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No-name clothes fuel a retail apocalypse

By Matthew Boyle
Dec. 30, 2017 at 11:08 p.m.

A customer walks through the Joe Fresh section of the J.C. Penny store at the Glendale Galleria shopping center in Glendale, California, in 2013. Despite its recent struggles, Joe Fresh "was a nice surprise to other retailers who said, 'Hey, if they can do this, we can, too,'"  a partner at consultants A.T. Kearney said.

A few months ago, Amazon.com representatives met with fashion designer Jackie Wilson as part of the expansion of Amazon's surging apparel business.

They wanted her to make a knit top for women that would be sold under an Amazon-owned private label.

And they wanted the fabric to feel heavy and high-quality — the sort of attributes long associated in the shopping mind with name-brand attire.

"They are not concerned at all about how many units they sell, and they're not focused on margins," said Wilson, whose company in Syracuse, New York, makes clothing for Kohl's, American Eagle Outfitters and J.C. Penney. "They're concerned about customer satisfaction. They want five-star reviews."

Wilson's knit top is in the vanguard of a private-label push that's upended the $275 billion U.S. apparel sector. Amazon, Walmart, Target and other big retailers are beefing up their clothing lines to grab shoppers whose loyalty to established brands such as Gap and Nike has waned. Even supermarket chain Kroger is getting in on the act, attracted by profit margins that far exceed what they earn on bananas and paper towels.

This year Amazon will leapfrog T.J. Maxx owner TJX Cos. and Macy's to become the second-biggest seller of apparel and footwear in the U.S., Wells Fargo estimates. In some categories — like the active wear that Americans increasingly wear all day, whether or not they hit the gym — private labels combined account for 20 percent of the market, according to researcher NPD. That makes store brands in aggregate larger than any single brand, which should strike fear in the executive suites of Lululemon Athletica, Nike and Under Armour.

"Active wear is going like wildfire," Wilson said, for the simple reason that "you don't have to try on spandex pants. If I was in those categories, I would be worried."

"Millennials don't care as much about logos."

Store-brand apparel is nothing new. The Sears, Roebuck & Co. catalog first offered clothing in 1894, and Walmart's Faded Glory house brand began life in 1972 as a department-store label. But for years, private-label apparel was dull and dowdy, no match for branded threads.

That started to change in 1990 when British supermarket chain Asda Stores asked fashion designer George Davies to create an exclusive clothing line. The result, George, was a hit in the U.K. and caught the attention of Canadian retailer Loblaws Cos., which in 2004 hired Joe Mimran, co-founder of the Club Monaco chain, to do the same. His Joe Fresh expanded into stand-alone stores and a partnership with J.C. Penney in the U.S. But the brand didn't click with Penney's shoppers, prompting Mimram's departure in 2015 and an overhaul of the business.

Despite its recent struggles, Joe Fresh "was a nice surprise to other retailers who said, 'Hey, if they can do this, we can, too,' " said Adheer Bahulkar, a partner at consultants A.T. Kearney.

As retailers stepped up investments, connected with Asian suppliers and poached fashionistas to head up in-house design teams, the established brands stumbled under the weight of declining mall traffic and heaps of unsold inventory. Brand loyalty began to crater.

Under Armour has been battered by slowing growth in athletic footwear, J. Crew has struggled to reinvent itself after the departure of longtime Chief Executive Officer Mickey Drexler, and Gap's only bright spot lately is its off-price Old Navy chain. Even mighty Nike this year announced its first major layoffs since the financial crisis.

"Every new generation is becoming less and less brand-loyal," Bahulkar said. "Millennials don't care as much about logos. They will buy anything from anywhere at any price point, and that is a big change."

The erosion of brand loyalty has been a boon for Target, the cheap-chic retailer that made its name in apparel via partnerships with top designers Isaac Mizrahi and Jason Wu more than a decade ago. It's leveraged that success to create its own private labels in recent years, most notably Cat & Jack, a kids' apparel line whose sales surpassed $2 billion after a little more than a year on the shelves. Target's winning formula has emboldened Walmart, which recently hired a veteran of Saks Fifth Avenue and Ralph Lauren Corp. to boost its fashion game.

Apparel shopping these days often begins with an online search, and research from consultants Bain & Co. finds that a surprising number of those queries don't mention a brand at all — consumers just enter "yoga pants" and see what comes up.

Searching for generic product categories on Amazon turns up plenty of private-label options. More than one-quarter of first-page Amazon search results in categories such as men's button-down shirts were private labels, Bain said. That helps explain why almost 40 cents of every dollar spent online on clothing and footwear in the U.S. will go to Amazon this year, according to data tracker Euromonitor, up from 23 cents in 2014.

Amazon is capitalizing on this in two ways. First, despite its private-label push, it's simultaneously trying to create legitimacy as a destination for fashion by luring established brands that want to improve their digital sales, even if it means submitting to Amazon's pricing algorithms. Heads turned when Nike began selling its shoes directly on the site over the summer. And Calvin Klein recently opened two pop-up shops in New York and Los Angeles whose fitting rooms are outfitted with an Echo, an Amazon device that lets users submit photos of outfits and recommends the best one. There's also a dedicated Calvin Klein storefront on Amazon.com with exclusive items.

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