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Clothing makers adapt to face challenges
Luxury, value goods both do well
Economic growth spurs consumer spending
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Private equity firms go shopping in the apparel sector
Diversifying to survive
Buying into new markets
Following the demographics
Licensing builds megabrands
Shorter cycles
Price deflation
Offshore sourcing

Components of the industries
Intense competition
Manufacturing dynamics
Reduced trade regulation
Vital role of technology
Sales channels proliferate
Enhancing customer loyalty

Qualitative factors
Quantitative factors
Other factors
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GLOSSARY.............................................................................................29 INDUSTRY REFERENCES.....................................................................31 COMPARATIVE COMPANY ANALYSIS..............................................34

Executive Editor:Eileen M. Bossong-Martines
Associate Editor:Joseph M. Coda
Copy Editor:Brandon Wilkerson

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Sales of both apparel and footwear in the US
are rising, lifted by a move toward dressier,
more colorful looks for both men and women.
Suit sales are rising for men and dresses are
growing more popular for women. And sales
of accessories such as handbags remain strong.
Retail sales of apparel rose 5% in 2006, com-

pared with a 4% increase in each of the past three years, according to research group NPD Fashionworld’s consumer estimated data.

The growth is not occuring evenly, how-
ever. Consumers are increasingly splitting
their purchases between luxury goods and
value-priced merchandise. The high-end
consumer is more insulated from higher
energy prices and other economic swings.
At the same time, inexpensive goods sold
through chains such as discounter Target

challenges, thanks to retail consolidation and a slowing US economy. Companies are work- ing to cope.

A large deal in the department store indus-
try has changed the landscape for many appar-
el companies. In August 2005, Federated
Department Stores Inc., owner of the Macy’s
and Bloomingdale’s department store chains,
purchased smaller rival May Department
Stores Co., owner of Lord & Taylor, Filene’s,
and the Marshall Field’s chains, among others,
for $11.9 billion in cash and stock. The com-
bined company generated sales of $26.97 bil-
lion through about 850 stores in 2006.

The merger has hurt clothing companies
that sold goods to both companies by reduc-
ing the footprint of retail floor space. Feder-
ated rebranded more than 400 May stores to
the Macy’s name and is creating a nation-

wide department store chain that can be
marketed on television and other mass me-
dia. Federated closed duplicative outlets, and
sold the 48-store Lord & Taylor chain to pri-
vate equity firm NRDC Equity Partners.

Department store retailers are changing
their merchandise mix to stand out and con-
vince shoppers they have products not avail-
able elsewhere. The department stores are
phasing out wardrobe basics that sell for less
than brand-name goods and bringing in more
fashionable private-label goods. Federated is
promoting its Alfani, greendog, and Charter
Club private label brands. Mid-priced depart-
ment store operator J.C. Penney Corp. is intro-
ducing and promoting more private label
brands, including a.n.a. for women and Am-
brielle lingerie. Department store chains are
also dropping brand names that have under-
performed, putting further pressure on clothing

companies to deal with the consolidation and
merchandising shifts in department stores,
usually their largest customer-type.

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