Shares of companies like Coach (NYSE: COH) were flying high when more people than ever were flocking to waste their money on stuff they couldn't afford.Right at the top of the market, predictably, all the lower-end retailers thought they'd get into the act. Gap (NYSE: GPS)'s Banana Republic introduced a high-end line, and so did Coldwater Creek (NASDAQ: CWTR), Cache (NASDAQ: CACH) and AnnTaylor (NYSE: ANN). According to the Wall Street Journal (subscription required), the economic downturn gave the companies a strong rebuke. Cache is closing some of its Cache Luxe stores and Coldwater Creek is giving up on its high-end aspirations.
But I don't think it's the economic downturn that doomed these product launches. Luxury clothing is in a tough spot, but it's certainly fared a lot better than upper-middle market companies like Liz Claiborne (NYSE: LIZ) and Coldwater Creek. Rather, I think companies are using a pretty familiar tactic: blame failed strategies on the economy and minimize the impact of tactical errors made by seven-figure executives.
Here's why the strategy failed: taking a brand and raising the quality/price-point is extremely difficult. The reverse is easy, but trying to convince people to pay Coach-like prices for Banana Republic clothing -- even if it's of similar quality -- is a strategy that's destined to fail. Banana Republic has established itself at a certain price point and while people would be thrilled to get the brand at a lower price, most people willing to pay more will want a bona fide luxury label.
Reader Comments (Page 1 of 2)
5-20-2008 @ 4:14PM
Mark said...
Banana Republic didn't start out as a high-end luxury brand! It was a store that sold chino's and cotton shirts at low prices, then they opened the GAP brand stores and Banana Republic's went away. Remember the Jungle Themed stores? Kinda hokey, but different than the other mall stores at the time.
5-20-2008 @ 4:32PM
Gonyr24 said...
Actually, Mark, as a former employee of Gap Inc. I know for a fact that the Gap opened way back in 1969, Banana Republic started as a catalog that Gap bought sometime in the 70s or 80s and then turned Banana Republic into a store. Then opened Old Navy in 1994. And there are plenty of Banana Republic stores out there, there's three within twenty minutes of where I live. You should check out your facts before you post comments.
5-20-2008 @ 4:46PM
mi8tcuc said...
Sorry, Gonyr24, but Mark is actually right too. In our city, we used to shop at the jungle themed Banana Republic stores many many years ago. They were far from "high end". Almost what we now call "organic". Our local store had a huge elephant coming out of the front of the shop. They were known for khakis, chinos, white flowing tops. Their competition at the time was The Limited's Label "Outback Red". This was the early to mid 80's. I went to a school that had a uniform that required khakis so we all knew about Banana Republic and Outback Red. It was our only way to dress "cool" for schoo. The Gap at that time was where we got jeans (in lots of colors) and casual clothes that we couldn't wear to school. I miss the old Banana Republic. I wish they would bring it back.
5-20-2008 @ 4:46PM
Mark said...
Gonyr24 - Don't get your panties in a bunch, my point was simply that Banan Republic wasn't started as a high end line/store/catalog, but rather to target a market specific niche with a limited line offerring (It only had 2 jungle themed stores to start with). Then after aquisition by Gap, Inc. the brand was repositioned in an attempt to go upscale with men's & women's fashions (suits, dress shirts, etc.) But along the way, they lost touch with the base that made BR work. I had stock in the company for years, until they started to drain my earnings with all the "new ideas" to revitalize the brand(s) once Drexler became CEO (he was better at running the GAP division). About the only thing working for them these days is Old Navy with the low prices, but unfortunately, low quality also - those are facts supported by the 10Q reports and a visit to the stores. PS: this is a blog posting, not a 60 minutes expose!
5-20-2008 @ 4:47PM
qwerty said...
no need to get your panties in a bunch over a comment about banana republic
5-20-2008 @ 4:55PM
Sarah said...
The reason why Liz Claiborne went down the tubes is because the quality of design went down. When corporate buying offices are determining the styles that are sold, you can bet creativity goes with it. I used to love her clothes, they fit really well and were stylish. Now their main appeal is older (over 55) women, and there is no real style. On the other hand, some of the other mall stores that are on trouble have completely abandoned middle-aged women (40's) in favor of supplying the twenty-somethings with trendy attire. The problem is, the younger ones don't have any money. I hope someone figures out that there are a lot of us in our 40's, who would like to dress sylishly (not like our teenage daughters)who have money to spend but have no where to go.
5-20-2008 @ 5:03PM
CC said...
Mark ...... kinda close.
I worked for the original founders of Banana Republic. It was a travel based clothing company that sold Chino's, travel pants, shirts and travel accessories. Their stuff worn like iron!
They eventually sold to GAP and GAP turned it into a higher end brand. The owners of GAP (I think the Fishers still own it) have lost there touch as they let many great retail people walk away, at all ranks. Although Micky Drexler was a bit of an odd ball, he assemblied a group of very talented buyers and people on the retail end. They've all left and you're seeing the result of constant turnover in the retail field. Crappy clothes, ugly assortments and a lack of direction. This one is going to be very hard for them to turn around.
5-20-2008 @ 5:06PM
carl said...
Gonyr24 ... BR did start as a catolog however, Mel & Patricia Zeigler had 35 + stores that GAP bought in the late 70's early 80's and changed the image of what the old BR was. ........ I worked for both companies.
5-20-2008 @ 5:09PM
missy said...
Hey Suss you are absolutely right!
5-20-2008 @ 5:24PM
Kathleen said...
Banana Republic started out in the 70's in Marin County as a small, one of a kind store selling unique safari type clothing. I visited the store before the Gap Corp. bought them.
5-20-2008 @ 5:37PM
lin said...
I actually spent one day shopping the mall and started at Banana Republic. Their sizes are for juniors! Their quality is poor and high priced. I then went to the GAP where I know things would fit properly. I'm hardly overweight at 5 8 and 145lbs. I like a good GAP bargain where I can find a shirt for $8 and pants for $10. I didnt even realize they were owned by the same company! WOWIE.
5-20-2008 @ 6:02PM
curlyZ said...
I miss White Front
-try your retail knowledge on THAT name-
5-20-2008 @ 6:04PM
rogonzalez99 said...
WGAF! IF YOU DON'T KNOW WHAT THIS STANDS FOR, FIGURE IT OUT.
HINT: "WHO GIVES A ..."
5-20-2008 @ 6:04PM
Dwayne Blackwell said...
Banana Republic History...GEEZ: http://www.referenceforbusiness.com/history2/44/Banana-Republic-Inc.html
5-20-2008 @ 6:06PM
Ron said...
Having been very much involved in the apparel industry as a manufacturer and prior to that being a sales rep, noe of this comes as a great surprise.
Most retailers are not the cream of the crop from an intelligence view point or having much business acumen. Most simply are sheep, trying to follow the next guy out there. Momentum keeps most going for awhile. They recognize trend buy imitating others, but the vast majority of these people don't come up with new ideas that will work. Additionally, most retailers are reluctant to understand how the internet has affected retail.
Blaming the weather or the economy for bad business decisions is nothing new.
5-20-2008 @ 6:12PM
Dorinda said...
Whatever the genesis of Bananna Republic, Gap, etc., none of them care a flip for us Lane Bryant types. I can find tops that fit & I like at Old Navy, but the ON pants/shorts/skirts are not made for my body type. I have time AND money & I shop Lane Bryant & Wal Mart. So there!
5-20-2008 @ 6:16PM
terri said...
WHO HAS THE MONEY TO BY CLOTHES???? LETS WORRY ABOUT SOMETHING WORTHWHILE, LIKE GAS AND FOOD......!
5-20-2008 @ 6:23PM
Sherry Powell said...
I love Cold Water Creek...but suddenly they opened stores everywhere and the price of the items shot up! Sorry not worth the $'s
5-20-2008 @ 6:26PM
Sherry Powell said...
You are right terri... gas is $3.70 a gal here and eggs are $2.79 Dz. We will all be eating from the 99 cent menu.
5-20-2008 @ 6:37PM
M said...
Even in my late teens, twenties and thirties I would have choked before wearing Gap or Bananna Republic. I am 46 and I am not wearing that crap now either.