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Faith Hope Consolo
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In the News

Squeezed Labels Open Own Shops

As space in the nation's department stores becomes scarcer, clothing labels are increasingly setting up shops of their own, setting the stage for what industry executives predict will be a wave of store openings over the next few years.

Labels such as Theory and Juicy Couture, which once counted on department stores to sell the majority of their goods, are cottoning to an idea that high-end designers including Gucci and Prada discovered a decade ago.

By opening their own stores, these labels hope to better control their image, rein in discounts and avoid margin-eroding negotiations over markdown money.

"Even the smallest guy feels he needs to have a face on the street," said Faith Hope Consolo, who heads the retail leasing division for Prudential Douglas Elliman.

Exact numbers are hard to come by, but real estate brokers and others who track the industry said they are seeing a dramatic pickup in demand for retail space that has led to double-digit increases in rents across the country.

"We opened more stores for more retailers nationwide in 2005 than we did the previous five years combined," Consolo said.

Though there are several reasons for the increase - including new concepts that existing specialty stores such as Gap and Abercrombie & Fitch are rolling out - executives overwhelmingly point to a reduction of selling space in department stores as a driving factor.

A wave of consolidation has led to hundreds of expected department store closures, but more importantly existing stores are scaling back on branded merchandise in favor of private-label goods that carry higher margins and help to differentiate them from competitors.

In the biggest example of this trend, Federated Department Stores, which acquired the May Department Store Company last year, plans to boost sales of private-label merchandise to about 24 percent of sales, up from the high teens, said Bill Dreher an analyst with Deutsche Bank.

The resulting difference works out to a nearly $2 billion swing in buying power away from branded goods, according to Dreher's estimates.

As a result, dozens of companies that have been department store staples for years, including Levi Strauss and Liz Claiborne, which owns Juicy Couture among other labels, have recently announced plans to roll out retail stores of their own.

"All brands at all price points are looking to better control their destiny," said Laura Pomerantz, of PBS Realty.

Take the case of Tommy Hilfiger, which has seen a steep decline in sales to department stores. As part of a plan to reinvent itself, the company, which was recently acquired by Apax Partners, has been scouting locations for a prototype Tommy Hilfiger store that would carry merchandise similar to what is available in department stores, sources said.

After a failed foray into retail in the 1990s, Tommy Hilfiger mainly operates outlet stores in the U.S., in addition to a handful of more upscale H boutiques. The prototype under consideration would be different from either of those two formats, sources said.

A Tommy Hilfiger spokeswoman said a retail expansion was in the early stages, but declined to comment further.

 

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