Claiborne shift highlights retail rivalry
today Oct 11, 2009
By Martinne Geller - Analysis
NEW YORK (Reuters) - Liz Claiborne's (LIZ.N) plan to sell its namesake sportswear only at J.C. Penney Co Inc (JCP.N) stores and on a television shopping network highlights a new turn in the ongoing rivalry between the mid-tier department store chain and its slightly more upscale rival Macy's Inc (M.N).
The decision Claiborne announced on Thursday 8 October to sell its Liz Claiborne and Claiborne brands exclusively at Penney ends a decades-long relationship between the brand, founded in 1976, and Macy's. But Macy's said it supported the decision, given the brand's poor performance in recent years.
The move is good news for all involved, according to analysts and consultants. They said it guarantees revenue and profits for Liz Claiborne, gives Penney more exclusive product, and frees up Macy's to better differentiate itself as its customer base increasingly overlaps with Penney's.
"The Liz Claiborne brand has sold poorly in recent years and has continued to decline. As a result we could not justify expanding it at Macy's," said Macy's spokesman Jim Sluzewski.
He said customers have been confused between the various brands carrying the Liz name, such as the Liz Claiborne line at Macy's, the Liz Claiborne New York line at Bon-Ton Stores Inc (BONT.O) and the Liz&Co brand at Penney.
"When customers see the same brand name available in different stores at different quality levels, they tend to be confused," he said.
An industry executive, who declined to be identified by name, said the confusion would not be so damaging if consumers really saw Macy's as more upscale.
"Their point is that it was damaging to their business to have Penney have it at a lower price. But then again, their argument is, 'Our shopper doesn't shop at Penney,'" the executive said. "If that's the case, how does this get in the way?
"It shows that, in fact, Macy's and Penney have more retailer-to-retailer interaction with consumers than Macy's is normally willing to admit," the executive added.
COMPETITION HEATS UP
Sluzewski said there was nothing new about consumers who shop at Macy's also shopping at other stores. He stressed that what differentiates Macy's is better product.
"Of course, consumers today shop in a wide range of stores," Sluzewski said. "The merchandise in Macy's is more fashion-oriented and of better quality than lower channels of distribution."
While Macy's has traditionally been positioned as a little higher end than Penney, Kimberly Picciola, senior retail analyst at Morningstar, said the 2005 merger of Macy's owner Federated Department Stores with May Department Stores broadened the company's customer base by giving it stores in new markets.
"In those markets where they bought the May stores," Picciola said, "they probably are competing a little more directly with J.C. Penney."
What is more, Penney is expanding its reach into Macy's territory, she said, with Sephora makeup boutiques and a store in Manhattan's Herald Square just a block away from Macy's flagship store.
These moves are heating up what Richard Hastings, a consumer strategist with Global Hunter Securities, called an ongoing cyclical tug-of-war between Macy's and Penney that swings every two years or so.
"It seems there are a couple of collisions taking place right now," Hastings said, adding that Penney's Herald Square store "has the potential to rebrand and change how some people perceive J.C. Penney."
Craig Johnson, president of Customer Growth Partners, a retail consulting and research firm, said shoppers are likely to go to both department stores if they're in Herald Square.
"Even though Macy's is positioned a half a step higher, it's not Neiman Marcus NMRCUS.UL higher," he said.
A NATURAL HOME
Like other department stores, Macy's and Penney have beefed up their exclusive label offerings to woo shoppers to their stores and reduce competition centered on price.
Most recently, Penney launched a women's clothing line called She Said and a home goods line designed by Cindy Crawford, while Macy's signed exclusive deals for Ellen Tracy and Rachel Rachel Roy apparel.
U.S. consumers see Macy's as more fashionable than Penney, but also view it as 10 percent to 20 percent more expensive, said Britt Beemer, CEO of America's Research Group.
As a result, Liz Claiborne has fared better at Penney, especially during the recession, where it has sold the Liz&Co and Concepts by Claiborne brands exclusively since 2007. Starting next year, the Claiborne and Liz Claiborne brands will be sold there exclusively as well.
Yet the more fashionable and sophisticated Liz Claiborne New York line, by celebrity designer Isaac Mizrahi, will be sold exclusively on home shopping channel QVC, a unit of Liberty Media Corp (LINTA.O).
As part of the 10-year agreement between Liz Claiborne and Penney, Penney has the option after five or 10 years to acquire the Liz Claiborne brands outright for use in the United States and Puerto Rico. Penney said it plans to exercise that option, assuming the brand performs as expected.
Johnson said Penney is "a natural home" for the brand founded by pioneering designer Liz Claiborne, who died in 2007.
"Liz Claiborne is on the great runway in the sky now, but she still has a great name that's trusted by a lot of women, particularly women who are core J.C. Penney shoppers," he said.
Liz Claiborne Inc said it will continue to supply Macy's with some of its other brands, which include Lucky Brand Jeans, Kensie and DKNY Jeans.
And at the end of the day, executives from the U.S. apparel industry, unofficially based in New York's "Garment District," will maintain warm relations, since they "live in a very compressed social world," Hastings said.
"They're running into each other at social events and restaurants and philanthropic events in the city," Hastings said. "They're so close to each other that regardless of what's happening, good or bad, it's always going to be a friendly relationship, no matter how it changes."
(Additional reporting by Nicole Maestri in San Francisco and Aarthi Sivaraman in Seattle; Editing by Carol Bishopric and Jan Paschal)
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