Retail consolidation is being driven by apparel declining in importance to consumers and lifestyle driving apparel decisions. Brands have loyalty while labels only get attention, and generic labels are vulnerable to extinction. Small and mid-sized apparel manufacturers face challenges from large firms and reliance on retailers. The consumer is changing and demanding better fashion at cheaper prices, polarizing the retail landscape.

1. Retail Consolidation The Continuing Saga!

2. 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! Retail Consolidation

3. 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! Cause / Effect - What’s driving retail consolidation?

4. 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” What’s Different?

5. “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) The Changing Consumer

6. 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 The “Generational” Shift of Apparel For Consumers

7. 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 Changes In The Game Today

8. 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 The Retail Landscape - Next Five Years

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 Lifestyle Focused Clear Point Of View Category Dominant Modern / Relevant Business Model “ Speed To Market” “ Common Thread”

11. 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 “ Retailers In Transition”

12. “ 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 Definition Of Brand vs. Label

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. 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 Life Expectancy Of Labels Vs. Brands

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. 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” ) Life Of A Brand

19. 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 Brands Today

20. “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 The Vanishing Middle

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. “ 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” The Lifecycle Of The Small / Midsize Apparel Company

23. 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 “ Requirement For Survival ”