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Middle-tier retailers try on new brands

With consumer budgets tight, Kohl's, Penney and others are switching out lines and pitching private labels.

September 02, 2008|Ylan Q. Mui | The Washington Post

This back-to-school season will go down as the Battle of the Brands.

Kohl's launched six lines of clothing this summer with a star-studded advertising campaign featuring celebrities from including Lenny Kravitz and Hayden Panettiere. JCPenney introduced another half-a-dozen labels, the department store's biggest crop of new brands, with looks ranging from urban rock to all-American. And Dillard's is chasing soccer moms with a line designed by Sheryl Crow that hit stores last month.

It's all part of the no-holds-barred fight among middle-market retailers this back-to-school season, the second-biggest shopping bonanza of the year. Lacking the cachet of luxury stores and discounters' pricing edge, middle-tier retailers have been struggling to stand out in a crowded field. The economic downturn has raised the stakes.

"In this environment, when consumers are more discriminating with their purchases, we've recognized the importance of ensuring that our merchandise is compelling," said Ken C. Hicks, president of J.C. Penney & Co.

According to NPD Group, department stores ranked third as back-to-school shopping destinations. Discounters topped the list, with 81% of consumers planning to shop there. More than half of consumers listed value and necessity as driving their purchases.

Wal-Mart Stores Inc. has been the big winner this season, with July sales at U.S. stores open at least a year up 3% and second-quarter earnings up 17%. The chain also debuted its own new lines this summer and purchased exclusive rights to the tween brand l.e.i., which was formerly found in department stores.

Meanwhile, Kohl's Corp.'s same-store sales dropped 10% in July, while profit fell 12% in its fiscal second quarter, ended Aug. 2. J.C. Penney was down 7% in July and its second-quarter earnings plummeted 36%. Dillard's Inc. posted a 2% increase in sales in July but this week reported a loss of $38 million during its second quarter, compared with a $25.2-million loss a year earlier.

"They're in a tougher position because they don't compete on price," said Stacy Janiak, U.S. retail specialist at Deloitte. "But they also have other tools at their disposal to try and lure the consumer."

For Kohl's, that has come to mean branded, exclusive merchandise. The Wisconsin-based retailer once was a Wall Street darling, posting double-digit sales increases with its no-frills stores, proof that there was money to be made in the middle of the market. But in recent years, Kohl's has made merchandising missteps and been hamstrung by mediocre inventory gathering dust on the clearance rack.

Now the economy is taking its toll, even as Kohl's attempts to refresh its assortment of apparel. Nearly 43% of sales during the second quarter were of private-label products. Chief Executive Kevin Mansell called the Elle collection of clothes and accessories that debuted last year "an overwhelming success" and said he was pleased with initial sales of the new Abbey Dawn line for juniors inspired by pop singer Avril Lavigne.

Mid-tier retailers are counting on proprietary labels not only to create buzz, but also profits. Margins are higher for merchandise they've developed themselves, giving them room to slash prices as needed.

The retailer has also decreased merchandise in each store by about 15%, which cuts down on both clutter and markdowns. Though Kohl's has identified more than 1,400 locations for new stores, the company said the credit crisis and weak consumer spending makes the future uncertain.

J.C. Penney has suffered through this retail roller coaster for years. Its strong comeback during the last back-to-school season makes this year's comparisons tough. It hopes to boost sales through a mix of fresh merchandise and aggressive promotions torn from discounters' playbooks.

This summer, it debuted a sporty line named Le Tigre from Kenneth Cole. Penney developed private-label brands Decree, which focuses on denim, and two lines for young men: American Living, with trendy jackets and jeans, and White Tag, a rocker line of denim and arty T-shirts. And it launched a collection of home decor for young adults called Dorm Life. Hicks said sales of these new brands were strong.

To boost volume, the retailer has turned to discounts. Recently, JCPenney rolled out a promotion for 88 cents on the second purchase of key items such as baby-doll T-shirts, hoodies and cropped pants.

"Lowest prices for back to school," boasted the advertising circular -- that is, until the following week, when Penney returned with another clearance sale offering 75% off.

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