Liz Claiborne: The US Apparel Retailer's "Three-M's" Strategy

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Themes: Strategy
Pub Date : 2007
Countries : US
Industry : Women's Clothing

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Case Code : CSB0018
Case Length : 10 Pages
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US Apparel Industry: The Landscape

Organisation of the textile business as an industry in the US dates back to the beginning of the industrial revolution in the 18th century. Prior to the 1970s, most activities of the apparel supply chain, such as textile manufacturing, fabric designing and retailing, were carried out in the US. However, reduced margins made many companies to shift their manufacturing base to low labour cost countries.

During the mid-1970s, retail industry in the US experienced a downturn due to the sluggish US economy and decrease in consumer spending on apparel. As a result, the apparel manufacturers and retailers were forced to explore new methods of sourcing apparel. This led to the creation of a new business model by marketers who outsourced their entire production to other countries. These marketers known as branded marketers – companies like Liz Claiborne, JonesApparel and V.F.Corporation – were considered as pioneers in global sourcing and were instrumental in providing overseas suppliers with knowledge that later allowed them to upgrade their position in the apparel value chain. These branded manufacturers offer brands under different names and distribute products through either department stores or their own outlets.

The US apparel manufacturers with domestic production base were unable to compete with the apparel manufacturers outsourcing their production to other countries, as foreign production resulted in low cost. Most apparel manufacturers that initially controlled all the activities of the supply chain later outsourced their production to other countries. For example, Sara Lee Corporation, one of the largest producers in the US offering many leading brands, like L'eggs hosiery, Hanes, Playtex, Bali and Coach leather products, started outsourcing its production. Most apparel manufacturers shifted their emphasis from production activities to marketing and promotion of their brands. Apparel manufacturers, like Phillips-Van Heusen and Levi Strauss & Co., focused on brand building and global retailing while closing their production facilities and outsourcing their production to other countries. This led to the emergence of a new format called 'concept stores' where the manufacturers directly market their products to the consumers - bypassing retailers - through franchises.

In the 1980s,many retailers began to compete directly with apparel manufacturers by introducing their own private label¹⁰ merchandise. This popularised the private label apparel - designed, labeled and marketed by the retailers. Retailers sub-contracted their production activities to low labour cost countries. This helped the retailers to achieve lower costs and streamline the distribution process. JC Penny, a US retailer, repositioned its image from a mass merchandiser to a premium apparel retailer by developing its own private labels. Its private labels like Hunt Club, Worthington, Stafford, St. John's Bay, Arizona jeans and Jacqueline Ferrar form 60% of the women’s apparel sales volume and are the fastest growing portion of the retailers product mix.¹¹ By 1995, the five largest US retailers - Wal- Mart, Sears, Kmart, Dayton Hudson and JC Penny - accounted for 68% of the total apparel sales in the US.¹²

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10]Retailers introduced private label brands - their own brands - to attract customers and to survive competition.
11]Gereffi Gary, "International trade and industrial upgrading in the apparel commodity chain", http://ideas.repec.org/a/eee/inecon/v48y1999i1p37-70.html
12]Ibid.