Retail ConsolidationThe Continuing Saga!

• Cause / Effect- What’s driving retail consolidation?

• The Retail Landscape ( Next 5 Yrs.)- Survival Of The Coolest?

• Life Expectancy Of Labels Vs. Brands- Will the consumer figure this out?

• Small / Mid Sized Apparel Manufacturers- Where do they fit?

• “The Vanishing Middle”- Goodbye Generic!

• “Generational Evolution of Apparel”- Youth Meets Boomer!

Retail Consolidation

• The Taste Level Of America - “Forever Changed”

- Thank You…Mickey Drexler and the Gap

• Once Upon A Time…- Higher price points equated to better product

- Lower price points meant poor quality / “no taste”

• Now Its: “Good, Better, Best” Vs. “Cheap or Expensive”

- The Consumer doesn’t want cheap

- They want “Good, Better, Best” at a discount

• Added Value Isn’t A Bonus…- It is a requirement!

Cause / Effect - What’s driving retail consolidation?

• Apparel is declining in importance to the consumer

• Lifestyle is driving apparel decisions

• Apparel must adapt and provide relevance

• Provide what they want…Not what they need

• “Good taste is expected” …”Good deal is desired”

What’s Different?

• “Live Young, Work Young, Look Old- The Aging Boomer will not go quietly…Dressing Younger is Cool

• The 40 yr old of 1981vs.

The 40 yr old of 2006- Single Biggest change…

- Father / Son and Mother / Daughter all dress alike

• Price is the ultimate vehicle of change- Price / Value equation much more important vs. past

• The “25-35 Year Old” Consumer Has A Different Perspective- Based on exposure to all outside influences of Media

- Grew up with different “Tools” (Instant Access)

The Changing Consumer

• Effect of “Younger vs. Older”- Clash of lifestyle apparel choices

• “Everyone looks good in a “Suit and Tie”- Casualization of America = Men with no clue

• “No one buys an outfit to go out on Saturday Night”- Your Lifestyle dictates what you wear

• “Households with children under 18 dramatically alter

what parents wear”- Inherent awareness of what’s cool / what’s not

The “Generational” Shiftof Apparel For Consumers

• Technology- “Warp Speed” visibility to brand awareness - Good & Bad

• Old Adage: Better Product = Better Taste Level = Better Distribution

- Throw it out the window

- New School: Cool product at lower price points in broader distributional channels

• Apparel Spending Grew In 2005 (+4% [2005] NPD)

- Mens Stronger Than Womens

- Lifestyle Segment Driven

- Price Factor: Important more than ever

• New Consumer Profile Emerging- Non “Brand / Channel” specific

- Buy what they want / where they want

Changes In The Game Today

• The Dept. Store Format Stabilizes And Prospers- Federated / Macy’s streamlines and further separates from

mid/tier and discount to create “Reason To Exist”

• Brand Direct Retail Over-Expansion “Rush To Direct Retail”

- Survival Of The Fittest = Weeding Out

- “One Dimensional Brand Retail” Platform Fails

• Outlet Store Malls Re-Focus- Good, Better, Best Brands = Better Product Offering

- Less “Outlet Private Label”

• “Neighborhood” Niche Specialty Stores Emerge- Non Mall Based “Cool” Stores: “Lifestyle Center”

- Destination Locations - I.E. Abbot Kinney

The Retail Landscape - Next Five Years

• “Uncool” Stores Cease To Exist- Mass / Midtier Customer Once Identifiable > Becomes Invisible

- Everyone Wears Cool Product

• Big Box Players “Modernize” Assortments- Generic Product = Gone

- Lifestyle Focus

- Picture Multiple “Target” Formats

• “Transformational” Brands Impact Retail Formats- Think J.C. Penney / Sephora

• The Mall Reinvents Itself- “Plastic,” “Food Court,” “Non-Traffic Driven” Retail Space

- Picture “Farmers Market Of Apparel” (Mixed Category / Real Life Experience )

Cool Stores

• Costco

• Home Depot

• Victoria’s Secret

• Target

• Whole Foods

• American Eagle

• Best Buy

• Pac Sun

• Abercrombie & Fitch

• Lifestyle Focused

• Clear Point Of View

• Category Dominant

• Modern / Relevant Business Model

• “Speed To Market”

“Common Thread”

• Federated / Macy’s : Big Upside

- Macy’s West: Prototype Future Better Department Store

• J.C. Penney: Big Opportunity

- “Transformational Brands” (Sephora) Drive The Business

• K-Mart: Big Question

- Create Reason To Exist

• Walmart: Big Challenge

- Modernize Apparel Assortment And Add Brands

“Retailers In Transition”

• “Versions”: according to Webster

- A name given to a product or service

- A type of product manufactured by a company under a particular name

- The name or trademark of a fashion company

Definition Of Brand vs. Label

My Version

• Labels Have Recognition • Brands Have Loyalty

• Labels Get Your Attention • Brands Get Your Heart

• Labels Serve A Purpose • Brands Serve A Consumer

• Labels Offer Value • Brands Offer Value - Added

• Labels Trust Consumers • Brands Consumers Trust

• Labels Are For Now • Brands Are Forever

• 3 Types of “Labels”

- Direct Retail Private Label

- Generic Vendor Label

- Niche Specific / Category Expert Label

• Direct Retail Private Label

- Continued Evolution Of Superior Price Value Equation

- Future Upside in Better Design And Quality Execution / Investment

- Specialty Retail Dominates Execution Vs. Department. Store / Midtier

Life Expectancy OfLabels Vs. Brands

• “Generic Vendor” Label

- “Vulnerable To Extinction”

- Price Driven

- “No Reason To Exist”

• “Niche Specific / Category Expert” Label

- Future Is Bright

- Creating Expertise In Category

- Flexible Sourcing / Design Capabilities

• 3 Types Of Brands• Vertical Retailer• Traditional Manufacturer• Licensing

• Vertical Retailer• 100% in Control• Direct Access to consumer• Best price / value equation• Fastest “Trend to Market Provider”• Sales Comps: “True Barometer of Success”

• Traditional Manufacturer• Reliance on retail distribution

• “Middleman to Consumer

• “Limited” control

- Pricing, Point of Sale, Positioning

• “Wholesale Sales” growth

(vs. Retail Sales Success )

• Licensing• “3rd Party” Control

- Licensor to licensee to retailer

• Management of diverse licensee cultures: “One Voice”• “Direct correlation of success

- Degree of brand promise kept

• “Brand Extension” - revenue growth• “Difficult” control

- Wide variations: “Best to None”

• 7 Stages Of Development 1) “Emerging”

2) “Cool”

3) “Aspirational”

4) “Accessible”

5) “Mainstream”

6) “Declining”

7) “Gone”

• Direct correlation to sales volume & stage of development

• The hotter the brand gets - The younger the consumer that embraces it.

• Define brand strategy before stage 4 ( “Accessible” )

Life Of A Brand

• Adults “Dress Younger” - “Less Serious”- Subtract 10 years of age from your dated consumer profile

• “Being Cool” vs. “Dressing Cool” 2 Different Things

- Cool Products exist at all distribution points vs. 5 years ago

• Remaining “Separation Factor” of cool: “Brands”- “Tribe Differentiator”

- “Lifestyle Statement”

• Price / Value Equation: New Dynamic- More choices to spend money on

- Apparel facing new competition

Brands Today

• “The Modern History Of Apparel”- 3 Parts:

• Luxury / Premium

• Generic / Mainstream

• Mass / Commodity

• “Educated Consumers Changing The Game”- Better Fashion, Better Quality, Cheaper Price

- “Polarization” Of Retail Landscape

- Direct Brand Retail Replacing The Middle

- Generic Product Rapidly Vacating Middle Tier

- Mass Getting “More Sophisticated” On A Daily Basis

The Vanishing Middle

• The Term “Moderate Department Store Is An Oxymoron

- Squeezed From Both Ends(Luxury / Premium and Big Box / Mass)

• Growing Trend:

- Luxury / Premium Fashion Mass / Commodity Prices

• Generic Product:

- Forces Consumer to search for lowest common denominator price point

• “State Of The Union”

- Highly Competitive, Price Driven, Lack Of Predictable Future / Long Term Status

- Forced To Compete With Large Public Apparel Firms ( Chargebacks, Allowances, Discounts )

- Increasing Margin Pressure

- 100% Of Existence Held In the“Hands Of Retail Distribution Or Wholesale Brand”

The Lifecycle Of The Small /

Midsize Apparel Company

• Qualifications1) Strategic Plan2) Specific goals / objectives3) Proper due diligence4) “Realistic diagnosis of the patient”5) Time frame - you can live with6) Financial support to execute

• Tools1) Sub-Branding2) New product launches3) Multi-channel distribution strategy4) Category extensions5) Trade Advertising6) “Exclusive” brand extensions

“Requirement For Survival”