Apparel Makers Go It Alone

Dissatisfied with low-profile treatment in giant chains, labels are opening more stores of their own

Even for the outdoorsy set, finding a North Face jacket in a big department store can turn into quite a trek. At a Bloomingdale's in New York City, the signature garments are hidden away behind the women's swimwear section. Selection is limited to a couple of racks, and the brand has no wall label to give it a leg up on designer competition from Anne Klein, Via Spiga, and DKNY.

Contrast that with the top-notch treatment at a stand-alone North Face store a few blocks away. Backpack-toting mannequins in the window greet shoppers. The chain's fresh-air adventure image is driven home with simple, carefully organized displays of clothing, tents, and other gear, including lots of jackets. Suzanne Day, 41, ended up there recently after a frustrating hunt for North Face apparel in a larger store: "We went into Macy's (FD ), and they only had two things. There wasn't much selection."

SURVIVAL STRATEGY. Long before big department-store chains began consolidating, specialty apparel brands were striking out on their own. By setting up their own single-brand locations, companies such as North Face's parent VF Corp., Ralph Lauren, Coach (COH ), Liz Claiborne (LIZ ), Jones New York (JNY ), Oxford Industries, and Lacoste seized tighter control over their brand images and futures.

As the trend accelerates, it's clear there's a survival strategy at play as well. Industry watchers expect mergers such as that of Federated Department Stores (FD ) and May Department Stores (MAY ) to result in hundreds of fewer stores anchoring shopping malls. And even more successful department stores like J.C. Penney (JCP ) are getting better at pushing their own private labels, thus squeezing space and merchandising opportunities for other brand names.

Already, the decline of specialty-apparel brands at department stores as a percentage of total sales is startling. The share of Liz Claiborne's sales accounted for by department stores shrank to 37% last year, from 65% in 1997. That's even more dramatic than the overall decline in department-store apparel sales, now below 20%, from about 30% a decade ago.

SNIFFING OUT BUYS. Some of the fast-growing specialty chains made up for that by aggressively expanding their own stores. Last year, Claiborne's own stores accounted for 23% of the company's $4.6 billion in total sales, compared with 17% three years earlier. "We didn't think that it [the department store share] was going to be in such rapid decline," says Claiborne Executive Vice-President Angela Ahrendts.

While nearly all big-brand apparel companies have outlet stores to clear excess merchandise, they are increasingly looking to proliferate stores -- which sell their products at full price -- where they can create the sort of "brand experience" that is growing increasingly difficult to engineer in department stores. Some of the specialty outfits sniff out acquisition targets specifically for their stand-alone potential.

In 2001, Claiborne bought Amsterdam-based Mexx, a fashion-forward clothing chain aimed at younger women, with a view to competing against hot Spain-based retailer Zara. Mexx has opened seven U.S. stores since the purchase, and plans more. Similarly, Claiborne bought Lucky Jeans six years ago, since opening 90 stores, and 20 more are set to open this year.

Likewise, VF Corp. (VFC ) may be best known for the Wrangler and Lee jeans that pack department-store shelves, but the company evolved into the world's biggest apparel supplier by snapping up brands like North Face, Nautica, Earl Jeans, John Varvatos, Vanity Fair, and Vans shoes. Surely, CEO Mackey McDonald can't afford to dismiss his department-store customers -- he says he is talking with the combined Federated-May to get into more of the company's stores.

RACE FOR SPACE. But McDonald is also proceeding with plans to ramp up his own store expansion. VF is aiming to double its units in the next five years; today it has fewer than 600 stores. He'll spend $40 million this year alone on new openings. "We need our own stores where we control the brand story," says McDonald. As key retailers like JC Penney and Macy's increase their own private labels, say some apparel executives, it gets more difficult for companies like VF to get the space and creative freedom needed to merchandise their fashions the way they want to.

Retailers are squeezing their space to make room for their own private labels, which provide higher profits than branded merchandise. In the last 10 years, Federated Department Stores, for example, has raised its percentage of private label to 17.5%, from 7.5%. It's gaining at about a half-percentage-point increase, as a percent of total sales, each year. The company wants to hit about 20%. It has similar growth plans for May Department Stores as the two operations are combined.

Apparel execs are responding in part to a demographic shift. Surveys show that younger shoppers consider department stores about as relevant as network news. According to market researcher Cotton Inc., 42% of 16- to 19-year-olds prefer shopping at specialty stores, compared with 12% of people ages 20 to 55, regardless of gender.

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