Retail Shift
Apparel makers retool business in wake of Federated/May Co. merger.
The fallout from Federated Department Stores Inc.’s acquisition of The May Department Stores Co. is beginning to take a bite out of the California apparel industry.
Earlier this fall, Cincinnati-based retail giant Federated Department Stores announced it would cut more than 1,100 positions from its regional headquarters in North Hollywood, Calif., next spring as it phases out the Robinsons-May division of May Co. In addition, Federated is eliminating nearly 5,000 more positions nationwide after it closes scores of May Co. department stores after March 1.
The disappearance of the May Co. banner is having its repercussions throughout other segments of the business, as well. In October Bregman & Associates, a decades-old Los Angeles buying office whose main client was the May Co., laid off 10 buyers and assistant buyers, retaining two buyers to handle its specialty store business.
The company closed its 4,000-square-foot office in the California Market Center and relocated to a 1,000-square-foot temporary space a few floors away. Company President Stuart Berman is planning Bregman’s next move after his company worked with the May Co., parent company of Robinsons-May, for 18 years. “We are reinventing ourselves and seeing if there is life after the May Co.,” he said.
Bregman & Associates is just one example of how the consolidation of two major department store chains is forcing apparel ventures to rethink their business plans.
“This consolidation is going to be tough,” said Mary Wilberding, principal of Oneworld Apparel Co., a Los Angeles clothing company that produces junior and missy knit tops that make up most of the firm’s $50 million in revenues. “I happen to be one of the lucky ones. I have a brand that is recognized by consumers at both chains. But the areas that will be hard hit will be the moderate areas selling at May stores. I think the days of a moderate sector in the department stores will probably go to the tier-two accounts like J.C. Penney’s, Sears, Mervyn’s and Kohl’s.”
With that in mind, garment manufacturers are searching for new retail clients. When Federated completes the physical merger of the chains next year, it will shutter 82 stores throughout the country. Twenty-seven of those stores are in California.
“We’re tripping out about this,” said Michael Bobbitt, co-owner of Miken Clothing Co., a 10-year-old Los Angeles junior apparel company whose May Co. business makes up 5 to 10 percent of its $35 million in revenues.
“I’m trying to work with Target [Corp.],” said Kenny Landy, the other co-owner of Miken Clothing. “That would take over my business with May Co.”
Currently Miken doesn’t do any business with Federated.
Courting Federated
Searching for new retail clients is one answer for apparel companies trying to make up for lost revenue. The other answer is for companies to rejigger their apparel lineup. That means adding contemporary labels and fashion- forward silhouettes to appeal to Federated’s more upscale customers who shop at the chain’s Macy’s or Bloomingdale’s stores.
“We have a missy division, which is starting to kick in,” Landy said. He noted that recently the company has been more aggressive about developing its Hana label, which is being sold at Famous-Barr stores, a May Co. division whose locations will be converted to Macy’s stores in Fall 2006. “That should compensate for the loss of some of the other May Co. business. Then we will keep pursuing Federated and hopefully get in there.”
Another major May Co. supplier is John Paul Richard Inc., a 10-year-old womenswear company based in Calabasas, Calif. The company’s Uniform, John Paul Richard and Studio JPR labels are in abundant supply in the missy section of May Co. stores. But Richard Hirsh, who founded the company with John Paul Beltran, said no one retail company account makes up more than 10 to 15 percent of the company’s business.
That said, John Paul Richard has revved up its long-dormant Fever label, which started out as a denim and sportswear label acquired from John Cherpas and Kellie Delkeskamp in 2001.
Fever has morphed into a contemporary knitwear line whose sweaters started shipping in October to such stores as Nordstrom, Macy’s and Belk, which is growing. This summer Belk Inc., based in Charlotte, N.C., bought 22 Proffitt’s and 25 McRae’s stores from Saks Inc., giving the chain 275 outlets. “We see the Fever line growing substantially,” Hirsh said.
Although Fever should fill the hole left by lost May Co. business, Hirsh doesn’t expect to see any major revenue growth for 2006. “Our revenues are $120 million this year, and they should be flat for next year,” he said.
A company that could be hit hard by the merger of the two chains is Tempted Apparel Inc., a 10-year-old Los Angeles junior sportswear company whose May Co. business makes up 18 percent of its revenues. “I don’t have any orders from Federated yet, but I have been in negotiations with them and in meetings,” said Steve Schoenholz, founder and president of the company. “I feel confident I will be doing business with them. We are picking up new accounts in other areas. So if they don’t come through, we’ll be fine.”
Macy’s-inspired makeover
Los Angeles–based junior company Second Generation is hoping to make inroads with Federated by updating its principal label, Be Bop, to make it more fashion forward and attractive to Macy’s customers. “Over the last year, our product has been evolving,” said Michael Weisberg, chief executive of the familyowned company, which has about 10 percent of its business tied up with the May Co. Less than 2 percent of Second Generation’s $35 million in business is done with Federated right now.
Second Generation has reformatted the Be Bop logo, reworked the packaging and freshened up the silhouettes with more fashionable touches. Two fabrics that the company is employing for its Spring 2006 line is lightweight twill and linen. The company is hoping that Be Bop’s slightly cropped Thai fisherman pant will be a hit with juniorwear customers. “Federated came and saw our line during October market,” said Weisberg, who is expecting business to grow by 5 percent next year. “At the end of the day, if we have the right product, Federated will be interested.”
Not so upbeat about the future is Satya Verma, founder and president of Star of India Fashions Inc. in Tempe, Ariz., who had no immediate solutions for her company. She might do a new label for such stores as Penney’s or Sears, but she hasn’t acted on that yet. Her labels now include Angie, Lolita and Temptation. “We’re really going to suffer a lot,” said Verma, who started her company 30 years ago. “May Co. is one of our biggest buyers.”
A little more than 10 percent of her annual $40 million in revenues is done with May Co. stores that buy Star of India’s bright junior and missy tops and dresses imported primarily from India. “To replace that many dollars isn’t easy. I think Federated might buy a little more from us but not substantially more,” Verma said. “I’ve had better years.”
