GLG News by Angela Chew

Implications: 1) Has VS gone too far with their lingerie marketing campaigns? 2) Is being too sexy turning away their older customers?  

Analysis: VS is not too sexy.  It is about grown women in sexy lingerie - Heidi Klume and Tyra Banks are not exactly teenagers, even when they started with VS, they were already well known international models.  None of the VS models were portraited as teens that are sexually active or available unlike Bebe or A&F. 

So, which brand is over the edge and uncomfortable for family / parent  shoppers?  

It is a natural decline for Victoria's Secret's mature business.  It may have been edgy 10 to 15 years ago but today, we are all immune to this type of sexy lingerie display.  VS needs to reinvent themselves and continue to explore niches or areas where they have not been.  Yogawear, leisure wear or loungewear is a big extension and major opportunity next to underwear which they have been exploring.  Their business drop has nothing to do with being too sexy.  They really have to look at their internal product development, merchandising and design teams to figure out their next opportunity of growth. 

Consumers have come to expect and accept what Victoria's Secret is today.  I cannot imagine what will happen if VS starts to produce bloomers and underpants that will target the grandmothers of America.  Even JCP, Kohls and Wal-Mart have upgraded their designs, cuts and fits in the lingerie space. 

In my opinion, Victoria's Secret has pushed the envelop a very long time ago and she cannot go back.  This does not mean VS needs to get sexier.  It just means she has to work harder to explore, develop and grow her business.   By claiming business drop because of being too sexy, she is being disingenuous.

Implications: 1) Simply Vera ads are not targeted for Kohl's moderate customers 2) Is the brand and the line strong enough to bring in Federated's customers? 

Analysis: The ads look amazing but it is not produced with the Kohl's customers in mind.  The models are young and anorexic looking, far from the Kohls customer profile.  The fashion and construction details look great but will the average Kohl's customer care to pay the price for a clean finished car coat with bias piping on the inside?  A comforter set for $400??  That is totally out of control.   

This line will produce lots of buzz which will certainly be beneficial to the rest of the Kohls' moderate brands like Candies, Mudd and Tony Hawk.  

Even with a 40% mark down, the prices are still too high for Kohl's customers.  This is the store where you can buy Nike tees for $4.99 and Sonoma tees with a 2 for 1 price. 

The strategy is bold and does not make sense.  I could be wrong, perhaps the upscale customers will follow the yellow brick road to find Kohls at the end of the rainbow.

Implications: What is driving JCP's business?  They listen to what their customers want - exclusive merchandise at the JCP value. 

Analysis: With close to 50% of their brands being exclusive or private labels, JCP is coming ahead by differentiating themselves from other retailers.

Arizona is already a proven giant lifestyle private brand that produces over US$ 1 billion in sales

American Living - to be launched in 2008 with Ralph Lauren will certainly be a success.  Everything Ralph touches, has turned into gold so far.   The giant branding (Ralph Lauren) machine will no doubt be able to achieve a great lifestyle assortment at JCP's prices without jeopardizing his own brand image.  Chaps at Kohls has proven to be a major success.

Ambrielle is a new intimates private brand launched to compete with Victoria's Secret & VS Pink line.

C7P by Chip and Pepper - a great concept to offer premium denim at the JCP value.  The brand is hip and has a following. 

In every segment of the business, from contemporary women's to beauty, JCP has launched one or several private or exclusive brand strategies to compete with the other retailers.  They listened to their customers and created a compelling, consistent and exclusive product assortments in every category.  JCP has inspired and brought excitement to their customers.     

Implications: 1) Due to retail consolidation, slow growth on traditional brands and strong growth in private labels, branded companies need new  strategies to compete 2) Branded apparel companies will counter department stores by purchasing high profile designer brands and open their own retail stores

Analysis: With retail consolidation and competition of the private label business, traditional branded apparel companies are having a hard time to differentiate and grow.  

Branded apparel companies will have to reinvent themselves and become specialty retailers.  This is one way to take control of their growth strategy and compete with department stores and their private label brands. 

Purchasing a strong and established brand like Seven for All Mankind is also a good move.  With their consistent fit and quality merchandise, Seven has developed a cult following and become a destination brand for the loyal premium denim customers. 

Premium denim business has declined 1.8% to $7.5 billion in sales last year, a major slide from double digit growth 2 years ago.  We do see that the trend of people paying for high price denim could be passe.  However, premium denim brands aren't going away but it will become a multilevel price point lifestyle category in order to compete. 

New denim brands like Cheap Monday from Stockholm starts at $65, G by Guess starts at $50 and C7P is an exclusive brand produced by Chip and Pepper for JC Penney with opening price point at $35 for a pair of premium looking jeans without the premium price tag of $150 and up.

Lucy is a great retail brand with tremendous energy and growth potential.  In the fragmented women's active area, branded makers are still the major players.  Lucy offers a fun and relax shopping environment with attentive customer service and products that are well designed and priced.   This is one brand and concept to watch. 

Implications: 1) A bold move for Vera Wang, will Simply Vera tarnish her Red Carpet designer image? 2) Does a brand name carry that much weight for low-moderate income customers?

Analysis:

Mass retailers are looking to upgrade their image and wow shoppers by bringing in big designer names for either a one shot delivery (H&M with Stella McCartney, Karl Lagerfeld), or exclusive branding arrangements such as Simply Vera Vera Wang for Kohl's.

Simply Vera Vera Wang has created lots of buzz for Kohl's and certainly shoppers will benefit from buying a piece of that aspiration from a designer brand at a great discount value.  With $98 bubble skirts and $138 car coats, Simply Vera is being priced way above Chaps and any other brands that Kohl's is currently carrying. This competes directly with Macy's and Bloomingdale's contemporary and value bridge areas. Kohl's will have to figure out how to lure those customers in their doors. I believe the current Kohl's customer profile is a price conscious, discount and value oriented customer. A big designer name probably won't get as much credit with this customer. However, if Kohl's is successful in winning over some of the Federated customers, then they have certainly accomplished their goals.

For Vera Wang, in my opinion, by attaching her name to the Simply Vera Vera Wang label was not a good move. She has a lot more to lose then Kohl's. Estee Lauder created several cosmetics lines for Kohl's without using the Estee name. American Living is a complete lifestyle brand that is being created by Ralph Lauren for JC Penney to be launched 2008, does not carry any part of the Ralph Lauren name. These mega brands that have been around longer than Vera Wang simply do not want to jeopardize their upscale business and offend the retailers who are carrying their current lines.  When compare with the H & M strategy, going downstream with Kohl's is definitely more risky for any big name couture designers. 

In addition, Kohl's runs a 40 to 60% discount frequently and as quickly as the merchandise hits the floor. That will certainly make Simply Vera, simply a bargain.  

Implications: 1) Good move for Timex to expand it's brand portfolio 2) Will it downgrade Versace and Ferragamo's image 3) Will this upgrade Timex's image in the eye of consumer

Analysis: In my opinion, this is all about branding, design, product development and marketing. 

This is a great move for both Timex and Versace.  Timex can now expand their portfolio and enter into the high end market under a different brand to reap some of that market share.  With their worldwide distribution and manufacturing network, it can grow and promote the Versace watch business substantially.     

There are many cases in the apparel industry where a manufacturer produces both mass merchant and designer goods.  For example, the manufacturer who produces Badgley Mishka intimates also produces Fruit of the Loom for Wal-Mart.  Both products are made well and marketed for their target consumers.   

Since this is not a co-brand product, it should not downgrade Versace's brand image.  I would certainly NOT market Timex as the maker of the Versace products as the consumers are sensitive to brand status.  The 2 different brands should have 2 different operations in R&D, marketing, branding and etc.  

At the end of the day, my opinion is that although Versace is a big name on the runway, a Versace watch is still viewed as a fashion item.  It cannot be compare to Rolex or Cartier with their heritage and legacy as a fine watch and jewelry maker.      

Implications: 1. Sky Rocketed Wedding Costs create a niche for a discounted bridal market 2.  Weddings for the low to average incomes - an underserved market 3.  Can big box retailers be a choice of the budget minded bride-to-be?

Analysis: In 2005, an average American wedding costed around $30,000, a 73% increase since 1999, according to "American Weddings", a study from The Fairchild Bridal Group surveyed more than 1000 brides, reported on CNN Money.  An average wedding in New York, Northern New Jersey and Long Island-NY area costs around $37,000 these days, according to The Wedding Report, a wedding market research company.  The total cost per wedding is higher than some of the cost of a college education. 

People are getting married older, wiser and have more spending power.  The average age for both bride and groom is 27 to 29 years old.  Over 1/3 of the bride pays for her own wedding or at least a portion of the bill.  She is a savvy, educated girl who would expect a better design gown with quality fabrics and get fitted in a full service bridal salon instead of purchasing it over the web at Target or ordering a generic wedding cake at Costco.

Wedding is an aspiration event and the focus is on the bride.  It wouldn't matter what the groom is wearing (just watch the Men's Warehouse commercial for their cheap tux advertisement).  With all of the celebrities weddings in the media, every bride would dream to have a gown designed by Vera Wang.  However, the reality is that most will not be able to spend $ 5,000 for a gown. 

I believe there is a very large lower market that is under-served.  This applies for everyone who doesn't want to fork out $30,000 for a wedding but still wants a dreamy affair with some sophistication and organized planning with minimal stress.   However, putting a couple of gowns on the web and selling it at $89.95 - 129 is far from servicing the niche.  In order to market this properly, the mass merchant needs to offer services to the bride and her party.  The wedding gown needs to be fitted properly, there needs to be a selection of not just wedding gowns but dresses for the bridesmaid, mother of the bride and flowergirls.    

Can mass retailers create a service oriented environment for the bride-to-be with her entire wedding planning from the gown, invitations to the wedding registry?  I believe it can be done.  Both Ikea and Home Depot have special design services for their customers.  Ikea has by appointment only interior design services to furnish an entire office, as long as you buy their furniture.  This is premium service without the premium price ticket.  It takes an innovative strategy to accomplish the bridal services at a value.  This could be an interesting opportunity for the mass merchants if it is done with some style, energy, creativity and positive service.

Implications: 1) A very smart and complementary merge 2) Luxottica corners the luxury optics market with Ray-Ban, Chanel, Versace, Prada and other top designer licensed brands 3) Oakley can leverage Luxottica's global distribution platform to truly grow their sports-driven apparel and accessories lifestyle brand.          

Analysis: A very smart move for both very complementary businesses. 

They are both global luxury eyewear manufacturers, wholesalers and retailers.   Oakley's products are well recognized as technology and sports driven, while Luxottica is a major producer of all top fashion runway brands like Versace and Prada.  In the past several years, high fashion designer brands have eaten away most of the women's eyewear business.  While Oakley has a loyal male customer following, they have also launched a very small but focus women's line with an outdoor, active lifestyle concept last year.

In the past, Luxottica competes with Oakley in their wholesale distribution, while at the same time, Luxottica who owns Sunglass Hut is also Oakley's largest customer.  

With the merge, Oakley can leverage into Luxottica's established global platform and grow its international distribution, not just in eyewear but also in their active related apparel and footwear business.  
This will also help it's launch and expansion into the women's eyewear
market, a much more substantial part of the fashion eyewear business. 

Luxottica can now add a very technology driven iconic brand into their portfolio.  Oakley owns a couple hundreds of patents, is extremely technology and sports driven and also produces for the special eye protective gears for the military and police.  They will open up a whole new world for a fashion driven eyewear company.  

In the end, we should expect to see great product innovations like Oakley's Thump with Prada's fashion styling.  A true marriage of fashion and function. 


  

Implications: 1. Private label brands offer design exclusivity, control and better profit margin to department stores. 2. National brands are losing floor space and need to counter attack with better strategies.

Analysis:

As a national brand, in order to survive today, you must have a major department store as an anchor.  With all of the mergers and acquisitions, there are fewer and fewer department stores to sell to.  There is mainly Federated (Macy's) in the upper mid tier and Kohls and JC Penneys at the mid tier.  It has taken these department stores more than a decade to get their private label brands right.  It wasn't always the case and there are still private brands that aren't profitable and didn't make the cut.  However, we can see that private brands such as INC for Macy's and Arizona for JC Penney are doing extremely well.  They give the retailer a much better margin and control.  It would be interesting to see the launch of American Living, another exclusive strategy created by Ralph Lauren for JC Penney.   

To address your questions:

1) As department stores giving their own private brands the top floor space, national brands will have to come up with more attractive and exclusive strategies such as: exclusive collections, better designs & quality or better wholesale price. 

The problem is better price will cut into the wholesaler's margin which is already lean.  In the upper and mid tier brands, the designs really don't stand out.  They are mostly followers and not fashion trend setters.  In terms of quality, chances are that the department store private brands are producing at the same factories as the national brands, so the quality is very similar.  

2) Will the national brands open their own discount stores?  Yes and they already have plenty of Factory and Outlet Stores where they are dumping their last season's goods and some of these factory stores are so profitable that national brands will produce merchandise exclusively for these type of discount factory/outlet stores. 

Will national brands hold their hot lines hostage for better floor space?  possibly, but not the type of negotiation skill you want to use frequently.  There are a lot more brands out there than department stores these days.  There is always someone standing behind your back waiting to take on your floor space.