No-name clothes fuel a retail apocalypse
Private-label push is upended the $275 billion U.S. apparel sector
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,” says Wilson, whose company in Syracuse, N.Y., makes clothing for Kohl’s, American Eagle Outfitters, and J.C. Penney. “They’re concerned about customer satisfaction. They want fivestar 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.
This year Amazon will leapfrog T.J. Maxx owner TJX Cos. and Macy’s to become the secondbiggest 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 per cent 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 says, 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. catalogue 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 standalone 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’,” says 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.
“Every new generation is becoming less and less brand-loyal,” Bahulkar says. “Millennials don’t care as much about logos. They will buy anything from anywhere at any price point, and that is a big change.”
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 firstpage Amazon search results in categories such as men’s buttondown shirts were private labels, Bain says. 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.
Not every fashion brand is as willing to hop into bed with Amazon, fearing a loss of cachet. But with mall-based department stores falling out of favour, analysts at Goldman Sachs say they expect the “vast majority” of labels to follow that path and deepen their relationship with Jeff Bezos.
Simultaneously, Amazon has introduced a bevy of private labels with names such as Peak Velocity in categories that include shirts and sportswear, where fit and function — plus the convenience of free shipping — are often more important than the latest fashions.
Luckily for the big brands, three-fourths of apparel shoppers still prefer to feel or try on the product before buying, A.T. Kearney says. The likes of Lululemon can counterattack with so-called curated merchandizing, industry jargon for showing shoppers that this top goes well with those pants. Despite experiments such as the Amazon Echo, the online giant is not there yet.
“I don’t know anyone who is jumping up and down about buying clothes on Amazon,” says Candace Corlett, president of WSL Strategic Retail. “They’ve put together a lot of midpriced, uninteresting stuff.”
But private labels don’t need to inspire. Like Jackie Wilson’s knit top, they just need to satisfy a need.
“We don’t expect private labels to become fashion houses, but they can create enough newness that they can capture sales,” A.T. Kearney’s Bahulkar says. “Competing with Amazon is a losing proposition.”