Midsize Vendors Feel the Squeeze

As retailers consolidate into multibillion-dollar giants and manufacturers become Goliaths, smaller independent vendors are feeling the pinch.

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"The contemporary zone is a lot easier to be in at the moment in the fact that there are stores that buy pilot programs," said Andrew Jassin, managing director of the Jassin O'Rourke Group, a consulting firm in New York. "Specialty stores are constantly seeking a way to distinguish themselves, and they are looking for contemporary products."

Likewise, the better world is easier than the moderate world, where private labels and exclusive lines have eaten into the few remaining moderate departments. Still, the better world faces threats from exclusive Macy's lines, such as T Tahari and O Oscar.

"Slowly over time, we are culling out vendors that are widely distributed. But we want partners who are sophisticated and have the systems to deal with the size of our business," said Thomas Cole, vice chairman of Federated Department Stores. "It's admittedly a paradox. There is a conflict between the goal of having more exclusive product and sophisticated manufacturers.

"But in order to be important to Macy's, you have to be able to make enough product to sell company-wide. If you can make six of the greatest things in the world, it doesn't make much of a difference to us, if you can't produce 600,000."

Brands that either cannot crack the Federated wall — or choose not to because of the requirements involved — sell to specialty stores. Lynn Ritchie, which does 80 percent of its business through boutiques, calls this a "safer" route.

Alex Garfield, who founded the GarfieldMarks label in the Nineties and has recently launched the better line Panticular, said he has no desire to play the department store game. "Department store people sneer at people like us," Garfield said. "They were busy with these big-name brands."

Panticular, which Garfield predicts will be an $8 million business by its second year, ships to about 100 specialty stores now, where it does margins upward of 60 percent, according to Garfield.

"Specialty stores let us make a margin that is healthy for us and they make a margin that is healthy for them," Garfield said. "They just require the right product and stay loyal to a fault, whereas in department stores, the loyalty is to the stock holders — it's run by the financial community today. It's the difference between sailing a 30- or 40-foot sailboat and sailing the Titanic. You can't maneuver the Titanic."

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