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Market Analysis Summary
The recent economic slowdown, combined with the tragic events of September 11, 2001, reduced consumer confidence, which led to declining sales in the apparel industry as a whole. The impact of the economic slowdown is felt differently by various sub-sectors of the fashion industry, with some being more greatly affected than others, such as the men’s wear industry, in which the demand is more elastic than in the women’s wear industry.
In general, the apparel market is positive due to the immensity and strength of the industry. However, manufacturers who want to enter the market, will have to be extra-prudent and prepared to make greater investments in promotions and resources to do observation visits, conduct preliminary market tests, and increase their visibility by taking part in trade shows and other activities. Industry specialists strongly advise using specialized brokers to increase one’s chances of success.
4.1 Market Segmentation
ReHabiliments intends to target men, women, and children in the Tri-State Area who require competitively priced, branded clothing. Within all groups, there are no color barriers and customers have diverse backgrounds. Briefly stated, these consumers range between one year and 59 years of age.
According to the NPD, women spend about 80% of all money that goes for sportswear. They control 96% of the dollars spent on their own clothes, 93% of those spent on children’s, and 60% of those spent for men’s sports apparel.
During 1999, the women’s consumer segment, a constant consumer group, dominated the U.S. apparel sales market. Women’s apparel sales growth was 3.7% and represented 52% of all apparel sales, whereas men’s apparel growth was 4.1% and accounted for 31% of total apparel sales. Women tend to buy at a constant rate, whereas men’s apparel sales have been growing.
Individuals under the age of 20 wear about 43% of sports apparel, but individuals aged 45 and older accounted for 25% of the market in 1999. Girl’s and boy’s apparel rose 0.5% and 3.8%, respectively.
The Market Analysis table and chart, below, show potential customers in the Tri-State Area by gender and age groups, as well as potential Internet sales.
|Year 1||Year 2||Year 3||Year 4||Year 5|
|Men (20 to 49 Years)||1%||202,693||204,719||206,765||208,831||210,918||1.00%|
|Women (20 to 49 Years)||1%||207,075||209,151||211,247||213,364||215,503||1.00%|
|Boys (5 to 19 Years)||1%||98,462||99,440||100,428||101,425||102,432||0.99%|
|Girls (5 to 19 Years)||1%||93,859||94,790||95,730||96,679||97,638||0.99%|
|Infants & Toddlers (0 to 4 Years)||1%||60,577||61,180||61,789||62,404||63,025||1.00%|
4.2 Target Market Segment Strategy
According to the Yale School of Management (November 6, 2002), larger branded apparel manufacturers with diversified product lines and self-owned outlets report revenue growth of between 2% and 9%. Mass manufacturing and rapid creative copying of fashion catwalk designs means that many of us can afford innovative looks at high street prices without the couture price tag. Age is no barrier to following a fashion trend or making a fashion statement, as 10 becomes the new 18 and 50 the new 35. Consumers are craving new and different products, actively seeking new fashion-forward items on each shopping expedition.
Current opportunities in the Tri-State apparel industry include:
- Adult Apparel (Men/Women, Ages 20 to 49 Years)
- Sportswear (Men/Women, Ages 20 to 49; Boys/Girls, Ages 5 to 19)
- Junior Clothing (Boys/Girls, Ages 5 to 19)
- Children’s Wear (Infants/Toddlers, Ages 0 to 4 Years)
The production of adult apparel, particularly women’s clothing, occupies the largest sector of the apparel industry. In 1990, over 1,000,000 workers were employed to produce an almost infinite variety of dresses, suits, coats, and sportswear.
Traditionally, the women’s apparel business has operated on a five-season basis: fall line merchandise is usually offered to retail store buyers in April; holiday collections in June; early spring, resort, and cruise wear in October; spring and summer clothes in January; summer and early fall fashions in March and April.
Men’s clothing design and sales are in a state of upheaval. In the past, manufacturers presented two new lines of classic clothing each year, changing fabrics for seasons. Today, many firms produce highly styled clothes for department store boutiques and small specialty shops which cater to the fashion-conscious man. Their problems with seasons, lines and style acceptance parallel those of women’s wear producers.
Other than children’s wear, the market for men’s clothing has grown faster than any other sales category in the industry. The introduction of state of the art permanent-press fabrics probably initiated this sales increase, but the acceptance of casual fashion in men’s wear, spurred by the growing youth market, has been the main factor.
Although the larger firms are continuing to gain ground compared to smaller firms, and brand-name merchandise already has a large share of the market, the preference for major brands is not longer unanimous. Retailers are now much more open to adding new product lines. The current interest in personalized trends, which more closely reflect the consumer’s identity, provides an opening for small and lesser-known collections.
The “cheap chic” trend is also spurring consumers to expect more at a lower cost, seeing little difference in style from one brand to another.
Individuals under the age of 20 wear about 43% of sports apparel, but individuals aged 45 and older accounted for 25% of the market in 1999. The widening age gap between youthful and not-so-youthful wearers represents a multitude of challenges in designing, marketing, and branding for sportswear manufacturers.
The growth of the sportswear industry is particularly marked among female consumers, who now see themselves as more athletic and have begin to wear these collections as street clothes. Since women are more “outfit-oriented” than men when it comes to exercise clothing, they represent a target clientele for this industry. The junior market segment is also of primary important in this industry, as sportswear is often tied in to fashion.
A product’s technical characteristics are also very important in this industry, competing with the “sport-fashion” factor in the final buying decision. Technical consumers are much more consistent in their buying habits and provide stability during economic slow downs. Technical fabrications, whether relating to textiles or processes (e.g., sneakers) are therefore popular.
The strong growth in demand in the junior clothing industry has, so far, been able to minimize the unfortunate effects of the economic slowdown, but heavy competition in the market makes retailers very conscious of fluctuations in demand. Competition in the junior market segment has shot up in recent years, with a twofold increase in the number of junior clothing chains.
Popularity and brand visibility are very important factors in buying decisions made by this market segment; this reduces the maneuverability of small manufacturers who want to position themselves in the market. It is crucial to follow trends because this segment follows fashion cycles closely. It is possible to position one’s self with very up-to-date collections at lower prices than well-known collections; however, this means following the market closely and providing the resources necessary for product visibility.
Manufacturers of children’s clothing produce large lines from which the store buyer makes purchases three times a year to cover the main selling seasons of spring and summer, back-to-school and holidays. Although children’s apparel is a basic family requirement, the fashion revolution is affecting even these styles. Mothers (controlling 93% of all apparel dollars spent on children’s wear) want their children to have the latest “look.” Children’s wear manufacturers are becoming highly skilled at producing high fashion apparel. Kid’s fashions have been one of the the fastest growing category of apparel. To keep pace with this trend, manufacturers have adopted the production and sales techniques used in women’s apparel. This has led to enormous numbers of children’s wear departments and specialty stores throughout the nation.
The children’s wear industry has grown considerably in recent years, but still remains a small market segment and can be difficult for small manufacturers to enter. Since children’s wear trends increasingly mirror those of adult apparel, children’s collections must not only please children, but also be very similar to current trends in the adult market. This calls for constant monitoring of the market and a high degree of flexibility and quick adaptation. Major firms that market adult collections at the same time as children’s copies have a head start in this regard. Price, nonetheless, remains a decisive factor in making purchases, given the speed at which children outgrow their clothes. Manufacturers who are competitive in this regard and have the flexibility to adapt their products to fashion trends can find worthwhile niches.
4.2.1 Market Trends
The Marketplace & Consumer Shopping
Interest in apparel remains high even though there are a number of discouraging factors. It is the number one choice of items for which to shop, beating out groceries in second place – 34% to 32%.
- In general, women 45 to 64 spend more on clothing per capita than any other group. The 50+ market spends $26.6 billion a year on women’s apparel and $27 million per day on personal care products.
- The so-called beauty and fashion industry has traditionally focused on white America; however, the new “multi-cultural” math is leading experts to re-think based on these statistics: 35 million African-Americans spend $646 billion a year; 35 million Hispanic-Americans spend $581 billion; 10 million Asian-Americans spend $297 billion. These individuals currently make up 35% of America. By 2050, it is estimated that these individuals will make up 50% of America. This audience is basically untapped when it comes to hair care, skin care, nail care, and cosmetics.
- By 2010, the teen population is expected to grow to 34 million; however, recent recession has put a strain on that spending pattern. The industry is not sure whether teens are poorer than in previous years or if their parents are forcing them to spend on more practical items in line with the family budget. Total teen spending in 2002 dropped 3.7% to $20.9 billion. “Tween” shoppers spent $10.1 billion.
- More and more clothing purchases are planned rather than being impulse/spur-of-the-moment purchases. A survey conducted in the spring of 2003 revealed that 60% of the respondents say purchases are planned. This compares to 55% in 2002; in the mid-1990s it was at 53%.
- Shopping trips are getting shorter. Women are said to spend 88 minutes today (2003) compared with 95 minutes in 2000. The number of times to shop for clothing per month is holding steady at approximately 1.7 times per month.
- In response to increased competition from new market participants, retailers are exercising a variety of strategies, including downsizing and restructuring, changing their merchandise mix, adding services, and adapting the quick response system for controlling inventory management costs.
- The Internet has become another tremendous advantage to the industry. With the Internet, consumers can get updated and almost instantaneous information. The great e-commerce websites of many retailers are helping to ensure global business. Internet sales are guiding retailers into just the right international and domestic cities in which to build stores, and allowing apparel companies to make their brands known internationally even before they have any physical presence in the international market.
Apparel Selection, Fashion, Personal Appearance, and Image
- Comfort continues to be a very important element when purchasing clothing. Many consumers elect to wear casual apparel because it feels more comfortable. In a 2002 survey, 51% of the respondents said they choose comfort over “better looking” clothing items for a night out on the town. In 1994, 59% opted for the “better looking” clothing items.
- Women have a great deal of “casual” clothing in their wardrobes. According to Cotton, Inc.’s Lifestyle Monitor, 56% say they own more casual clothing than work clothing, while 35% say the reverse.
- Accessories have gained fashion status during the past couple of years. Consumers unwilling to purchase big-ticket items to update their wardrobes have seen and used accessories as an inexpensive way to achieve a new, updated appearance.
- Sixty percent of American women are full-figured (size 14 and above). Expenditures on apparel by plus-sized consumers grew 8% from 1998 to 2001, while those by regular-sized women grew 3%.
- Many manufacturers and retail stores are leveraging their products by licensing their brands for accessories such as sunglasses, watches, fragrances, wallets, and footwear. This strategy is increasing exposure for well-known brands and building consumer confidence in a specific brand.
- The challenge for many apparel retailers continues to be anticipating the coming trends and deciding how those trends will or won’t fit into the company’s image. Companies in the apparel industry are becoming more tuned in to what their customers want and giving them what they want.
Textiles (Fibers, Fabrics, Finishes, etc.), Care, and Maintenance
- Stretch continues to be extremely big (1 to 5% Lycra® spandex added to many fabrics).
- Wrinkle-resistant garments are much improved thanks to recent technology; however, consumers must pay more for the product. Lifestyle Monitor (Article 301) confirms that when given a choice, 53% of the women surveyed said they would pay $35 for 100% cotton wrinkle-resistant slacks versus $30 for a pair of cotton/polyester slacks (July 2003).
- Performance fabrics are not new, but continue to get better and more sophisticated. New developments are emerging in moisture management and climate control.
- In fashion, novelty prints are on the rise. Some specifics include abstracts, graffiti, photo prints and Asian-inspired looks. Textures continue to be extremely good with such looks as crinkled suedes, stretch combinations, etc. Embellishing will continue with embroidery, lace, and like items.
- The ready-to-wear apparel industry is suffering from cheaper imports and heavy discounting. According to several experts, “there are too many stores and too much stuff, driving competitor’s use of lower prices as a primary weapon for growth.” Although consumers benefit initially from this situation, retailers are facing the worst of both worlds – deflation on the revenue side, and inflation on the cost side. Ultimately, the consumer is hurt when a trusted retailer must sell or go out of business. Quality is frequently sacrificed in the end.
- A critical element for long-term success in the apparel industry is global expansion. Companies have to be deliberate in international expansion and expand into countries where the greatest potential exists, as the international sector of the industry becomes more important.
“Apparel and Textile Trends,” compiled by Linda Heaton, Extension Professor Textiles & Clothing, Cooperative Extensive Service, University of Kentucky – College of Agriculture, November 2003
“Apparel Industry,” WowEssays.com
4.2.2 Market Growth
The apparel market, as a whole, has been suffering from a deflationary trend in prices as manufacturers move to independent contract manufacturing overseas. Another reason for price weakness is the casual trend in clothing – casual is less expensive and generally lasts longer than dressier clothing. These factors set retailers on something of a promotional spree.
The U.S. fashion industry had a modest 2% increase in apparel sales for 2000. According to leading market information provider NPD Group, Inc., total apparel sales reached $182 billion last year, compared to $180 billion the previous year. While still a small percentage of total apparel sales, online/Internet sales showed double-digit growth in 2000.
Across all channels of distribution, sales of women’s apparel outpaced total market growth, driven by strong sales in both the large size and petite markets. In contrast, men’s apparel, the industry winner in 1999, lagged in 2000, decreasing in both dollar volume and market share. The infants’ and toddlers’ business experienced record-breaking growth from 1999 to 2000.
In 2003, the market showed some signs of recovery, and at least a little evidence that dressier clothing is selling again. However, the long-term deflationary trend in clothing will continue to challenge the men’s outwear market.
In the challenging U.S. retail environment, casual sportswear, one of the top categories of the past few years, has been steadily narrowing its appeal, not least for its lack of imagination in attracting youth.
However, women and men over the age of 35 renewed their allegiance to sports and active lifestyles by buying up to 24% and 19% more, respectively, in 2002 than in the previous year, according to U.S. analyst STS Market Research.
Women’s casual sportswear in the U.S. in 2002 registered a slight contraction compared to 2001, falling to US $38.8 billion from $39.6 billion, while men’s sportswear showed less dramatic growth than in past years, rising to US $26.8 billion.
The most significant gains were made with consumers over 35 years of age, with men’s shopping at specialty stores up 6% to US $1.7 billion and purchases by women over 35 up 14%, to more than US $4.7 billion, compared to 2001.
Marketers are competing to provide these age segments desired products. Unfortunately, less of teens’ and tweens’ money is being spent on clothing than manufacturers and retailers would like. From 2001 to 2002, teen and tween apparel purchases fell 3.7% and 4.6%, respectively.
When looking at clothing purchase drivers for consumers aged 13 to 17, price is a highly ranking attribute for jeans purchases, with 40% of dollar share in 2002, up almost 10% versus 2001.
The $28 billion children’s apparel market experienced continuous growth from 1998 to 2003, with the exception of the key 2001 holiday season, which was depressed due to the 9/11 terrorist attacks. This performance stands in contrast to the overall clothing market, which has been noticeably weak in this period. However, even within children’s clothing, sales of infant and toddler clothing have grown while those for older kids have declined.
There has been further change in the American consumer’s profile during 1998-2003, which began in the early 1990s: a majority of consumers shop at a small number of mass merchandise or national department stores, in which they expect to find a combination of trendy products and value prices. Leading brand manufacturers are able to retain market share only through alliances with the increasingly dominant clothing retail stores, such as Wal-Mart, Target, Sears, and J.C. Penney’s. To follow the trend of consumer traffic, even premier brands in the children’s apparel market are approaching the discount channel, while specialty stores are competing by launching less expensive concept stores. Yet, demonstrating that children’s clothing is a complex market with a large and distinct group of consumers outside the typical consumer profile, specialty clothing stores gained significant market share in 2001 to 2003.
4.2.3 Market Needs
Men (Age 20 to 49 Years)
- Branded Products: Men are more up front about their desire for branded goods, while women are more subtle. Men’s sportswear, for example, often carries enormous logos, while the logo on the expensive lipstick worn by many a woman remains at the bottom of the handbag, to be flashed only discreetly, in the powder room.
In a survey, “Brand New On Thursday,” conducted by Victoria and Albert Museum, nearly half of all male respondents claimed that, “you can learn a lot about a person from the brands they buy.” In addition, when the research is broken down into 16 to 34-year-olds and those 35 or older, there is a marked difference in responses. Among the younger age group, 35% admit that they are influenced by brand image, while only 13% of the over-35s claim susceptibility.
- Comfort/Easy-Care: Men want comfort and easy-care apparel, and the sportswear world provides this through high-tech fabrics. According to Bill Ghitis, president of global marketing for DuPont Textiles & Interiors (DTI), “Performance fabrics have been a niche for the athlete, but, based on our research, we believe that all men, particularly smart men, want much more out of their clothes.”
Many apparel brands, including proprietary retail brands, see performance as the future too, and they’re going forward with more apparel that’s comfortable and easy to care for. This includes the older, wrinkle-resistant or wrinkle-free technology, along with newer technologies, such as stain resistance, stretch, moisture management, and UV protection. (Source: “Getting Technical” by Brenda Lloyd, DNR, August 2003)
Women (Age 20 to 49 Years)
- Comfort/Easy-Care: Women avoid wrinkles on their skin, and they don’t want them on their clothes either. While the Fountain of Youth may be elusive, in the ongoing quest for comfortable cotton clothing that won’t wrinkle, women (and men) are winning the battle. Technological advances have ushered in a new generation of wrinkle-resistant, 100% cotton garments that deliver on comfort, style, and wear, while retaining a crisp appearance throughout the day. (Source: “A Pressing Matter,” in Lifestyle Monitor, Fall 2003)
- Apparel Sizing: The discrepancy in the actual size of women who may all – accurately – claim to wear the “same” size is one of the many fit anomalies that is a reality today for the U.S. clothing industry. Little analysis of body shapes and sizes has been conducted since the 1940s for women, and since the Civil War for men.
This lack of research, along with a lack of sizing standards, added to the growing practice of vanity sizing – adding inches to clothing to make it appear that a woman wears a size smaller than she actually does – has created a disparity between the clothes available to the consumer and their actual body shapes and sizes. (Source: “A Fitting Solution,” by Terri Ross, Apparel, August 2003)
- Sportswear: Until very recently, even if you got women into the stores looking for sporting goods and apparel, there was nothing for them to buy. There is a definite void in the market for women’s related merchandise, such as feminine looking garments rather than unisex.
Female athletes and enthusiasts in a number of sports have complained about a lack of selection. For example, Kate Gengo, a professional inline skater, finds apparel offerings for aggressive inline skating to be very slim. “There is never any selection for women. Cool clothes are available from small manufacturers. Buyers aren’t putting it in their stores or defining their customer needs,” say Kate.
Women are the primary sporting goods buyers, responsible for four-fifths of all athletic apparel purchases. As clothing options for the female athlete become more targeted, women looking for athletic clothing and shoes will patronize those shopping environments that understand the apparel requirements specific to their sport. The woman’s sportswear market raked in nearly $25 billion in 2000 and is expected to top $38 billion by 2005. (Source: “Girl Power Boosts Female Sportswear Industry to $25 Billion in 2000,” PR Newswire, New York, January 10, 2004)
- Senior Clothing: Fitness-oriented boomers and Title IX generation athletes are teaming up to give women’s athletic apparel, a market estimated at $23 billion in 2000, strong growth potential within an otherwise flat sporting goods arena.
Mature consumers are increasing their spending on apparel, as baby boomers reach peak earnings levels and their household expenses decrease, with children beginning to support themselves. Women aged 50 to 64 surpassed female teens between 13 and 18 as the largest spenders on casual sportswear in 2002.
Children (Boys/Girls, Age 5 to 19 Years)
- Fashion: With fashion continuing to drive the children’s apparel market, industry players are attempting to work more quickly and efficiently to make sure they have the right looks on the floor at the right time. According to Robert K. Futterman, CEO of Robert K Futterman & Associates, “Junior’s clothing – young, urban, and hip fashion retailers – like Forever 21, Wet Seal, Arden B, and H&M are poised for growth.”
Children’s and parents’ ever-louder cries for kids’ apparel with looks that mirror juniors, young men’s, and even adult clothing is also inducing retailers to commit to pint-sized incarnations of older styles, without waiting to see how the latter fares with customers. Tops with spaghetti straps and multicolored shimmering or sequined borders are gaining ground with girls. Boys are gravitating toward athletic silhouettes: brightly colored, printed camp shirts worn over muscle T-shirts, zip-off pants and shorts that extend several inches beyond the knee./FONT>
Style is important to these young adults, but style comes in many different packages – cellular phones, cars, and vacation destinations are among them. In addition, the teen and tween segments appear to find individuality appealing.
Infants/Toddlers (Boys/Girls, Age 0 to 4 Years)
- Ethnic Designs/Colors: By 2005, at least 40% of the designs and colors seen on children’s clothing will be tailored to appeal to African Americans and Hispanics. According to The U.S. Market for Infant, Toddler, and Preschool Clothing, a newly published Packaged Facts report available at MarketResearch.com, children’s clothing companies have identified ethnic markets, and specifically African American and Hispanic segments of the population, as their most important audience.
According to Don Montuori, Acquisitions Editor for Packaged Facts, “Hispanics and African Americans are already making a vast percentage of children’s clothing purchases. We have found that these ethnic demographics are more than twice as likely to purchase infant, toddler, and preschool clothing. When you consider this finding in tandem with demographic growth trends of recent years, there can be little doubt that success in the kid’s clothing market rests upon a company’s ability to market effectively to a diverse population.”
4.3 Industry Analysis
The apparel and fabricated textile products industry is a mature, slow growing industry. Intense competition characterizes this industry and drives its ever-changing structure and operations. The market is highly fragmented, particularly in the Tri-State Area. The complexity of this market calls for a high level of research and specialization prior to any attempt at market penetration.
The fashion industry in the Tri-State Area mainly looks to New York City, with its multiple opportunities, in particular the famous Garment District, an area of the city between 35th and 42nd Street and 5th and 9th Avenue. This district is the main gathering point for buyers and designers in the United States and is beginning to rival the major international fashion capitals of Paris and Milan. In addition, many firms place their head offices and/or buying offices in New York City.
The rest of the Tri-State Area follows fashion, but in longer cycles, and can serve as the springboard for manufacturers who don’t feel ready for the major challenge represented by the New York City market.
Overall, the U.S. apparel industry is large, mature, and highly fragmented. Apparel sold in the United States is produced both domestically and in foreign locations. According to estimates from the American Apparel Manufacturers Association (AAMA), an industry trade group based in Arlington, Virginia, the dollar value of domestic apparel production was $39 billion at the wholesale level in 1997 (latest available), which was less than the $46 billion (U.S. wholesale value) of goods imported into the United States. In addition, $15 billion of goods were produced in both the United States and another country.
In 1998, Americans purchased approximately $215 billion of apparel and footwear. According to NPD Group, Inc., approximately $177 billion was spent on clothing in 1998. The remaining $38 billion was used to purchase more than 1.1 billion pairs of shoes. With the U.S. population at 270 million, this accounts for roughly $800 a year per capita spent on apparel and footwear.
4.3.1 Distribution Patterns
In addition to the traditional channels, New York has a unique trade structure that enhances business opportunities. In addition to having six to eight market weeks each year during which buyers can place their orders, several showroom representatives offer opportunities for placing orders throughout the year. This market characteristic creates openings for designers who want to enter the market and want good visibility for their products.
In general, traditional distribution channels are followed. The products are bought from distributors and/or direct from the manufacturers, who have little say in how products are marketed. Since competition in the apparel industry is extremely intense, the use of a sales representative is strongly recommended to facilitate entry into the market. Direct distribution in this market can require a very extensive investment of time and money with no assurance of positive results.
4.3.2 Competition and Buying Patterns
Competition in this industry currently turns on prices. The first two quarters of 2001 were particularly difficult for U.S. textile manufacturers, leading them to shift to a push strategy. After two years of rising prices, pressure from foreign competition, and shaky economic conditions, leading textile manufacturers are being forced to lower their prices.
In a broad view, the retail apparel industry competes with all other sectors in the retail industry. These different sectors include electronic retailers, wholesalers, other discount stores, shoe stores, convenience stores, and others. Many of these different sectors have combined together, and often, a company may operate in various divisions to increase profitability.
1999 Data indicate that the largest retailers in the apparel industry were:
- Wal-Mart: $166,809,000
- Sears, Roebuck, and company: $41,071,000
- K-Mart company: $35,925,000
- Target Corporation: $33,702,000
- J.C. Penny: $32,510,000
The top retailers in the Apparel Stores category included:
- The Gap: $11,635,398
- The Limited: $9,723,334
- TJX: $8,795,347
- Intimate Brands: $4,510,836
- Spiegel/Eddie Bauer: $3,210,225
Many experts point to changes in consumer attitudes as a driving force behind the restructuring that is occurring in the retail apparel industry. Not only have consumers become more cautious in their buying habits, but they have been reducing the portion of disposable income that they spend on apparel. In addition, consumers are increasingly demanding quality goods at low prices, which forces retailers to permanently sell merchandise at “sale” prices, with promotions occurring throughout the year. Economists and sociologists have attributed increasingly volatile consumer demand to growing numbers of new products, the rise of fashion-consciousness for even the lowest-cost apparel, and more selling seasons. (Source: “Codes of Conduct in the U.S. Apparel Industry,” U.S. Department of Labor, Bureau of Internal Labor Affairs)
4.3.3 Main Competitors
Although the apparel industry is mature and slow growing, it exists in a dynamic and competitive environment. Many companies are restructuring to create leaner organizations and adopt new technologies, with consolidation prevalent as larger companies gain leverage in market position and cost cutting measures.
ReHabiliments’ competition in the apparel industry is widely varied and comes from a variety of sources, including Tommy Hilfiger, Inc.; The Gap, Inc.; Abercrombie & Fitch; the Jones Apparel Group, Inc.; Polo Ralph Lauren Corp.; Liz Claiborne, Inc.; and Nautica Enterprises, Inc. The closest competitor in terms of popularity, growth, and product line is the FUBU Corporation.
Tommy Hilfiger, Inc. (www.tommy.com)
Tommy Hilfiger Corporation, through its subsidiaries, designs, and sources, markets men’s and women’s sportswear, jeanswear, and children’s wear under the Tommy Hilfiger trademarks. Through a range of strategic licensing arrangements (almost 40 product lines), the company also offers a broad array of related apparel, accessories, footwear, fragrance, and home furnishings. The company’s products can be found in leading department and specialty stores throughout the United States, Canada, Europe, Mexico, Central and South America, Japan, Hong Kong, and other countries in the Far East, as well as the company’s own network of specialty and outlet stores in the United States, Canada, and Europe.
Tommy Hilfiger’s clothing company, TOM Inc., is among the leading exponents in the intensified process of mass customization over the last few years. Beginning with a line of preppy looking, clean-cut, and conservative sportswear – similar to that offered by The Gap, Inc., but somewhat more expensive – Hilfiger set out in the early 1990s to compete against department store staple lines like Ralph Lauren and Liz Claiborne, who were essentially Young Republican clothing. In the course of only a few years, this basically khaki, crew and button-down WASP style, while remaining a constant theme in Hilfiger collections, has been submitted to variations which are intended to bring the product closer to Hip-Hop style – bolder colors, bigger and baggier styles, more hoods and cords, and more prominent logos and the Hilfiger name. TOM’s corporate strategies have been ahead of those of many of its competitors and have always stressed the acceleration of product delivery, new forms of retailing partnership, innovative EDI usage for inventories and customer tracking, and speedy and timely introduction of new lines and redesigned goods, assuring consumers a wide range of product choices. (Source: “Tommy Hilfiger in the Age of Mass Customization,” in No Sweat by Paul Smith, edited by Andrew Ross)
For the nine months ended 12/31/03, Tommy Hilfiger’s net revenues fell 2% to $1.37 billion. Net income before accounting change rose from $30.2 million to $105.3M. Revenues reflect fewer Wholesale segment sales in the men’s, women’s, and children’s product categories. Net income reflects the absence of $84.9 million in store closure-related special charges.
The Gap, Inc. (www.gap.com)
The Gap, Inc. is a global specialty retailer operating stores selling casual apparel, accessories and personal care products for men, women and children under the Gap, Banana Republic and Old Navy brands. The company operates stores in the United States, Canada, the United Kingdom, France, Germany and Japan. As of February 1, 2003, the company operated a total of 4,252 store concepts at 3,117 locations. The company’s stores aim to offer a shopper-friendly environment with an assortment of casual apparel and accessories that emphasize style, quality and good value. Gap stores are generally open seven days per week (where permitted by law) and most holidays. All sales are tendered for cash, personal checks, debit cards or credit cards, including Gap, Banana Republic, and Old Navy private label credit cards, which are issued by a third party. Gap designs virtually all of its products, which in turn are manufactured by independent sources, and sold under the company’s brands.
Since The Gap’s founding in 1969, the company has been built upon a culture of passion, creativity, energy, and entrepreneurial flexibility. These characteristics have helped The Gap continually evolve, to learn from its challenges, and to make the changes necessary to create long-term, quality growth. The Gap, Old Navy, and Banana Republic are three exceptional brands with strong emotional appeal. These clothing lines provide customers with clothes and accessories that enhance personal style – clothes that are simple, sexy, and cool. The power of these brands and the important place they hold in the everyday life of people around the world provide the company with tremendous opportunities to maximize this unique brand affinity.
For the fiscal year ended 1/31/04, The Gap’s net sales rose 10% to $15.85 billion. Net income totaled $1.03 billion, up from $477.5 million. Results reflect an increase in comparable store sales, improved merchandise margins and lower occupancy expenses.
Abercrombie & Fitch (www.abercrombie.com)
Abercrombie & Fitch Co. is a specialty retailer that operates stores selling casual apparel, personal care, and other accessories for men, women, and kids under the Abercrombie & Fitch, Abercrombie and Hollister Co. brands. As of February 1, 2003, the company operated 602 stores in the United States. The company’s stores and point-of-sale marketing are designed to convey the principal elements and personality of each brand. The store design, furniture, fixtures and music are all carefully planned and coordinated to create a shopping experience that is consistent with the Abercrombie & Fitch lifestyle.
The company has become the clothier of choice for the young and fashionable, and is no longer “your father’s Abercrombie & Fitch.” The music alone does as much to repel undesirables – say, anyone over 25 – as attract target customers. Once a respected retailer, the company has attracted controversy with these objectives. Issues of A&F Quarterly read like a cross between a catalog and hustler magazine. Featuring nude models in suggestive poses, A&F Quarterly has carried reviews of erotic books and an interview with a porn star, complete with professional tips. The catalog comes enclosed in shrink-wrap and stamped “XXX,” you must be 18 to buy a copy. Recently, the company’s bottom line was hit hard by a nationwide boycott and bad press generated by the pornographic catalog, A&F Quarterly.
For the fiscal year ended 1/31/04, Abercrombie and Fitch’s net sales rose 7% to $1.71 billion. Net income rose 5% to $205.1 million. Revenues reflects the addition of new stores and continued increases in the women’s market. Net income was partially offset by higher general, administrative and store operating expenses.
Jones Apparel Group, Inc. (www.jny.com)
Jones Apparel Group, Inc. designs and markets branded apparel, footwear and accessories. The company’s brands include Jones New York, Lauren by Ralph Lauren, Ralph by Ralph Lauren and Polo Jeans company licensed from Polo Ralph Lauren Corporation, Evan-Picone, Rena Rowan, Norton McNaughton, Gloria Vanderbilt, Erika, l.e.i., Energie, Todd Oldham, Nine West, Easy Spirit, Enzo Angiolini, Bandolino, Napier and Judith Jack. Jones Apparel also markets costume jewelry under the Tommy Hilfiger brand licensed from Tommy Hilfiger Corporation and the Givenchy brand licensed from Givenchy Corporation, as well as footwear and accessories under the Espirit brand licensed from Esprit Europe, B.V. Each brand is differentiated by its own distinctive styling, pricing strategy, distribution channel and target consumer. Jones Apparel operates four segments: wholesale better apparel, wholesale moderate apparel, wholesale footwear and accessories and retail.
Jones aims to gain stability in the apparel industry as well as retail markets through building “complete lifestyle brands serving a wide breadth of consumers in a wide range of income levels and shopping destination preferences.” (Source: PR Newswire, 2/7/01.) The company has a multi-brand, multi-distribution business strategy.
For the fiscal year ending 12/31/03, Jones’ net sales rose 1% to $4.38 billion. Net income before accounting change decreased 1% to $328.6 million. Revenues reflect the acquisition of Gloria Vanderbilt which provided healthy sales. Earnings were offset by a decrease in gross margin and a decrease in operating margin.
Polo Ralph Lauren Corp. (www.polo.com)
Polo Ralph Lauren Corporation designs, licenses, contracts for the manufacture of, markets and distributes men’s and women’s apparel, accessories, fragrances, skin care products and home furnishings. The company’s sales are principally to major department and specialty stores located throughout the United States and Europe. It also sells directly to consumers through full-price and outlet Polo Ralph Lauren and Club Monaco stores located throughout the United States, Canada, Europe and Asia. Polo is also a party to licensing agreements, which grant the licensee exclusive rights to use its various trademarks in connection with the manufacture and sale of designated products in specified geographical areas.
The Polo Ralph Lauren company was established in 1967 with a line of men’s ties. From the onset, founder Ralph Lauren believed in defying convention to bring about unique, yet timeless styles that decades later have become the company’s trademark. What began with a tie 33 years ago has grown into an entire world and lifestyle that has redefined how American style and quality are perceived. Polo Ralph Lauren has built an international mega brand by selling fashions and fragrances to the well heeled through department stores.
In 1999, the company acquired Toronto-based Club Monaco after learning that “something is considered in vogue when it reflects a prevailing social mood – these days, ‘corporate’ is definitely not cool.” The acquisition of Club Monaco, a much smaller business, was the door to the younger consumers’ market and presented an effective way for the company to capture customers not normally attracted to the clean all-American look of the Ralph Lauren line, without alienating its loyal base of supporters. The Club Monaco chain offers fashion basics with a European flair at prices well below name designer wear.
For the 39 weeks ending 12/27/03, Polo Ralph Lauren revenues rose 5% to $1.83 billion. Net income decreased 7% to $94.4 million. Revenues reflect an increase in retail net sales. Net income was offset by higher S/G/A expenses due to increased selling salaries and related costs and higher restructuring charges.
Liz Claiborne, Inc. (www.lizclaiborne.com)
Liz Claiborne, Inc. designs and markets an extensive range of branded women’s and men’s apparel, accessories and fragrance products appropriate to wearing occasions ranging from casual to dressy. The company operates the Wholesale Apparel, Wholesale Non-Apparel and Retail business segments. Wholesale Apparel consists of businesses that design, manufacture and market to the company’s wholesale customers women’s and men’s apparel. Wholesale Non-Apparel designs, manufactures and markets accessories, cosmetics and jewelry products. Retail consists of businesses that sell merchandise designed and manufactured by the Wholesale Apparel and Wholesale Non-Apparel segments to the public through company-operated specialty retail and outlet stores, and concession stores where its products are sold in third-party-owned locations.
The company, founded by Elizabeth Claiborne Ortenberg in 1976, designed and produced moderately priced sportswear for women. The company’s aim was to provide clothes appropriate for either work or leisure, and Elizabeth’s designs were marked by cleanly sculptured silhouettes and splashes of color; these quickly supplanted the dark, tailored suits then popular. In 1980, Claiborne was named the fashion industry’s first Entrepreneurial Woman of the Year. A year later, her firm made a public stock offering, after which the company began to diversify, adding petite, dress, and shoe divisions. In 1986, the company was listed among the Fortune 500 for the first time.
For the 40 weeks ended 10/4/03, Liz Claiborne net sales rose 18% to $3.21 billion. Net income increased 19% to $206.6 million. Revenues reflect the addition of stores and the acquisition of MEXX. Net income also reflects an increased gross profit margin due to improved company-wide inventory management and improved product performance.
Nautica Enterprises, Inc. (www.nautica.com) (www.vfc.com)
Nautica Enterprises sails the deep blue seas of men’s apparel. The upscale clothier designs and markets sportswear, outerwear, and sleepwear for men, as well as jeans, and childrenswear. Nautica also globally licenses products such as fragrances, watches, dinnerware, eyewear, rainwear, swimwear, and home furnishings. The company’s brands include Nautica, Earl Jean (women’s denim), John Varvatos (men’s sportswear), and E. Magrath and Byron Nelson (golf apparel). Nautica sells through some 2,300 retailers in the US, 1,500 in-store shops, its flagship store in New York, a handful of direct retail stores, and over 100 of its own outlet stores. On August 28, 2003, a merger between Nautica Enterprises, Inc. and VF Corporation (NYSE: VFC) was completed. As a result of the merger, Nautica is now a wholly-owned subsidiary of VF Corporation.
Since its founding, Nautica has taken pride in an authentic American heritage that draws people together. The foundation for the connectedness is rooted in the company’s core values – classic, confident, adventurous, approachable. Nautica, a modern American classic, offers quality, design and value while capturing the essence of an active, adventurous and spirited lifestyle. Earl Jean offers uniquely styled women’s denim and apparel collections with particular appeal to fit-conscious, fashion-savvy teens and urban professionals. The John Varvatos Collection of apparel and accessories for men reflects a modern attitude. Combining the highest-quality European fabrications and design details, this collection redefines American style.
V.F. Corporation, the parent corporation for Nautica Enterprises, Inc., through its operating subsidiaries, designs, manufactures and markets branded jeanswear, intimate apparel, occupational apparel, knitwear, outdoor apparel and equipment, children’s playwear and other apparel. The consumer apparel segment includes jeanswear and related products, women’s intimate apparel and children’s apparel, all having similar characteristics of economic performance, product type, production process, method of distribution and class of customer. The occupational apparel segment is distinguished from the other segments because of a different class of customer. The outdoor apparel and equipment segment consists of the company’s outerwear and adventure apparel, plus daypacks and technical equipment, and is therefore distinguished from the other segments by type of products. The all other segment consists primarily of the company’s licensed sports apparel and distributor knitwear operations.
For the fiscal year ended 1/3/04, Nautica’s sales rose 2% to $5.21 billion. Net income from continued operations before accounting change rose 9% to $397.9 million. Revenues reflect higher Outdoor Apparel and Equipment segment sales. Earnings also reflect lower interest expense.
FUBU Corporation (www.fubu.com)
FUBU took the fashion industry by storm when its label, specializing in urban gear, helped define the look of young America. FUBU – “For Us, By Us” – is considered one of the hottest urban clothing lines in the fashion industry. Its owners are neighborhood friends Daymond John, Carl Brown, J. Alexander Martin and Keith Perrin. The FUBU label was established in 1992 when John, the company’s CEO, began working out of his mother’s home in Queens to make tie-top hats embroidered with the FUBU logo. John later recruited Brown, Martin and Perrin, took out a $100,000 mortgage on his mother’s house and moved his operation into the basement. The partners gradually expanded their line to include hockey jerseys, T-shirts and baseball caps. After finding it difficult to market their clothing through traditional advertising channels, the foursome succeeded in promoting its line by using celebrities and hip hop artists.
The company’s newest licensed lines include Platinum FUBU; FUBU Footwear for Ladies; Intimate Apparel & Activewear; Swimwear; Watches; the FUBU suit, shirt, and tie collection; and for those special occasions, the FUBU tuxedo. FUBU has received several honors for their entrepreneurial achievements, including two Congressional Awards, two NAACP Awards, Pratt Institute Award, Christopher Wallace Award, Online Hip Hop Award, and a Citation of Honor from the Queens Borough President.
FUBU’s headquarters are now in New York’s Empire State Building, and the company has added womenswear, footwear, suits, and accessories. The label is carried in more than 5,000 retail stores in 26 countries. In 1999, FUBU reported an annual sales volume of $200 million from its menswear business and $150 million from its licenses.
4.3.4 Financial Risks and Contingencies
As with any start-up business, ReHabiliments is subject to certain risks, both known and unknown, including changes to general economic conditions, changes in the level of consumer spending on or preferences in apparel, the company’s ability to successfully implement various new supply chain and merchandising systems in a timely and cost effective manner, unseasonable weather trends, and greater than planned operating expenses. Some of the more predominant risks include:
Style Piracy: Because design and styling ideas are such important competitive weapons, they are often stolen. Fashion piracy is so common that it is considered an integral part of the garment trade. While trademarks and names can be registered, laws against style piracy are of little practical value.
Copying creative work is standard practice for some firms, especially the smaller and budget houses. A style produced by many manufacturers and “knocked-off” at successively lower price levels is often referred to as a “ford.” This term is often applied to runaway best-sellers as well.
To mitigate risk from style piracy, ReHabiliments will ensure that all of its designs are copyright protected. To date, this is the best solution to design piracy because the application process is cheap and expeditious, and the copyright protects the creative works of fashion designers for a limited term under copyright law. Due to the short life span of apparel designs, patent protection is neither available nor appropriate.
Market Risk: Market risk is the risk of loss due to adverse changes in investment from market fluctuations directly related to ReHabiliments’ products, services, and market segments. As the complexity of the business increases, risk management becomes increasingly important and difficult. Market fluctuations could aversely affect the results of ReHabiliments’ operations and financial conditions. To mitigate exposure to market risk, ReHabiliments will use various econometric and statistical analysis tools to monitor the movement of the market interest, perform analyses on the current trends, and forecast results. In this manner, management can make the necessary adjustments in the asset and liability structure of the company.
Economic Stability Risk: Changes in the economy will require that the company adjust its operations to account for financial and economical fluctuations. ReHabiliments will pursue various business strategies, including horizontal integration and economies of scale, geared toward reducing economic risk. To ensure continued profits during economic instability, the company will control the environment in which it operates by reducing uncertainty, minimizing expensive competition, and capturing a larger share of the market.
Operational Risk: ReHabiliments, like all large companies is exposed to many types of operational risks, including the risk of fraud by employees or outsiders, unauthorized transactions, and errors relating to computer or telecommunications systems. To mitigate operational risks, ReHabiliments will maintain a system of controls that is designed to keep operating risk at a minimum, such as limiting authority to conduct business activities to the appropriate functional departments/branches .
Supply Chain/Merchandising Risk: Due to recent events, such as terrorist attacks and political instability in third world countries, supply chain risks have been introduced or heightened, with pressure to enhance productivity, eliminate waste, remove supply chain duplication, and drive for cost improvement. To mitigate supply chain risk, management will construct and optimize “what if” scenarios about the company’s future. These “what if” scenarios will serve as models by which ReHabiliments can refine and extend managerial intuition about major strategic decisions. Statistical models and methods for developing long-term, supply chain forecasts will support these scenarios.
Early Stage Business: As a start-up company, ReHabiliments has limited operating history beyond the industry experience gained by the founder. To mitigate risks relating to inexperience, the company will leverage the experience of external advisors to provide support for management decisions, as well as industry expertise and day-to-day operations.
Brand Identity: Since brands do not live in vaults without time or threat, brand risk is threatened by the loss of value due to a change in consumers’ perceptions of the company. Establishing, building, strengthening, and maintaining ReHabiliments’ brand, regardless of product or service, is important to its ability to attract and retain customers. Brand recognition is key to the success of ReHabiliments in local, regional, national, and international markets. To mitigate the risk associated with brand, ReHabiliments will ensure that the company’s brand is clear, specific, and unique to its product and service offerings, and will build brand strength through leadership, stability, market, geography, trend, support, and protection.
Intellectual Property: ReHabiliments’ copyrights, trade-marks, trade secrets, methodologies, practices, tools, and other intellectual property rights are critical to success. The company relies on a combination of trademark and copyright laws, trade secret protection, nondisclosure agreements, and other contractual agreements with its employees, affiliates, clients, strategic partners, acquisition targets, and others. ReHabiliments’ management will prudently monitor the company’s intellectual property and ensure that adequate measures are taken to protect intellectual property belonging to the company.
4.3.5 Industry Participants
The Apparel Industry is made up of small firms. The average number of employees in an apparel business is 38, and two-thirds of all establishments employ fewer than 20 workers. The average establishment size, however, varies considerable across product sectors. With 109 employees, the average men’s wear establishment is more than three times the size of the average women’s wear establishment. Establishment size had been growing until the early 1980s, when this trend reversed across all product categories. Firms with fewer than 20 employees now account for less than 10% of the industry’s workforce, while 37% of the workforce is employed in establishments with 250 or more employees. (Source: “U.S. Industry in 2000: Studies in Competitive Performance (1999),” Peter Doeringer and Audrew Watson, Boston University)
The U.S. apparel market can be divided into two tiers: national brands and other apparel. National brands are produced by approximately 20 sizable companies and currently account for some 30% of all U.S. wholesale apparel sales. The second tier, accounting for 70% of all apparel distributed, comprises small brands and store (or private-label) goods.
Apparel is sold at a variety of retail outlets. Based on data from NPD Group, discount stores, off-price retailers, and factory outlets accounted for 30% of 1998 apparel sales, while specialty stores and department stores accounted for 22% and 18%, respectively. Another 17% were sold at major chains, and direct mail/catalogs accounted for 6%. The remaining 7% of apparel sales occurred through other means of distribution.
The major players in the apparel industry are the large manufacturers headquartered in the U.S. There are also many local manufacturers that are much smaller and who usually specialize in a particular area of apparel. Sports wear, active wear, and other related products are offered for sale at specialty outlets as well as in retail stores nationwide. Such outlets are able to cut one-third off the garment price at a retail store. Apparel is available to consumers through multiple avenues: e-commerce, retail stores, outlets, and wholesale through the manufacturer for mail order catalogues and smaller boutique style outlets.