Brands quake before Macy's

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More than 100 apparel marketers, facing banishment of their brands from the nation's largest department stores, are scrambling to create and market higher-end lines to meet the demands of almighty Macy's.

Now that Federated Department Stores has become the big guy on the block due to its merger with May Co., apparel brands such as Plugg Jeans and Kellwood Co.'s Sag Harbor are fighting off discontinuation in the 890 stores operating mainly under the Macy's name. The reason: They don't meet Federated's upmarket strategy to differentiate itself from mid-tier retailers, such as JCPenney, where their brands are also carried.

"Macy's management, even before the merger, was starting to scale back vendors with a mid-tier distribution and now that Federated is bigger than God, they can stand up even more for what they want," said Kishin Kirpalani, Plugg's VP-sales.

In the coming months, that's expected to drive a slew of new lines and marketing efforts for Federated-specific brands estimated at $100 million. "A little over 100 brands are on a quest to help [Federated] elevate the middle market and they will have to spend at least $1 million each on marketing and PR," said Marshal Cohen, NPD Group chief industry analyst.

Mr. Kirpalani said that before the merger Plugg was already developing its higher-priced Iron brand for young men and Nori for junior girls that will debut this spring in Federated's Macy's stores as well as in other better department store chains like Dillard's and Carson's. The line will carry price points starting at $30 and higher vs. the typical $19.99 price that Plugg commands.

Marketing budgets for the two new brands will likewise surpass that of Plugg, roughly doubling its $2.5 million outlay with efforts by its ad agency, Mmedia, New York, including a first-time national ad on MTV for Iron and a celebrity spokeswoman it won't identify for Nori.

Federated spokesman Jim Sluzewski declined to discuss specific relationships with vendors but said Federated is challenging them to come up with merchandise that is "new and distinctive to us." What Mr. Sluzewski referred to as the "status brands," such as Polo, Liz Claiborne and Jones New York, will remain because consumers expect to see them.

But, in the case of other lesser-known brands, "customers want to find things in Macy's and Bloomingdale's that they won't find elsewhere," he said. Roughly a third of merchandise sold in Macy's is exclusive to Macy's. Macy's, incidentally, is soon to be 800-strong as Federated converts all but 54 Lord & Taylor stores to Macy's.

Federated's strategy to bring in more upscale brands than were carried in the former May chains like Filene's, Foley's and Strawbridge's is bad news for those who haven't yet developed alternatives like Plugg. According to Robin Lewis, principal of retail consultant Robin Lewis Inc. and publisher of Robin Reports, Kellwood stands to lose 15% to 20% of its $400 million Sag Harbor business if it's dropped by former May stores.

A Kellwood spokeswoman said the impact on Sag Harbor is expected to be less than 10% of the brand's business and that the company expects to offset that with a greater push on its XOXO, Calvin Klein Better Sportswear and Briggs brands, as well as the relaunch in September of its O Oscar by Oscar de la Renta brand.

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