Retail Consolidation The Continuing Saga!

1. Retail ConsolidationThe Continuing Saga!

2. Retail Consolidation • Cause / Effect - What’s driving retail consolidation? • The Retail Landscape ( Next 5 Yrs.) - Survival Of The Coolest? • Life Expectancy Of Labels Vs. Brands - Will the consumer figure this out? • Small / Mid Sized Apparel Manufacturers - Where do they fit? • “The Vanishing Middle” - Goodbye Generic! • “Generational Evolution of Apparel” - Youth Meets Boomer!

3. Cause / Effect -What’s driving retail consolidation? • The Taste Level Of America -“Forever Changed” - Thank You…Mickey Drexler and the Gap • Once Upon A Time… • Higher price points equated to better product • Lower price points meant poor quality / “no taste” • Now Its:“Good, Better, Best” Vs. “Cheap or Expensive” • The Consumer doesn’t want cheap • They want “Good, Better, Best” at a discount • Added Value Isn’t A Bonus… - It is a requirement!

4. What’s Different? • Apparel is declining in importance to the consumer • Lifestyle is driving apparel decisions • Apparel must adapt and provide relevance • Provide what they want…Not what they need • “Good taste is expected” …”Good deal is desired”

5. The Changing Consumer • “Live Young, Work Young, Look Old - The Aging Boomer will not go quietly…Dressing Younger is Cool • The 40 yr old of 1981 vs. The 40 yr old of 2006 • Single Biggest change… • Father / Son and Mother / Daughter all dress alike • Price is the ultimate vehicle of change • Price / Value equation much more important vs. past • The “25-35 Year Old” Consumer Has A Different Perspective • Based on exposure to all outside influences of Media • Grew up with different “Tools” (Instant Access)

6. The “Generational” Shiftof Apparel For Consumers • Effect of “Younger vs. Older” - Clash of lifestyle apparel choices • “Everyone looks good in a “Suit and Tie” - Casualization of America = Men with no clue • “No one buys an outfit to go out on Saturday Night” - Your Lifestyle dictates what you wear • “Households with children under 18 dramatically alter what parents wear” • Inherent awareness of what’s cool / what’s not

7. Changes In The Game Today • Technology - “Warp Speed” visibility to brand awareness - Good & Bad • Old Adage:Better Product = Better Taste Level = Better Distribution - Throw it out the window - New School: Cool product at lower price points in broader distributional channels • Apparel Spending Grew In 2005 (+4% [2005] NPD) • Mens Stronger Than Womens • Lifestyle Segment Driven • Price Factor: Important more than ever • New Consumer Profile Emerging • Non “Brand / Channel” specific • Buy what they want / where they want

8. The Retail Landscape -Next Five Years • The Dept. Store Format Stabilizes And Prospers - Federated / Macy’s streamlines and further separates from mid/tier and discount to create “Reason To Exist” • Brand Direct Retail Over-Expansion “Rush To Direct Retail” • Survival Of The Fittest = Weeding Out • “One Dimensional Brand Retail” Platform Fails • Outlet Store Malls Re-Focus • Good, Better, Best Brands = Better Product Offering • Less “Outlet Private Label” • “Neighborhood” Niche Specialty Stores Emerge • Non Mall Based “Cool” Stores: “Lifestyle Center” • Destination Locations - I.E. Abbot Kinney

9. “Uncool” Stores Cease To Exist • Mass / Midtier Customer Once Identifiable > Becomes Invisible • Everyone Wears Cool Product • Big Box Players “Modernize” Assortments • Generic Product = Gone • Lifestyle Focus • Picture Multiple “Target” Formats • “Transformational” Brands Impact Retail Formats • Think J.C. Penney / Sephora • The Mall Reinvents Itself • “Plastic,” “Food Court,” “Non-Traffic Driven” Retail Space • Picture “Farmers Market Of Apparel” (Mixed Category / Real Life Experience )

10. Cool Stores • Costco • Home Depot • Victoria’s Secret • Target • Whole Foods • American Eagle • Best Buy • Pac Sun • Abercrombie & Fitch “Common Thread” • Lifestyle Focused • Clear Point Of View • Category Dominant • Modern / Relevant Business Model • “Speed To Market”

11. “Retailers In Transition” • Federated / Macy’s : Big Upside - Macy’s West: Prototype Future Better Department Store • J.C. Penney:Big Opportunity - “Transformational Brands” (Sephora) Drive The Business • K-Mart: Big Question - Create Reason To Exist • Walmart:Big Challenge - Modernize Apparel Assortment And Add Brands

12. Definition Of Brand vs. Label • “Versions”: according to Webster • A name given to a product or service • A type of product manufactured by a company under a particular name • The name or trademark of a fashion company

13. My Version • Labels Have Recognition • Brands Have Loyalty • Labels Get Your Attention • Brands Get Your Heart • Labels Serve A Purpose • Brands Serve A Consumer • Labels Offer Value • Brands Offer Value - Added • Labels Trust Consumers • Brands Consumers Trust • Labels Are For Now • Brands Are Forever

14. Life Expectancy OfLabels Vs. Brands • 3 Types of “Labels” • Direct Retail Private Label • Generic Vendor Label • Niche Specific / Category Expert Label • Direct Retail Private Label • Continued Evolution Of Superior Price Value Equation • Future Upside in Better Design And Quality Execution / Investment • Specialty Retail Dominates Execution Vs. Department. Store / Midtier

15. “Generic Vendor” Label • “Vulnerable To Extinction” • Price Driven • “No Reason To Exist” • “Niche Specific / Category Expert” Label • Future Is Bright • Creating Expertise In Category • Flexible Sourcing / Design Capabilities

16. 3 Types Of Brands • Vertical Retailer • Traditional Manufacturer • Licensing • Vertical Retailer • 100% in Control • Direct Access to consumer • Best price / value equation • Fastest “Trend to Market Provider” • Sales Comps: “True Barometer of Success”

17. Traditional Manufacturer • Reliance on retail distribution • “Middleman to Consumer • “Limited” control - Pricing, Point of Sale, Positioning • “Wholesale Sales” growth (vs. Retail Sales Success ) • Licensing • “3rd Party” Control - Licensor to licensee to retailer • Management of diverse licensee cultures: “One Voice” • “Direct correlation of success - Degree of brand promise kept • “Brand Extension” - revenue growth • “Difficult” control - Wide variations: “Best to None”

18. Life Of A Brand • 7 Stages Of Development • “Emerging” • “Cool” • “Aspirational” • “Accessible” • “Mainstream” • “Declining” • “Gone” • Direct correlation to sales volume & stage of development • The hotter the brand gets - The younger the consumer that embraces it. • Define brand strategy before stage 4 ( “Accessible” )

19. Brands Today • Adults “Dress Younger” - “Less Serious” - Subtract 10 years of age from your dated consumer profile • “Being Cool” vs. “Dressing Cool” 2 Different Things - Cool Products exist at all distribution points vs. 5 years ago • Remaining “Separation Factor” of cool: “Brands” • “Tribe Differentiator” • “Lifestyle Statement” • Price / Value Equation: New Dynamic • More choices to spend money on • Apparel facing new competition

20. The Vanishing Middle • “The Modern History Of Apparel” • 3 Parts: • Luxury / Premium • Generic / Mainstream • Mass / Commodity • “Educated Consumers Changing The Game” • Better Fashion, Better Quality, Cheaper Price • “Polarization” Of Retail Landscape • Direct Brand Retail Replacing The Middle • Generic Product Rapidly Vacating Middle Tier • Mass Getting “More Sophisticated” On A Daily Basis

21. The Term “Moderate Department Store Is An Oxymoron • Squeezed From Both Ends (Luxury / Premium and Big Box / Mass) • Growing Trend: • Luxury / Premium Fashion Mass / Commodity Prices • Generic Product: • Forces Consumer to search for lowest common denominator price point

22. The Lifecycle Of The Small /Midsize Apparel Company • “State Of The Union” • Highly Competitive, Price Driven, Lack Of Predictable Future / Long Term Status • Forced To Compete With Large Public Apparel Firms ( Chargebacks, Allowances, Discounts ) • Increasing Margin Pressure • 100% Of Existence Held In the “Hands Of Retail Distribution Or Wholesale Brand”

23. “Requirement For Survival” • Qualifications • Strategic Plan • Specific goals / objectives • Proper due diligence • “Realistic diagnosis of the patient” • Time frame - you can live with • Financial support to execute • Tools • Sub-Branding • New product launches • Multi-channel distribution strategy • Category extensions • Trade Advertising • “Exclusive” brand extensions