands account for at least 45 to 50 percent of our total merchandise mix — and the figure is growing.”
SDSG’s private moderate brands for women include Studio Works, Relativity and Breckinridge, which was acquired from the now-defunct LF Brands and relaunched for spring.
“Our moderate private label business is up at least 20 percent compared to a year ago — career is especially strong right now,” Eskanasi said. “Young, successful women are looking for fashion in their career wardrobes. Our private brands now include more fashion. It’s not just about basics.”
Paulette Force, divisional merchandise manager at Boscov’s, a 39-unit Reading, Pa.-based moderate and better chain with sales of about $1 billion, said, “We’re rolling vendors out to additional doors, as well as looking at adding new vendors for fall. We’re also adding O Oscar, which looks really great. We hope to grow moderate about 18 percent in 2004. Our private label program, including the Preswick & Moore career and sport lines, is really helping us to differentiate ourselves from the competition. It’s a growth vehicle for us.”
Boscov’s “moderate update” business is ahead 17 percent so far this year, according to Force.
“We’re having great successes this season to date,” she said. “Lines are turning well and reorders are happening.”
Bealls INC., a 70-unit moderate chain headquartered in Bradenton, Fla., said comparable sales in moderate are up by low double digits, with a similar pace projected for the rest of the year.
“We’ve had some nice successes this year because we’ve edited and focused our selling floor on key vendors and not really scattered our merchandise too broadly,” said Conrad Szymanski, president. “That’s the essence of how we’re winning customers from the competition, including mass or discount chains that sell moderate.”
Bealls’ merchandising strategy includes a big accent on casual sportswear, separates and items from national vendors and its own private label program, including Sun Bay and Bay Studio lines.
“There are some emerging national brands out there that are bringing excitement to moderate, including Emma James, Caribbean Joe and Columbia,” Szymanski added. “They really reflect the lifestyle and casual dressing needs of the moderate shopper.”