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Industry Surveys

Apparel & Footwear

(includes Specialty Apparel Retailing)

November 29, 2007

Marie Driscoll, CFA Esther Kwon Apparel & Footwear Analysts

CURRENT ENVIRONMENT..................................................................1 Challenges, headwinds culminate in significant industry restructuring

Finally in 2007, a national broadline department store: Macy's Changes at the retail create challenges, opportunities for apparel companies The convergence of entertainment and fashion Comfort over style: casual seasonal footwear has legs Specialty retailers follow shoppers to lifestyle centers Sales rising as consumers dress up Economic growth spurs consumer spending

INDUSTRY PROFILE...............................................................................9 The industry that suits everyone

Apparel Footwear

INDUSTRY TRENDS ...............................................................................10

The evolution of a lifestyle brand Stores move into overseas markets Demographic trends Sporting apparel goes high-tech Luxury and value goods both do well Offshore sourcing

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HOW

THE INDUSTRY

OPERATES .............................................................16

Diverse product lines and ways of operating Intense competition Brand management and the specialty retail strategy Enhancing customer loyalty Cutting labor costs with offshore sourcing Vital role of technology Sales channels proliferate

KEY INDUSTRY RATIOS AND STATISTICS ...................................................23 HOW TO ANALYZE AN APPAREL COMPANY .............................................24

Qualitative factors Quantitative factors Corporate governance

GLOSSARY .............................................................................................31 INDUSTRY REFERENCES.....................................................................33 COMPARATIVE COMPANY ANALYSIS ..............................................36

THIS ISSUE REPLACES THE ONE DATED MAY 24, 2007. THE NEXT UPDATE OF THIS SURVEY IS SCHEDULED FOR MAY 2008.

Standard & Poor's Industry Surveys

Executive Editor: Eileen M. Bossong-Martines Associate Editor: Diane Cappadona Statistician: Sally Kathryn Nuttall Production: GraphMedia

Client Support: 1-800-523-4534 Copyright © 2007 by Standard & Poor's All rights reserved. ISSN 0196-4666 USPS No. 517-780 Visit the Standard & Poor's Web site: www.standardandpoors.com

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VOLUME 175, NO. 48, SECTION 2 THIS ISSUE OF INDUSTRY SURVEYS INCLUDES 3 SECTIONS.

C URRENT E NVIRONMENT

Challenges, headwinds culminate in significant industry restructuring

Retail consolidation, private-label penetration, and consumer migration propelled apparel wholesalers to radically change or flail in 2007. We have witnessed monumental strategic modifications by most industry leaders. For example, VF Corp. sold off its namesake Vanity Fair business to focus on lifestyle brands; a rending of Liz Claiborne Inc.'s corporate profile into Direct Brands and Partnered Brands to better navigate department store consolidation; and Jones Apparel Group Inc. put itself on and off the block, and ultimately sold its luxury retail business, Barneys New York Inc. In recent years, this Industry Survey has increasingly incorporated specialty apparel retailers into our discussion of the apparel industry. With this issue, we are formally integrating specialty apparel retailers into our analysis. When the apparel business migrated from manufacturing to design sourcing and marketing, it lost manufacturing advantages without gaining the distributor's pluses. Apparel brands became more and more beholden to the mercy of a consolidating retail base. Exacerbating this trend are the department stores' growing demands for exclusivity and proprietary product in an effort to differentiate themselves from their retail peers in the mall. This has further stymied apparel brands seeking growth and expansion; it also has reduced the opportunities to leverage infrastructure and achieve economies of scale in design and production, which ultimately has led to higher cost structures. The business model of a vertically integrated specialty apparel retailer, such as The Gap Inc. or Chico's FAS Inc., incorporates that of the traditional wholesaler (design, sourcing, and marketing) with that of the retailer (merchandise buying and allocation, as well as store operations including real estate site selection and labor scheduling). Whereas a national apparel wholesale brand typically supports the brand with advertising and marketing spending -- in the range of 3% to 5% of sales -- vertical apparel brands have virtually all the brand exposure they need in their store windows, which change as often as new merchandise arrives (often weekly).

Finally in 2007, a national broadline department store: Macy's

The purchase in 2005 of The May Company by Federated Department stores was the culmination of decades of consolidation and contraction of the traditional broadline department store channel. Department stores watched lower-priced, off-the-mall alternatives -- such as Target Corp. and Kohl's Corp., as well as niche players, the specialty retailers -- capture market share for years. As share eroded and talented merchants and retail operators were siphoned off to retail channels with superior growth prospects, broadline retailers lost their merchandise edge and began to compete on price. This reduced the service component of the shopping experience and accelerated the demise of the broadline retailers, along with the traditional wholesalers that supplied the broadline channel. As industry observers, Standard & Poor's sees it as a truism that consumer markets bifurcate, and the players left in the middle will see their competitive advantage and market share erode. This partially explains department store consolidation. Constant brand-building to elevate brand positioning is necessary in the long run to maintain middle-market status. Simple apparel is a commodity in a deflationary pricing spiral. Branding not only differentiates and creates desire, but it also supports pricing. Federated renamed the former May Company's store fleet of approximately 330 stores to Macy's in 2006 as part of its effort

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APPAREL COMPANY MERGERS & ACQUISITIONS -- 2004-07

CLOSING DATE

ACQUIROR

TARGET

APPROXIMATE VALUE

Apr. 07 Mar. 07 Jan. 07 Dec. 06 Oct. 06 Sep. 06 Aug. 06 May 06 May 06 Feb. 06 Jan. 06 Jan. 06 Sep. 05 Jul. 05 Jul. 05 Apr. 05 NA Jan. 05 Dec. 04 Dec. 04 Aug. 04 Jul. 04 Jul. 04 Jul. 04 Jun. 04 Jun. 04 Jun. 04 Jun. 04 Jun. 04 Jun. 04 May 04 Feb. 04

Berkshire Hathaway VF Corp. Phillips Van-Heusen Liz Claiborne Kellwood Co. Stride Rite Corp. Berkshire Hathaway Talbots Apax Polo Ralph Lauren Adidas-Salomon AG Liz Claiborne Stride Rite Corp. Iconix Brand Group Inc. Carter's Inc. VF Corp. Quiksilver Liz Claiborne Russell Corp. Jones Apparel Group Inc. Nike Russell Corp. Jones Apparel Group Inc. Polo Ralph Lauren VF Corp. Oxford Industries Dick's Sporting Goods Jones Apparel Group Inc. Reebok VF Corp. Quiksilver Kellwood Co.

VF Corp.'s intimates business Majestic Athletic Superba Kate Spade CRL Group Robeez Footwear Russell Corp. J. Jill Tommy Hilfiger Jones Apparel jeans unit Reebok Westcoast Contempo Saucony Joe Boxer Oshkosh B'Gosh Reef Holdings Rossignol C&C California Brooks Sports Barneys New York Inc. Official Starter Huffy Sports Maxwell Shoe Co. Inc. Certain assets of RL Childrenswear Company LLC Vans Inc. Ben Sherman Ltd. Gaylan Trading Maxwell Shoe Co. Inc. The Hockey Company Kipling Brand DC Shoes Phat Fashions

$350 million terms undisclosed $180 million $124 million terms undisclosed $27.5 million $600 million $517 million $1.6 billion $355 million $3.8 billion $23.6 million $170 million $40 million $312 million terms undisclosed terms undisclosed $29.5 million initial payment, with contingent payments expected $115 million $286.3 million $47.2 million $30 million $345.8 million $240 million $396 million $146 million $362 million $346 million $204 million, plus the assumption of $149 million in debt $185 million $144.2 million $140 million, plus contingent payments

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NA-Not available. Source: Company reports.

to bring increased luxury and distinctive assortments to its newly acquired locations. Additionally, expanded geographic coverage under one nameplate allowed for economies of scale in advertising. The conclusion of the May/Federated combination was earlier in 2007, when Federated renamed itself as Macy's Inc., with a new ticker (M) on the New York Stock Exchange. The Federated­May merger has hurt clothing companies that sold goods to both companies. The merger has reduced the retail floor-space footprint, as Macy's closes duplicative outlets and pursues a private-label strategy for differentiation. Macy's is promoting several

of its private label brands (Alfani, I.N.C. greendog, and Charter Club), while dropping mature brands that have underperformed, such as Kellwood's Sag Harbor line for women, which it discontinued earlier in 2007.

Changes at the retail create challenges, opportunities for apparel companies

Department store retailers are changing their merchandise mix in ways that help them stand out from their competitors and convince shoppers they have products not available elsewhere. They are phasing out wardrobe basics that sell for less than brand-name goods and

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bringing in more fashionable private-label goods. For example, Federated is promoting its Alfani, greendog, and Charter Club private label brands. Mid-priced department store J.C. Penney Co. Inc. has recently introduced other private-label brands, including a.n.a. for women and Ambrielle lingerie. Department and discount retailers are also seeking differentiation through exclusive deals with vendors. For example, Macy's began exclusively selling Oscar de la Renta's O Oscar line of clothing in 2007, and has just signed an agreement with Tommy Hilfiger to be its exclusive distributor. At Target, Champion (from Hanesbrands Inc.) offers an exclusive line of C9-branded sporting apparel. Juicy Couture launched an exclusive fragrance at Bloomingdale's (division of Macy's). Department store chains are also dropping brand names that have underperformed, putting further pressure on clothing companies. Federated, for example, recently dropped Kellwood's Sag Harbor line for women.

Polo Ralph Lauren Corp. is developing its specialty apparel retail brand, Rugby, which is aimed at college youth, and a wholesale diffusion label, Chaps, which is offered exclusively at Kohl's. In an effort to diversify further, the company is leveraging its designand brand-building expertise in its newly formed Global Brand Concepts division, which will develop lifestyle brands for specialty and department stores. This group's initial product launch will be in 2008 at J.C. Penney, where the various softline products in the apparel and home categories will be grouped under the American Living banner. VF Corp., the largest US apparel company, sold its intimates brand, Vanity Fair, in early 2007 to focus on its lifestyle and sports apparel brands. In July 2007, the company added 7 For All Mankind and Lucy Activewear to its portfolio.

Maturing bridge and specialty retail concepts target the 35+ woman

Several apparel manufacturers and specialty retailers have focused on women aged 35 and older as an extremely attractive demographic; however, it has proven to be a difficult market in which to both gain a foothold and maintain momentum, while these specialty retail concepts and bridge brands are maturing. Retailers targeting the baby boom market have struggled recently, even though the women in this demographic are likely to have significant discretionary income and are less affected by high gas prices and declining home values. (Baby boomers are the approximately 77 million Americans born between 1946 and 1964.) Ann Taylor Stores Corp., Chico's, Coldwater Creek Inc., and The Talbots Inc. continue to struggle to find exciting, "must have" items for boomers. Same-store sales have been down, in the mid- to high single digits for most of 2007. Several new specialty retail concepts that had opened as growth concepts for saturated chains have closed or are retooling, such as Gap's Forth & Towne (closing after less than two years) and American Eagle Outfitters Inc.'s Martin + Osa (open about one year). These closings illustrate the difficulty of finding success in this market. In department stores, bridge brands are floundering amidst competition from contemporary and lifestyle brands, as well as private label and new or limited-edition

Apparel brands lose bargaining power

Apparel and footwear companies face challenges, thanks to retail consolidation and a slowing US economy. Companies are working to cope. At Liz Claiborne, CEO Bill McComb, who took over in October 2006, is reviewing strategic alternatives for 16 mature and/or moderate apparel brands; the options include divestiture, discontinuation, or licensing. The brands are projected to generate a combined $800 million (wholesale) in 2007 and generate a low-single-digit operating loss. The list of brands includes such department store mainstays as Dana Buchman, Ellen Tracy, and Sigrid Olsen -- each of them a better or bridge brand that targets women aged 35 or older. The intent is to narrow the portfolio and center all future corporate activity on one key principle: building powerful brands. Liz Claiborne has been divided into two divisions, Direct Brands and Partnered Brands, in the hope of developing a best-in-class specialty retail capability. Direct Brands is the home of Juicy Couture, Lucky Brands, and Mexx. Our outlook for Liz Claiborne's Partnered Brands division remains one of declining sales volume. For the Liz Claiborne brand specifically, we expect continued contraction at Macy's, which accounts for an estimated 12% of brand volume in 2007 and is projected to decline to less than 10% in 2008.

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offerings in moderate-priced channels. Brands such as Dana Buchman, Ellen Tracy, and Anne Klein are on the decline, while contemporary and lifestyle brands, such as Juicy Couture and The North Face, are garnering more floor space. At Liz Claiborne, sales of its Partner Brand labels, which include Dana Buchman and Ellen Tracy, were down 13% in the second quarter of 2007. At VF Corp., sales of its outdoor brands, which include The North Face, were up 20%. Not surprisingly, Dana Buchman and Ellen Tracy are among the 16 brands that Liz Claiborne has under strategic review (to sell, discontinue, or license) in order to focus on its faster-growing brands, which include Juicy Couture, Kate Spade, Lucky Brands, and Mexx.

the past five years by offering newness and a mix of styles at varying price points. New designers are entering the contemporary market, and prices have not been an issue; in fact, in distinct opposition to apparel generally, contemporary brands have not exhibited deflationary pricing.

The convergence of entertainment and fashion

With the launch of InStyle, Time Inc.'s monthly magazine that celebrates the lifestyles of entertainers and other public faces, the convergence of fashion and entertainment accelerated. Unlike previous celebrity-focused titles, InStyle was one of the first publications to use full-length photos showing an entire outfit. Asking "Who are you wearing?" has become de rigueur on red carpets with the proliferation of celebrity TV news coverage. At MAGIC, the fashion and apparel trade show of the Men's Apparel Guild in California, vendors typically display press mentions of stars wearing their apparel to appeal to buyers. Tom Ford -- formerly at Gucci Group NV and more recently featured on Project Runway, Bravo's reality show focusing on fashion design -- have made designers themselves a point of interest. Both old and new technologies are driving demand and around-the-clock availability. Cable channels such as QVC, Home Shopping Network, and ShopNBC are dedicated to selling around the clock, extending the reach of brands to new audiences. High-speed Internet connections have made shopping online a less risky proposition by enabling greater detail and multiple views of an item, along with 24/7 availability. Celebrity news Web sites, such as TMZ.com, post images and videos of celebrities who are out and about, sometimes shopping at their favorite retailers, while starbrand.tv enables viewers to purchase clothing and accessories worn by their favorite TV characters at any time.

Contemporary and lifestyle brands gain traction

The boomer and bridge (between moderate and high-end designer) markets are challenged by lower-end merchandisers offering special limited-edition items by guest designers who typically command premium prices. Target has been at the forefront of this trend, with fashions by Proenza Schouler, Behnaz Sarafpour, and Luella Bartley; fast fashion chain H&M has worked with Karl Lagerfeld, Roberto Cavalli, and Stella McCartney. Department stores are using designers to head their own proprietary label initiatives on a more permanent basis, while continuing to expand private-label efforts to drive traffic and profits. In the fall of 2007, Kohl's has been rolling out apparel, footwear, and accessories by Vera Wang; American Living will be in J.C. Penney in 2008. Macy's has been experimenting with its O Oscar label by Oscar de la Renta. Increasing penetration of exclusive or private-label merchandise is highly attractive to department stores that want to differentiate themselves from the competition and justify higher mark-ups and fewer markdowns in the highly competitive apparel segment. This was one of the key rationales driving Federated's acquisition of the May Company in 2005 and, ultimately, the rebranding of the new combined chain as Macy's in 2007. Across the department store floor, the "contemporary" category (more modern design that appeals to younger women) is still on a hot streak. Estimated at a $16 billion retail market, it has enjoyed steady growth in

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Comfort over style: casual seasonal footwear has legs

Flip-flops and Crocs are staying out of the closet and on people's feet much longer. People are wearing seasonal footwear in transitional months as well as during warm weather. Replacing sneakers, the working

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woman's transit shoe of choice, flip-flops continue to reign. Believed to have been developed from traditional Japanese sandals, flip-flops can be made with a variety of materials, ranging from cheap rubber to leather, and may include various embellishments to dress them up. Flip-flops even made a publicized (albeit somewhat criticized) appearance at the White House in 2005, when some members of Northwestern University's women's lacrosse team wore them during their meeting with President Bush. Originally intended as a boating/outdoor shoe due to its slip-resistant, nonmarking sole, Crocs (produced by Crocs Inc.) became known by word of mouth for their comfort and lightweight design. The company, which holds four patents covering various aspects of its footwear, intends to transform itself into a lifestyle company based on two proprietary products: Croslite, a closed-cell, odor- and bacteria-resistant resin that molds to foot shape, for footwear, and Croslite rt, a lightweight, durable, and heat-resistant material, for apparel. Styles have been recommended for gardeners, nurses, and food service workers for comfort and have been popping up on the feet of men, women, and children. Sales in the first half of 2007 more than tripled over the same period in 2006, with 30% of sales from international markets. Sales for full-year 2007 are expected to approach $1 billion. Whether Crocs turns out to be another footwear fad remains to be seen.

closed zippers and is made of material that wicks away sweat and fights bacteria. Fabrics with these elements have been available in sport clothing for some time.

Specialty retailers follow shoppers to lifestyle centers

Since 2000, mall growth has been stagnant, with only a handful of new openings to compensate for closings, so it is no wonder that retailers looking for growth are flocking to lifestyle centers. About half of the more than 150 lifestyle centers in the United States have opened since 2002, according to data from the International Council of Shopping Centers, a trade group. Lifestyle centers are upscale, outdoor shopping areas designed to look like an urban street and are typically located near affluent suburbs. Developers are finding it difficult to find large parcels of land for malls, and retailers find rental maintenance costs lower for lifestyle centers than at traditional malls. According to Poag & McEwan, the developers who first coined the term lifestyle centers, sales tend to be about $400 to $500 per square foot in lifestyle centers, compared with $330 per square foot at traditional malls. The boom in luxury goods also may have played a role. Affluent shoppers seem to prefer a boutique-like atmosphere, which is very different from enclosed, 100,000square-foot malls anchored by a few department or discount stores. Often, tenants at lifestyle centers include stores from companies such as Banana Republic (owned by Gap), Coach Inc., Chico's, and Pottery Barn (owned by Williams-Sonoma Inc.), as well as higher-end restaurants.

Sports apparel goes upscale

It is well understood that most athletic apparel and footwear is typically worn for nonathletic occasions, but the fashion industry is now partnering more frequently with traditional sports apparel companies. Perhaps one of the most visible moves in this area was the acquisition of a controlling interest in Puma AG Rudolf Dassler Sport in April 2007 by PPR SA (formerly PinaultPrintemps-Redoute). Designers Alexander McQueen and Philippe Starck are each working with Puma on different projects. Stella McCartney is working with Adidas AG for the fifth time, and Nike Inc. has partnered with John Varvatos. Sometimes the fashion industry incorporates textile and other innovations used in athletic apparel. In this realm, we are seeing fashionable clothing that has details like en-

Brands use "shop-in-shop" to grow

In conjunction with opening their own stores, apparel and accessory brands have used shop-in-shop concepts to take more control of merchandising. In a shop-in-shop arrangement, floor space is dedicated to the display of products from one brand and typically includes special signage and fixtures. The proposition is attractive to both the manufacturer and the retailer in that the concepts help differentiate from competition; this allows the brand and the retailer to bring in higher-end merchandise and a broader selection, and cycle out slow

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movers, resulting in less markdown risk. These concepts often see a sales acceleration and productivity gain. Coach, Free People (owned by Urban Outfitters Inc.), and Polo Ralph Lauren have used this format successfully in select department stores, while Wolverine World Wide Inc. has used it for its Merrell line in specialty sporting goods stores. Dick's Sporting Goods Inc. has several shop-in-shop initiatives, including products from Nike, Under Armour Inc., and The North Face. By the beginning of the first quarter of 2008, Dick's plans to have more than 300 Nike men's and women's shops each, and 200 Under Armour shops (100 men's and 100 women's) as well. Plans for The North Face include the installation of the shop-in-shop concept at 45 to 50 Dick's stores at full buildout.

The company considers Mexx to be one of its power brands and is positioning Mexx to grow internationally, so Mexx stores will remain open in overseas markets. Liz Claiborne is also shutting down its line of Elisabeth apparel, which caters to plus-sized women, as well as its Laundry by Shelli Segal stores. The company is focusing instead on brands including Lucky, Juicy Couture, and Sigrid Olson. Liz Claiborne may drop more underperforming brands, CEO William McComb said in February 2007.

Apparel makers open stores

With department store space dwindling, many apparel makers are turning into specialty retailers, opening their own stores where they can control how their merchandise is displayed and ensure that it will not fight for floor space with competitors or

Sales rising as consumers dress up

Sales of both apparel and footwear in the United States are rising, lifted by a move toward dressier, more colorful looks for both men and women. Suit sales are rising for men, and dresses are growing more popular for women. Sales of accessories, such as handbags, remain strong. Retail sales of apparel rose 5% in 2006, compared with a 4% increase in each of the previous three years, according to estimates from research group NPD Fashionworld. The growth is not occurring evenly, however. Consumers are increasingly splitting their purchases between luxury goods and valuepriced merchandise. The high-end consumer is more insulated from higher energy prices and other economic swings. At the same time, inexpensive goods -- sold through chains such as discounter Target and apparel retailer H&M -- have become more fashionable, wooing consumers to shop in places that they otherwise would not have considered.

APPAREL MANUFACTURERS' RETAIL OPERATIONS -- 2007

COMPANY # OF STORES RETAIL AS % OF NET SALES*

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Clothing companies streamline their business

To deal with the consolidation and merchandising shifts in department stores, apparel makers are streamlining and making other changes. One strategy is to focus on the best-performing brands. In February 2007, Liz Claiborne said that it would close the Mexx line of stores in the United States, after the brand failed to catch on following its US introduction in 2003.

Carter's Inc. Coach, Inc. Branded stores Factory stores Jones Apparel Group Barney's Branded stores Outlets Liz Claiborne Branded stores Outlets Nike Oxford Industries Phillips-Van Heusen Polo Ralph Lauren Branded stores Outlets Quiksilver Branded stores Licensed stores Timberland Branded stores Factory stores Wolverine V.F. Corp. Branded stores Outlets

376 352 259 93 1,132 20 411 701 735 399 336 418 42 700 282 137 145 487 276 211 81 20 61 82 538 460 78

42 76 ... ... 31 ... ... ... 31 ... ... NA NA NA 42 ... ... NA ... ... 13 ... ... NA 14 ... ...

NA-Not available. *Includes Internet and catalog sales. Fiscal year ended June 2007. Source: Company reports.

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with retailers' private-label goods. Liz Claiborne operated 399 stores as of the end of 2006. The company has said it hopes to eventually generate as much as 40% of sales from its own stores, up from 28% in 2006. In the four years from 2002 to 2006, VF Corp. opened 400 single-branded stores featuring lines such as The North Face and Vans. Polo Ralph Lauren says that it sends fresh products to stores continuously; it also sells exclusive goods that can be found only at its own branded stores, as a way of driving shoppers to its outlets. (See the table "Apparel manufacturers' retail operations" for more detail on apparel makers' retail outlets.) Shoemaker Deckers Outdoor Corp. is opening up stores to sell its Uggs brand of sheepskin boots, normally found in department stores and shoe stores.

Going abroad

Apparel makers are looking outside their home markets in search of faster growth, with clothing sales rising at low- to mid-single digit rates and as retail consolidation continues. For manufacturers, many of the new overseas markets are attractive, due to growing middle-class populations and a lack of branded clothing available for sale. International sales accounted for 28% of Liz Claiborne's revenue in 2006, up from just 4% in 2000. The company has said that it hopes to eventually reach 35% in international sales. In 2006, VF Corp. formed a venture with India-based licensing partner Arvind Mills Ltd. VF expects its apparel sales in India to grow at more than 25% a year, up from $40 million presently, because of the joint venture. Indian consumers have taken to VF brands, according to the company. The world's largest store selling Wrangler jeans, a brand long associated with American cowboys, is in Bangalore, India. In China, as many as 300 million residents are already in the middle class, and that number will increase as the country's economic boom continues. China's consumer spending makes up a smaller percentage of gross domestic product (GDP) than in other countries, a statistic likely to change in tandem with a growing middle class. Wealthier Chinese are particularly keen on acquiring brand-name goods. China now accounts for about 12% of luxury sales worldwide, according to consulting firm Ernst &

Young. Spending on apparel there will rise to about $170 billion by 2025 from $45 billion in 2005, according to McKinsey & Company, another consulting firm. India is another promising market. Young Indians are traveling abroad more frequently and acquiring a taste for Western fashion and brand-name goods. As a result, sales are growing about 35% a year for women's branded apparel and 22% for men's apparel, according to A.T. Kearney. Indians are now being introduced to the concept of chain stores in their own country. Domestic companies, including Pantaloon Retail India Ltd. and Reliance Industries Ltd., are pouring billions into retail to open networks of stores around the country. Apparel and accessories retailer Guess? Inc. is opening stores in both China and India. Other Asian markets are appealing as well. Gap will franchise 15 stores that will open in Indonesia over the next four years. The company already has plans with partner FJ Benjamin Holdings Ltd. to open 30 Gap and Banana Republic stores in Singapore and Malaysia.

Economic growth spurs consumer spending

US economic growth continues, helping many apparel companies and clothing retailers post higher sales growth in the first half of 2007. However, growth is slowing as 2007 progresses, according to monthly retail sales reports. The US economy, as measured by real GDP, grew at an annual rate of 2.9% in 2006, according to the Bureau of Economic Analysis (BEA), an agency of the US Department of Commerce. As of mid-November 2007, Standard & Poor's was projecting real GDP growth to slow to 2.1% in 2007 and 1.9% in 2008. Our projection for personal consumption expenditures (PCE) is a rise of 2.9% in 2007, and tapering off to a 1.9% gain in 2008, after a 3.1% increase in 2006. Linked to a growing domestic economy is the employment environment, which remains strong. The unemployment rate stood at 4.7% in October 2007, versus 4.4% in October 2006. Payrolls rose by 166,000 in October 2007; this speaks to the economy's ability to generate new jobs, thereby increasing consumer spending. Wages

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APPAREL & FOOTWEAR'S SHARE OF TOTAL PERSONAL CONSUMPTION EXPENDITURES

(In percent)

7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 1977 79 81 83 85 87 89 91 93 95 97 99 01 03 05 2007

Source: US Department of Commerce.

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are going up as well. As of mid-November 2007, Standard & Poor's was forecasting an average unemployment rate of 4.6% in 2007 and 5.0% in 2008, compared with 4.6% in 2006. Consumer confidence is one of the foundations of consumer spending and is of greatest importance to the footwear and apparel industry. The University of Michigan's consumer sentiment survey slipped in October 2007 to 80.9 from 83.4 in September (1966=100). Rising prices, especially for gasoline, deteriorating home values and the waning strength of the labor market led to the decline. The Conference Board, a private research organization, also reported a dip in sentiment in October 2007. The index fell to 95.6 (1985=100) in October, down from 99.5 in September. US apparel sales rose 5.1% to $190.1 billion in 2006, according to the NPD Group, a market research firm. Sales of women's apparel rose 5.3% to $102 billion (representing 54% of all apparel sales), while men's apparel sales rose 2.9% to $54.8 billion (29%). Sales of children's apparel (clothing for boys, girls, infants, and toddlers) rose 8.4% to $33.3 billion and accounted for 17% of apparel sales in 2006.

I NDUSTRY P ROFILE

The industry that suits everyone

Through the second quarter of 2007, US consumers spent an annualized $368.4 billion on clothing and footwear, up 3.8% from $354.9 billion spent in the year-earlier period, according to the US Department of Commerce. Given an estimated US population of 299.4 million as of July 2007, per capita expenditures on clothing and footwear equaled roughly $1,230. US employment levels in apparel and footwear manufacturing have fallen drastically. According to the US Department of Labor, domestic apparel employment has fallen by 79% from the mid-1990s -- to 181,300 in February 2007, from 853,800 in December 1994. Increased quotas, reduced tariffs, and a string of free-trade and preferentialtrade agreements have contributed to the steady flow of manufacturing jobs out of the United States and into low-cost countries in Asia, Latin America, Africa, and the Caribbean. According to Department of Labor data, domestic apparel employment peaked in 1973 at 1.45 million; since then, the sector has shed more than a million jobs. in the United States is made both domestically and internationally. (Some of the largest US-based apparel wholesalers are listed in the "Major apparel companies" table.) Domestic apparel manufacturers' shipments totaled $29.13 billion in the 12 months through February 2007, according to the US Census Bureau, down 1.9% from $29.7 billion in the year-earlier period. Apparel worth $71.629 billion was imported into the United States in 2006, up 4.2% from the $68.713 billion imported in 2005. Exports of US-made clothing continued to fall; the figure for 2006 was $4.32 billion, down 3.4% from the $4.47 billion posted in the year-earlier period. US retail sales at clothing and accessories stores rose 6.7% to $216.8 billion in the 12 months through February 2007, from $203.2 billion in year-earlier period, according to the Department of Commerce. Sales in 2006 rose 6.7% to $214.6 billion. The US apparel market can be divided into two tiers: national brands and other apparel. National brands, produced by about

Apparel

MAJOR APPAREL COMPANIES

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With respect to both manufacturing and retailing, the US apparel industry is large, mature, and highly fragmented. Apparel sold

US APPAREL INDUSTRY EMPLOYMENT

(Production workers, in millions)

1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 1959 63 67 71 75 79 83 87 91 95 99 03 2007

COMPANY

FISCAL YEAR ENDING

SALES (MIL. $)

Nike V.F. Corp. Jones Apparel Group Liz Claiborne Hanesbrands Polo Ralph Lauren Kellwood Phillips-Van Heusen Quiksilver Timberland New Balance* Warnaco Carter's Inc. Oxford Industries Wolverine

May '07 Dec.'06 Dec.'06 Dec.'06 Dec.'06 Mar. '07 Feb.'07 Jan.'07 Oct.'06 Dec.'06 Dec.'06 Dec.'06 Dec.'06 May '07 Dec.'06

16,325 6,216 4,743 4,994 2,250 4,295 1,962 2,091 2,362 1,568 1,555 1,830 1,343 1,129 1,142

Source: Bureau of Labor Statistics.

*Privately held. Data is for 6-month fiscal transition period ending December 30, 2006. Source: Company reports.

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10 sizable companies, currently account for some 15% of all US wholesale apparel sales. The other apparel category, accounting for about 85% of all apparel distributed, comprises small brands and private-label (or store brand) goods.

fied into related apparel and sporting goods categories as a way to extend the reach of their brands and grow revenues. In addition to sneakers, Nike offers golf clubs, watches, and yoga mats.

Footwear

Like the apparel business, the US footwear industry is mature and fragmented, and its manufacturing base is declining. According to NPD Group, a consumer market research firm, total footwear sales in the first quarter of 2007 rose 16% to $11 billion. Casual shoes made up 26% of sales, followed by dress casual (18%), other leisure shoes (15%), running shoes (11%), and basketball shoes (7%). Other shoe categories include hiking, evening, and tennis. According to data from the American Apparel & Footwear Association, a trade association, US footwear imports totaled 2.37 billion pairs of shoes in 2006, up 5.3% from 2.25 billion pairs in 2005. Domestic shoe production has fallen to represent less than 5% of shoe purchases in the US in recent years. While the United States imports most of its soft-sole footwear, it is particularly strong in the manufacture of protective or safety footwear (most of which feature steel safety toes). Interestingly, domestic footwear producers often import shoes to offer a diversified catalog. Today, the footwear industry is truly global in nature, with large manufacturers sourcing products from and selling products in different countries over several continents. A multinational strategy allows manufacturers facing a slow economy in one country to keep expanding revenues by focusing on selling in the faster-growing economy of another country. US-based companies, such as Nike Inc., for instance, have countered slow domestic results by growing sales through increased penetration in the well-developed markets of Western Europe (including the United Kingdom, Germany, and France) and by entering new Eastern European markets (including countries such as Poland and the Czech Republic). In the fiscal year ended May 2007, Nike generated 53% of its sales overseas. Footwear companies, particularly manufacturers of athletic footwear, have diversi-

INDUSTRY TRENDS

Most trends affecting apparel and footwear manufacturers today are driven by consumer demand and relate to the size of the various demographic groups and their particular wants, shopping patterns, and spending power. Changing styles in workplace and leisure attire also are influencing retail and manufacturing operations. Private equity firms are buying up apparel companies; at the same time, there is consolidation among manufacturers entering new markets and product lines.

The evolution of a lifestyle brand

The best lifestyle brands give us a picture of our aspirations and tell an idealized story of a way of life, of which we want to be a part. It is a way to emotionally connect with the consumer and communicate much more than mere product or fashion, while supporting the positioning and ultimately the sale of both. A brand personality and image that are emotional and unique can be broad enough to support brand extensions. Ralph Lauren invented lifestyle branding by crystallizing an idealized, "upper crust" version of American life. Those seeking upward mobility eagerly bit the hook.

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Case study: Juicy Couture

Juicy Couture Inc. designs, manufactures, and markets apparel, accessories, and personal care for men, women, and children. The company offers T-shirts, skirts, dresses, sweaters, shorts, drawstring pants, denim jackets, and track suits, as well as handbags, shoes, fashion jewelry, sunglasses and, fragrances. Products are carried by the better department and specialty stores, including Saks Fifth Avenue, Scoop, Barney's, Bergdorf Goodman, Henri Bendel, and Fred Segal. Juicy Couture is one of the power brands of parent Liz Claiborne Inc., which has opened 38 specialty retail locations for Juicy; plans include continued specialty store expansion in both domestic and international locations.

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Juicy Couture evolved into the premium lifestyle brand it is today due to strong product positioning for "girly girls" who want to be hip, chic, and cool. It is casual luxury with a mix of Los Angeles celebrity and an irreverent, fun attitude that attracts shoppers aged 10 to 44, and even some grandmothers. These factors are the base of Juicy Couture's success. The company is projected to generate sales of $450 million in 2007, with a corporate goal of $600 million to $700 million by 2010; it is estimated to grow at a compound annual growth rate of 10% to 15% through 2010, supported by specialty retail growth of 30% to 40%. Initially a line of maternity jeans under Travis Jeans, Juicy Couture was founded in 1994 by the partnership of Gela Nash and Pamela Skaist-Levy, when they noticed a dearth of casual sexy apparel for working out, running errands, stopping at a café, or picking up the groceries. The brand was made out of their home in California and was a huge success on the West Coast. At the start of Juicy Couture, the focus of the fashion line was on sportswear and women's sweat suits. One of the company's primary goals in brand positioning was to combine sexy style with extreme comfort -- the success of which is evident with the company's tracksuit, which today generates 20% of total sales volume. In 2002, Juicy Couture added clothing lines for men and children. Liz Claiborne acquired Juicy Couture in 2003, when sales were less than $50 million and the business was entirely wholesale. Both founders have stayed on as copresidents. With a huge corporation to support its growth, Juicy Couture could expand distribution, strategically extend the brand to adjacent categories (including handbags, shoes, and fashion jewelry), improve sourcing and the supply chain, and create a marketing program beyond word-of-mouth or grassroots. Juicy Couture continues to expand its product lines and marketing strategies. In 2005, the company licensed its name to T-Mobile USA, a subsidiary of Deutsche Telekom AG, for a designer version of its Sidekick mobile phone, and to Movado Group Inc. for watches. In 2006, a line of infant apparel was added and an eponymous fragrance, which won three FiFi (fragrance industry) awards, was introduced. Fragrance sales for 2007 are projected at $60 million,

which would place Juicy Couture fragrance among the top 10 US fragrances. The company further extended the brand to the entire family with the introduction in 2007 of Juicy Crittoure fragrance and ancillary items for dogs and their owners. A man's fragrance, Dirty English, is projected to launch in March 2008. The first free-standing Juicy Couture stores opened in the United States in October 2004 in Las Vegas. In October 2007, the company opened its 34th store, a flagship on Rodeo Drive. Executing a non­cookie cutter approach in real estate and store ambience, Juicy Couture expects to have 39 stores operating by the end of 2007 and 60 in 2008. Further afield, the company looks to open 47 shops in China over the next three years, as well as five in Russia. While we believe that some categories are a bit of a stretch (e.g., Christmas tree ornaments in 2006 and, now, the Juicy Crittoure personal care line for dogs), by and large the brand is to the current decade what Liz Claiborne was in the 1980s and 1990s. Juicy Couture's casual apparel and accessories have a following that spans men, women, and youth, aged 14 to 44. A testament to the brand -- and the ultimate compliment that can be paid to a company -- is that the brand has morphed into a descriptive: "How Juicy!"

Stores move into overseas markets

Seeking growth away from saturated US markets, many retailers are looking to overseas markets -- especially Asia -- for new store locations. For luxury goods makers, Asia is an alluring market. Japan has long been a strong market for luxury goods, thanks to its consumers' taste for high-end goods. Jewelry retailer Tiffany & Co. has 52 retail locations in Japan, where it generated 19% of its revenues in 2006 of $2.6 billion. Luxury handbag retailer Coach Inc. received 18% of its $2.61 billion sales from Japan for the year ended July 2007. According to Coach, which is based in New York, Japanese women spend four times more per capita on luxury accessories than American women do. Upscale retailers are now looking to China and its burgeoning middle and upper classes. Tiffany opened a store in Beijing in May 2006 and added a location in Shanghai

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US RESIDENT POPULATION PROJECTIONS

(In thousands)

% CHANGE 2007­15 2007­25

AGE GROUP

2007

2015

2025

Under 5 yrs. % of total 5 to 14 yrs. % of total 15 to 19 yrs. % of total 20 to 24 yrs. % of total 25 to 34 yrs. % of total 35 to 44 yrs. % of total 45 to 64 yrs. % of total 65 yrs. & over % of total Total population

20,817 22,358 23,518 6.9 6.9 6.7 40,113 42,607 46,051 13.3 13.2 13.2 21,655 20,243 22,457 7.2 6.3 6.4 20,961 21,810 22,052 7.0 6.8 6.3 40,104 44,053 44,345 13.3 13.7 12.7 42,882 40,793 45,351 14.3 12.7 13.0 76,533 83,711 82,141 25.4 26.0 23.5 37,850 46,791 63,524 12.6 14.5 18.2 300,913 322,366 349,439

7.4 6.2 (6.5) 4.0 9.8 (4.9) 9.4 23.6 7.1

13.0 14.8 3.7 5.2 10.6 5.8 7.3 67.8 16.1

Racial composition (%): White 79.8 Black 13.0 Asian 4.4 Other 2.8 Hispanic (any race) 14.7

78.4 13.3 5.0 3.3 16.6

76.8 13.7 5.7 3.8 18.9

Totals may not add due to rounding. Source: US Department of Commerce, Population Series P-25.

brands by offering what some call "disposable chic" or "fast fashion" -- exceptional fashion quality at affordable prices. Both retailers enjoy healthy margins and growing sales. H&M's gross margin reached a record 59.5% in fiscal 2007 (ended November 2006), with sales rising 12%, while Inditex's sales jumped 22%. By comparison, The Gap Inc. had a gross margin of 35.4% for its fiscal year ended February 2007. H&M operated 114 US stores as of November 2006; Inditex operates about 20 Zara stores in the United States. More European competition might be traveling across the Atlantic. The United Kingdom's Topshop, another low-cost, high-fashion retailer, is reported to be opening three US stores in the spring of 2008. There are signs of interest in Topshop across the Atlantic. The retailer, a unit of Arcadia Group, reportedly sold out a line of clothes inspired by supermodel Kate Moss at Barneys New York Inc. department store within hours.

Demographic trends

in December. The stores complement the existing Tiffany boutiques in each city. By 2015, about 27% of Chinese households will be upper­middle class or better, according to consulting firm McKinsey & Co., up from 10% of the population in 2005. Coach also has opened stores in Beijing and Shanghai, which the company considers its two "beachheads" in the Chinese market, according to chief executive officer Lew Frankfort. The company plans to operate 10 freestanding stores in China within the next three years. Coach currently operates about 110 locations in Japan. Because specialty retailers usually target a narrow market, they must pay close attention to the age distribution, ethnic background, and priorities of potential customers in their markets.

Teens entering adulthood

Teenagers aged 15 to 19, who represent about 7.2% of the US population, have been a powerful force in retail over the past decade. Gap, Abercrombie & Fitch Co., American Eagle Outfitters Inc., and Urban Outfitters Inc. have been among the leading beneficiaries. Today, a large share of the 71 million Americans born between 1977 and 1994 -- a group dubbed "Generation Y" by market researchers -- have entered adulthood. This is an attractive group for retailers. Shoppers aged 25 and older, for instance, often have more to spend on apparel and may need to expand their wardrobes to include professional clothes for the office. Consumers aged 20 to 34 accounted for about 26% of spending on apparel in 2006, according to estimated consumer data from research group NPD Fashionworld. Retailers that appeal to teens are trying to hold onto those consumers as they enter their twenties. Some examples of new stores for this demographic are Ruehl (from Aber-

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Foreign retailers enter the US

At the same time that US retailers are looking abroad, international competitors are moving into the United States -- and often bringing with them unique ways of operating. Two examples are Sweden's H&M Hennes & Mauritz AB (H&M) and Spain's Industria de Diseño Textil SA (Inditex), which owns the Zara clothing chain and others. The two companies offer fashionable clothing for inexpensive prices, and they turn over their inventory more rapidly than competitors -- thus encouraging shoppers to visit often and buy items that they like on the spot. Both companies have grown their

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crombie & Fitch), aimed at men and women aged 22 to 35, and Martin + Osa (American Eagle Outfitters), a chain that debuted in the fall of 2006 for shoppers aged 25 to 40. As Abercrombie and other teen-targeting retailers seek to hold onto these shoppers, rivals such as Ann Taylor Loft, Gap's Banana Republic, and Express LLC are trying to pull them away.

Children's clothing sales rise

As members of Generation Y get older, they are starting to have children -- to the benefit of specialty retailers that target infants and young children. Annual sales have risen the past several years for The Children's Place Retail Stores Inc. and The Gymboree Corp., both of which sell apparel, generally in mall-based or shopping-center­based stores. Sales of children's clothes rose 8% in 2006, besting the gains seen in both men's and women's apparel, according to NPD. Discount retailers Target Corp. and WalMart Stores Inc. are big players in the children's clothing market. Hoping to grab a piece of that market, Gymboree is adding a third retail chain, Crazy 8, which will debut later in 2007. The new stores will offer clothes for lower prices than Gymboree's namesake and Janie & Jack stores, in hopes of pulling business from the discount giants.

all apparel spending by women in the fourth quarter of 2006, according to NPD. Specialty retailers have launched a number of chains targeting this group, but several have failed to catch on with shoppers. Gap, the largest US apparel retailer, shut its Forth & Towne chain of 19 stores aimed at women over 35 in June 2007 after its brief 18-month foray. In early 2007, Gymboree closed Janeville, a chain of stores for women over 30. American Eagle is reported to be retooling Martin + Osa after disappointing sales. Chico's FAS Inc., which owns a chain of stores targeting women over 35, closed Fitigues, an upscale casual clothing chain, in 2007; the company had acquired Fitigues in 2006. The specialty retailers are losing shoppers to department store chains that have overhauled selection to bring shoppers back. Chains such as J.C. Penney Co. Inc. and Kohl's Corp. are offering more exclusive private-label goods that are fashionable. In the case of Gap, company executives decided to focus instead on the company's existing Gap and Old Navy chains, which are struggling.

Young men dressing up

The casual look began its ascendance in the early 1990s, when corporate America started emulating the less-rigid dress policies of high-tech industries. Often, the philosophy behind the switch from suit-and-tie to casual attire was that, if employees were working long hours, they should be allowed to do so comfortably. Gap rode the success of khakis for a decade but ultimately became a victim of its own success: by 2000, khakis were ubiquitous, and the wearer no longer needed Gap's stamp of approval (i.e., the Gap brand) to feel appropriately dressed when wearing khakis. The casual look is one factor that drove deflationary apparel pricing in the last decade. In the aftermath of the Internet bust, the American workplace has been reverting to more formal attire. Retail trends reveal that suits are again selling. For women, the business suit has been tweaked to convey femininity; for men, its construction has become more form-fitting. Sales of slacks rose 7.2% in 2006, compared with growth of 5.4% for jeans. Men aged 25 to 34 increased purchases of suits by 13%, and suit sales rose 12% for men aged 18 to 24. Mass-merchant re-

Retailers struggle to draw older women

Female shoppers, particularly those over the age of 35, spend the lion's share of retail dollars, making them the most desirable target for retailers. Much of this group belongs to the baby boom generation, those nearly 76 million Americans born between 1946 and 1964. This segment has more disposable income than any other population group and tends to spend it freely. Specialty retailers are striving to reach shoppers in this segment who may be looking for fashionable clothes that are not too provocative or youthful. Still, apparel retailers have had mixed results catering to women over 35, who previously have been neglected by the sector. Unlike her mother, this consumer has turned to specialty retailers to build her wardrobe, rather than relying exclusively on department stores. She has more money to spend on clothes and likes to update her wardrobe to add new clothes and to reflect shifting tastes. Women aged 35 and older made up 41% of

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tailers offering suits at lower prices have made them more popular, according to NPD.

2006, according to a March 2007 statement from Nike.

Sporting apparel goes high-tech

Athletic apparel has come a long way from the era of pairing a dowdy gray cotton sweat suit with tennis shoes. Now, athletic togs promise to hug the body with materials that insulate the wearer from cold weather, while wicking away sweat to boost performance. Running shoes are being synced with computers to measure performance. Consumers have responded to the high-tech offerings, with sportswear apparel sales rising 67% in the last 10 years to $28.8 billion in 2006, according to the Sporting Goods Manufacturers Association, an industry trade group. Other advances in sports apparel include tagless and stitchless T-shirts and fabrics that manage odors. Technological advancements allow manufacturers to maintain or increase prices and keep consumers loyal to their brands. One of the pioneers in advanced athletic apparel is Under Armour Inc. The company, founded in 1996, offers compression apparel that regulates body temperature by wicking away perspiration to keep an exerciser comfortable. Users wear the company's HeatGear line when it is warm, ColdGear when it is cold, or AllSeasonGear for moderate temperatures. The company's revenue has doubled in the past two years, to $431 million in 2006, as it expanded into apparel for women and footwear. Adidas AG introduced the Adidas_1 running shoe in 2005. The shoe's technology, which is available in basketball and running shoes, uses sensors, a microprocessor, and a small motor to adjust the level of cushioning provided by the shoe. Nike teamed with computer and consumer electronics company Apple Inc. to develop the Nike+iPod Sport Kit, which allows Nike footwear to "communicate" with Apple's iPod Nano portable music player. A user places a sensor into a Nike sneaker, which relays information on speed, distance, and calories burned to the music player, which can then be broadcast through the user's headphones. Runners using the Nike+ system have logged more than 10 million miles since the product went on sale in July

Luxury and value goods both do well

The strongest demand for apparel and accessories is bifurcated between luxury goods on the high end and inexpensive goods on the low end. Upper middle class and wealthy consumers are more insulated from recent trends, such as higher heating and gas prices, that have reduced spending for middle class and lower-income consumers. Companies that sell to these markets are thriving. Phillips-Van Heusen Corp., which acquired the upscale Calvin Klein brand in 2003, posted a 39% increase in net income in its fiscal year ended February 2007, lifted by demand for its Calvin Klein brand of men's better sportswear and the licensing of the Calvin Klein name to new fragrances. Upscale department stores are experiencing strong sales growth. Same-store sales, or sales at stores open at least a year, for February 2007 rose 11% at luxury stores from the year earlier, and then rose an additional 13% in March, according to trade group the International Council of Shopping Centers. Polo Ralph Lauren Corp.'s profits have risen on demand for its upscale apparel and accessories. In March 2007, the company formed a joint venture with luxury goods maker Compagnie Financière Richemont SA to design and sell precious jewelry and watches. Shoppers are flocking to value goods -- many of which are improving in quality and fashion -- thanks to an infusion of top designers turning out moderately priced collections. Two European specialty retailers have been particularly successful at offering lowerpriced goods, and both are undergoing aggressive expansions into the United States. Sweden's H&M and Spain's Inditex have used unconventional means to expand their businesses. Inditex, for example, does virtually no advertising, relying instead on sleekly designed stores in centrally located neighborhoods in major cities. Though H&M sells inexpensive goods, it knows its shoppers are fashion-conscious. The chain, in the past few years, has featured lines from designers Karl Lagerfeld and Stella McCartney. In March 2007, H&M rolled out M by Madonna, a line of clothing designed by the pop singer.

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Offshore sourcing

In the ongoing push to cut expenses, US apparel and footwear manufacturers increasingly have moved their production facilities to lower-cost regions outside the United States -- notably Mexico, the Caribbean, Central America, Asia, and sub-Saharan Africa. Many manufacturers, though, have retained some facilities in the United States to manufacture products that require a fast turnaround time. Following the 1995 implementation of the North American Free Trade Agreement (NAFTA) and the subsequent lowering of

US IMPORTS AND EXPORTS OF APPAREL

(In billions of dollars)

80 70 Imports 60 50 Exports 40 30 20 10 0 1990 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 2006

Source: US Department of Commerce.

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Both H&M and Inditex are enjoying success. For the year ended November 30, 2006, H&M's sales rose 12% to 68.4 billion Swedish krona (US$9.17 billion). Sales at Inditex, which operates under eight banners, including Zara, Oysho, Pull and Bear, rose 22% to 8.2 billion (US$10.4 billion) the year ended January 31, 2007. (Note: All currency conversions in this Survey are at average exchange rates for the period in question, except where noted.) US-based apparel retailers and manufacturers are wooing designers to produce merchandise at the low end. Discounter Target has featured lines by designers Isaac Mizrahi, Liz Lange, and Mossimo Giannulli. In April 2007, Gap introduced Gap Design Editions, selecting three up-and-coming design labels to produce their versions of a woman's iconic white shirt. Steve & Barry's LLC, a clothing chain known for selling T-shirts, sweatshirts, jeans, and other basics -- often for less than $10 an item -- signed actress Sarah Jessica Parker to help design a line of fashionable women's clothing. Called Bitten, every piece in the collection will sell for $19.98 or less, according to press reports. Parker, known for her sense of style, said that she picked the chain because she grew up in a family of eight children that faced financial difficulties. The chain is hoping to build upon the success it has enjoyed with its $14.98 Starbury basketball sneakers, endorsed by New York Knicks basketball player Stephon Marbury, who wears them during games. Steve & Barry's has since expanded its product line from 50 items to 200, including apparel and women's athletic shoes.

tariffs, apparel manufacturing in Mexico and the Caribbean grew significantly. The proximity of these countries to the United States means that their facilities can offer significantly shorter shipping times compared with Asian manufacturers, while also providing low-cost production -- factors that are especially important for basic goods. Legislation in the last several years has sustained the long-term shift to offshore sourcing. The Trade Act of 2002 was approved by the US Congress in July 2002 and signed into law by President George W. Bush. This legislation contains the Trade Promotion Authority, which grants the president the right to negotiate trade agreements and gives Congress the final authority to approve or disapprove those agreements. It also contains the Andean Trade Preference Act, which provides dutyfree access to most apparel, and virtually all footwear, from the Andean region of South America (Bolivia, Colombia, Ecuador, and Peru). The new legislation made certain retroactive modifications to the May 2000 Caribbean Basin Trade Partnership Act and the African Growth and Opportunity Act (AGOA), both of which carry numerous breaks for footwear and apparel from countries in those regions. Standard & Poor's believes that, while tariff and quota preferences for apparel and footwear produced in the Caribbean basin, the Andean region, and, to a lesser extent, sub-Saharan Africa have temporarily increased sourcing from these regions, the trend is not likely to last. Over time, we expect China's share of apparel and global manufacturing to increase dramatically, facilitated by its entry into the World Trade Or-

ganization (WTO) on December 11, 2001, and the elimination of quotas among all 149 WTO-member countries in 2005. China accounted for 25.9% of all apparel imported into the United States in 2006, according to the American Apparel & Footwear Association, a trade group. That is nearly double the share in 2004 and comes after textile quotas against the country were lifted. In the footwear market, where quotas were eliminated several years ago, China accounted for 86.2% of all US imports in the 12 months ended December 2006. Having plants in Mexico and the Caribbean provides a quick turnaround time that will prove less significant than China's lower costs. Indeed, because the Internet speeds communications between an apparel company and its far-flung plants -- thereby accelerating the cycles -- geographic proximity may become less of a concern. China has other advantages as well. Its factories employ highly skilled laborers capable of producing complex garments. In contrast, AGOA-eligible countries are unable to produce fashionable, high-quality garments due to the generally low levels of technical expertise and literacy, underdeveloped infrastructure, and a dearth of capital. In addition, companies that set up and run plants in China are taxed by the Chinese government at a lower rate than if those plants were operating in the United States. Moreover, by keeping their sweetened profits in China, US-based apparel makers can fund future growth.

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HOW THE INDUSTRY OPERATES

Although apparel and accessories can be considered as two separate industries, they often overlap, with many companies selling goods in both categories. In addition, their consumer demand profiles are similar: apparel and accessories such as footwear are necessities, yet they are partly discretionary as well. At their most basic level, these industries supply people with utilitarian attire that is affordable and unlikely to change drastically in style from year to year. For more fashionconscious consumers, the industries strive to update their assortments to reflect changing trends or to offer innovative styles or features that command premium prices.

While individual companies' sales depend on the specific products they offer, overall industry demand is driven by general economic trends, including changes in disposable personal income, consumer confidence, and consumer spending. During periods of prosperity, for example, consumers are more inclined to update their wardrobes, buy the newest fashions on a whim, or splurge on luxury items. During recessions, consumers tend to shy away from luxury goods, postpone apparel and footwear purchases that are not absolutely necessary, or replenish their wardrobes with inexpensive items. Population growth and demographic trends also influence demand. Obviously, when the number of people rises, so does overall demand for apparel and accessories. However, with the US population growing by only 1% per year, companies in this industry are looking overseas for growth opportunities. Economic growth will be particularly dramatic in Asia. According to the World Bank, more than 600 million people in East Asia will earn enough to be considered middle class by 2030, up from just more than 100 million in 2000. Demographic trends within the United States also can affect the quantity and type of apparel and accessories consumers demand. For example, as the leading edge of the baby boomer generation (those born between 1946 and 1964) enters retirement, these consumers have shifted their spending priorities to needs other than clothing, such as healthcare. They are also more likely to buy comfortable clothes and shoes rather than the latest fashions. Changes in consumer attitudes and preferences also have an effect on apparel demand. Apparel designers and merchants must adapt to lifestyle and fashion trends by altering their product lines. To accommodate consumers' increasing emphasis on fitness and exercise, for example, many apparel manufacturers have added athletic styles to their mix. Preteen and teen markets tend to be particularly fashion-driven, and apparel and footwear brands must closely monitor and anticipate the ever-changing styles and items that these consumers want. Although these industries are mature and slow growing, they exist in a dynamic and competitive environment. In order to improve profitability, many companies are

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adopting new technologies and restructuring to create leaner organizations. Consolidation has been prevalent in these industries in recent years, as larger companies strive to lower their costs by gaining leverage in buying from suppliers and selling to customers, and by achieving economies of scale in manufacturing and marketing. Moreover, the line between traditional manufacturers and retailers is blurring: the Internet offers brands direct access to their customers, while traditional department stores develop proprietary store labels for differentiation purposes.

Diverse product lines and ways of operating

The apparel and accessories industries are diverse, with hundreds of product lines designed for men, women, and children in a wide range of styles and price points. Each line is designed specifically for a targeted consumer group, based on its observed and expected trends and needs. In the apparel industry, companies can operate as manufacturers (wholesalers), as retailers, or as both. For instance, Gap Inc., a vertical retailer, outsources the production of its apparel and accessories, which it then sells in its own stores. Some manufacturers, like Kellwood Co., sell almost exclusively to retail channels. Yet others, like Quiksilver Inc., Jones Apparel Group Inc., and Liz Claiborne Inc., distribute their products through multiple channels, combining traditional retail channels with their own retail stores. An apparel manufacturer may sell its products under its own brand name, a brand name that it has licensed from another company, or a retail customer's private label. For a manufacturer, private-label manufacturing not only provides an additional source of revenue, but also allows its plants to be run at greater capacity, thus reducing the per-unit production costs of its own branded goods. Moreover, since the manufacturer does not have to support the marketing of privatelabel goods, such items can be almost as profitable as branded products. The increasing diversification of operations means that the roles of apparel manufacturer, retailer, brand manager, and licensee continue to overlap and blur. Broad apparel categories include sportswear, career apparel (comprising both tradi-

tional and casual styles), dress, and athletic apparel. Price points in the apparel industry are (in ascending order) popular, moderate, better, bridge, and designer. Fabrics play an important role in function and quality. In general, woolens and knits are high-quality fabrics that can command higher selling prices. Woven fabrics tend to be lower in both quality and price. The women's segment traditionally has accounted for more than half of all apparel sales at retail. This segment's share was 54% in 2006, down from 56% in 2005, according to NPD Fashionworld, a market research and consulting firm. Men's apparel represented 29% of retail apparel sales in 2006, the same as in 2005, while children's (including infants' and toddlers') apparel accounted for 17% (versus 15%). Overall apparel spending in 2006 rose 5.1% to $190.1 billion, according to NPD. Many traditional apparel vendors, aiming to diversify their assortments, offer complementary accessories like costume jewelry, handbags, hats, belts, watches, sunglasses, scarves, gloves, and footwear. A smaller number of firms are niche players in the accessories market, targeting different price points. For example, Coach Inc. aims for the premium-priced segment, while Fossil Inc. and Claire's Stores Inc. focus on the moderate- and popular-priced markets, respectively.

The unique skill set of vertical apparel retailers

The desire to better control their destiny has propelled apparel companies like Liz Claiborne to develop a specialty retail strategy. In this approach, the store location is a branding tool; merchandise presentation and customer service are integral to the total brand experience. Companies that market wholesale apparel brands, in contrast, depend on the retailer for prime store real estate, as well as for knowledgeable and engaged store associates. In addition to the marketing and product skills (design and sourcing) that are common to both wholesalers and retail apparel brands, specialty apparel retailers need real estate expertise, the ability to flow merchandise in a timely manner from sourcing base to individual stores (often by way of a distribution center), and in-store presentation and store labor scheduling skills. At the same

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time, they need to maintain brand positioning and not over-distribute the brand.

product is the cheapest. Manufacturers in this segment must focus on obtaining lowcost manufacturing.

Intense competition

Despite years of consolidation activity, the apparel and accessories industries remain extremely competitive and highly fragmented. This is most likely due to the low barriers to entry: these industries are characterized by simple technologies, low fixed assets per employee, and ease of expansion through the use of contractors. One needs only good clothing designs that attract department store and/or specialty store buyers. If a designer gets orders, he or she can contract the production of the item to a low-cost, independent manufacturer, usually outside the United States. Although getting into the business may be relatively easy, staying in is much more difficult. Typically, small start-up companies are undercapitalized and lack broad-based global sourcing; they may also lack marketing muscle to give their products the exposure needed to build brand loyalty among consumers. In addition, many do not have the technology and systems infrastructure that major retailers now demand. These small firms often seek to be acquired by larger companies as a way to expand the sales of their designs. The power of big retailers is a major challenge to many apparel vendors and manufacturers. As retailers shrink their inventories and order closer to the time that merchandise is needed, manufacturers are forced to assume more inventory risk. In addition, their sheer size puts big retailers in a strong position to negotiate favorable terms with manufacturers, with regard to pricing, shipping, co-advertising (in which retailers and manufacturers share the cost of advertising), and product labeling. Consumers also wield considerable power over apparel and accessories brands, as they can switch readily from one product or brand to another. To dissuade them from doing so, manufacturers attempt to raise brand awareness and build brand loyalty among consumers. A strong brand image typically gives a manufacturer more pricing flexibility by creating a "must-have" perception to the consumer. Of course, some segments, such as the popular-price segment, compete strictly on price: consumers purchase whichever

Brand management and the specialty retail strategy

Both traditional apparel brands (those available in department stores) and vertically integrated specialty apparel retail brands need to execute brand management strategies that create value for the consumer and brand equity for the apparel company. When apparel becomes a commodity, the apparel company's pricing power is nil and deflationary pressures (along with price wars) rule the day. On the other hand, when companies create apparel brands that provide some emotional meaning to the consumer, pricing is not the sole driver of purchases. Successful brands provide opportunities for brand extensions and potentially generate superior gross margins. Over time, consumers have become "brand polygamists" according to Design Forum, a retail consulting firm, a position with which we heartily concur. To compensate for lower levels of brand loyalty, companies now must incorporate tangible product features, such as quality and appearance, with intangibles, such as a personal level of communication and innovation, an emotional connection, or aspirational value. For example, Nike Inc.'s NikeiD program enables shoppers to design their own footwear, apparel, and bags. By bringing individual customization to the activewear giant, this program differentiates the brand from its competition and more thoroughly involves the consumer in the overall brand experience. Lifestyle branding began with Ralph Lauren's successful foray into domestics 25 years ago. In 2007, the launch of the Martha Stewart Collection is the largest brand debut in Macy's history and spans bed, bath, entertaining and cooking in an exclusive branding statement with an authoritative editorial voice. With product launches exclusive to other retailers (including Costco for food and Michael's Stores for crafts), along with her presence in Kmart, Martha Stewart is on the verge of overkill, in our view; the brand's growing ubiquity threatens to destroy it. Brand management requires a balance between preserving and growing brand value (also known as brand equity) and capitaliz-

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ing on opportunities to expand or stretch the brand. Done well, a brand extension can strengthen the "brand proposition" -- the perception of value associated with the brand. However, extending a brand too far beyond its core associations or expanding its markets to less prestigious channels can weaken a brand. In our opinion, both Tommy Hilfiger and Polo Ralph Lauren pursued business strategies in the 1990s that reduced brand value. To address this, Ralph Lauren rationalized store distribution by exiting tertiary locations, while aggressively improving customer service in the department store. Now the brand is again elevated to the premier rung brand of men's haberdashery in leading US department stores. Superior brand strategy often translates into a sustainable competitive advantage and creates barriers for competitors to dislodge loyal customers. Other brand benefits include premium pricing and leverage in the distribution channel. For an apparel or accessories brand, such leverage means superior product placement or preferred square footage in retail outlets. Specialty apparel retailers with leading brands have distribution leverage: they can demand (and get) the best mall locations.

Ralph Lauren, even have ventured into home furnishings, adding branded linens and dinnerware. Footwear manufacturers, too, have capitalized on the strength of their brand names, with companies such as Nike and Reebok International Ltd. adding apparel, accessories, and sports gear to their product portfolios.

License to grow

Licensing is a common means for companies to extend their product lines; manufacturers paid $5.9 billion in licensing royalties in the US in 2005 (latest available) up 1.8% from 2004, according to the International Licensing Industry Merchandisers' Association. Entertainment/character licensing continued to garner the largest share of the market, accounting for $2.62 billion, or 44% of the total, while trademarks/brands was second with $1.08 billion. Licensing is a key element of an integrated brand marketing program, enabling a company to extend its brand into new categories. For instance, in March 2003, Liz Claiborne licensed certain women's dresses and suits under its Liz Claiborne, Liz Claiborne Woman, and Liz Claiborne Petites labels to apparel manufacturer Kellwood Co. More recently, bootmaker Timberland Co. in February 2006 licensed its brand name to Phillips Van-Heusen to make Timberland apparel in North America.

Enhancing customer loyalty

Apparel companies go to great lengths to attract new customers and retain existing ones. In a market that bombards consumers with advertising campaigns, and lifestyle and fashion messages, a brand name is a powerful weapon in these efforts. Brands have become increasingly significant to apparel and footwear sales. Many consumers have less time to shop than previously, and they are spending their disposable income more carefully. Established brand names, conveying an image of quality, make shopping easier and faster for many consumers. For manufacturers, brands build consumer loyalty, which translates into repeat business. Many established brand manufacturers, such as Tommy Hilfiger, Polo Ralph Lauren Corp., Jones Apparel Group, and Liz Claiborne, are leveraging their existing brand names by adding accessory lines, such as sunglasses, watches, fragrances, wallets, and footwear. Some apparel makers, such as Polo

Merchandising is key

Manufacturers must support their brands through advertising campaigns and by delivering the right product in an appropriate retail setting. They also must establish and maintain good relationships with retailers and help them to effectively present and sell their goods. Some manufacturers supply retailers with an in-store shop -- from concept to display, including fixtures -- which allow the retailer to create an environment consistent with the brand's image. It also increases consumer product recognition and loyalty as customers become familiar with a product's in-store presentation and location. A manufacturer's merchandising team usually utilizes consumer focus groups to provide customer feedback on the company's products or to generate new product ideas. This information is shared with designers and the production staff. The merchandising team also will educate the retailer on the company's new

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products and servicing of customers. Increasingly, manufacturers will open a few retail stores as a way to test their products and gain direct feedback from their end customers. An example is VF Corp., which has opened The North Face stores in several cities, partly to gauge customer reaction to new products for this outdoor apparel and gear brand.

Cutting labor costs with offshore sourcing

US labor costs tend to be relatively high, leading many manufacturers to turn to overseas sourcing for a majority of their products. Companies can establish overseas production in three ways. They can buy or build a plant, establish agents that have ties with factories in the foreign country, or contract directly with the owners of foreign factories. Typically, major US apparel companies establish overseas production in all of these ways. They also use domestic sources other than their own plants. Using overseas manufacturers and/or outside domestic contractors has several benefits for apparel companies. Overseas sourcing allows them to compete with less expensive imports. Domestic sourcing allows companies to respond quickly to fashion changes and to retailers' needs for automatic inventory replenishment. Generally, US companies go to Southeast Asia for production of more complicated apparel items. Many of the region's countries have large pools of skilled laborers who can create high-quality items. Although overseas labor rates have risen in recent years, they are still significantly below those in the United States.

Reduced trade regulation

The shift of clothing jobs away from the United States has accelerated with the expansion of free-trade agreements. In 1995, the United States lowered tariffs on clothing imported from the Caribbean and agreed to phase out the Multi-Fiber Agreement, which imposed quotas on imported clothing. When the North American Free Trade Agreement (NAFTA) went into effect on January 1, 1994, it allowed US companies to ship fabric produced in the United States to Mexico for assembly and to ship the clothing back to the United States without incurring import duties.

Apparel products that are simpler to make are outsourced to less developed countries, where labor rates are lower than in Southeast Asia. With the passage of the Caribbean Basin Trade Partnership Act (CBTPA) in May 2000, a growing percentage of production is being sourced in that region, which offers the advantage of much shorter lead times because of its proximity to the United States. The African Growth and Opportunity Act (AGOA), also passed in May 2000, further promises to spur the level of apparel and footwear imports from sub-Saharan Africa. In October 2000, the Trade Development Act (TDA) of 2000 took effect. The TDA gives duty and quota preferences to many countries in the Caribbean and sub-Saharan Africa that export apparel to the United States. Such goods meet must certain content conditions; typically, apparel produced in these regions must include fabric made in the United States. As a result of the TDA, apparel imports from these regions are expected to grow faster than they would have without the special legislation. In July 2002, Congress granted final approval for the Trade Promotion Authority (TPA) that revives presidential "fast-track" authority to negotiate trade deals that Congress can accept or reject but not alter. Such deals may include provisions to eliminate apparel duties for Andean countries (Bolivia, Colombia, Ecuador, and Peru), the Caribbean Basin, and sub-Saharan Africa. On June 30, 2007, Congress allowed TPA to expire, and prospects for renewal are uncertain. The bilateral Free Trade Agreement (FTA) between the United States and Chile became effective on January 1, 2004. It eliminated tariffs on 87% of bilateral trade immediately, and it will establish duty-free trade in all products within 12 years. An agreement with Australia that was completed in May 2004 could serve as a model for the Asia-Pacific region. In May 2004, the US Central American Free Trade Agreement (CAFTA) was signed with Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. It eliminates tariffs and trade barriers between the United States and those countries for many products, including apparel. The Senate Finance Committee endorsed CAFTA on June 29, 2005, and the measure narrowly passed the House of Representatives in July. CAFTA has been implemented on a rolling

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basis in 2006­07 and was expanded to include the Dominican Republic along with Central America. Other talks are progressing under the auspices of the World Trade Organization. China joined the World Trade Organization (WTO) in December 2001. Exports of clothing and shoes from China jumped after the elimination of quotas among all WTO-member countries in 2005. China's share of US apparel imports nearly doubled to 25.9% in 2006, according to the American Apparel & Footwear Association, a trade group. China is even more dominant in footwear, accounting for 86.2% of all US imports in 2006.

Vital role of technology

In both the apparel and footwear industries, technological innovations have facilitated global expansion and closer coordination between retailers and manufacturers, while also cutting costs. For example, improvements in manufacturing processes -- such as efficiencies in cut-and-sew operations in the apparel industry -- are helping to reduce manual labor costs. Rapid improvements in computer technology have helped to shorten the new product development phase from years to practically months, especially in the fashion/style/highperformance areas. In the athletic footwear industry, for example, computer-aided design (CAD) systems enable a manufacturer to reduce the design-to-production cycle to only a few months, so footwear companies can provide the marketplace with a steady flow of new products. Apparel makers that link with retailers through quick-response programs and other electronic technologies go a long way toward making themselves indispensable to their customers. The goal of quick response is to maintain lean inventories and avoid overstocking, while ensuring that retailers have the merchandise customers want to buy, when they want to buy it. By assuming responsibility for stocking the stores, apparel companies help to carry inventory costs, historically one of retailers' highest costs. They also alleviate many of the retailers' reordering headaches and help them buy as close to the selling season as possible. For manufacturers today, quick response has become key to survival.

Sales channels proliferate

Today, most companies distribute their products through a variety of channels:

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One such system to link retailers and manufacturers is called electronic data interchange (EDI). An EDI system employs interconnected computer terminals throughout the entire manufacturing and sales systems. At the retailer's checkout counter, electronic point-of-sale scanners read the bar code attached to each item and record the product sold, its price, and even such details as its color and size. This up-to-the-minute report on a given store's sales is then relayed to the manufacturer. With direct access to detailed sales information, the manufacturer can tailor its production to consumer demand. The data recorded by bar code scanners in the EDI system also are used for automatic (or just-in-time) reordering, enabling a manufacturer to restock a retailer's shelves quickly, using no more than a computer for communication. In addition to providing for automatic replenishment, EDI makes distribution and shipping information processing more efficient. Quick response and EDI technologies have proven successful with basic goods, which are relatively simple to produce, require shorter lead times, and increasingly are being manufactured in highly automated factories in the United States. These systems are more difficult to implement for seasonal and fashion apparel, however, as such goods require more labor input and tend to be made in the Caribbean or Southeast Asia. Technology also is playing a crucial role in apparel procurement (or reverse auctions) through the rising popularity of business-tobusiness (B2B) exchanges -- online marketplaces that allow trading partners to conduct real-time business communications with each other. This is changing the way retailers and vendors conduct business with each other, whether they are issuing requests for quotes, bidding for orders, sharing product forecasts, or collaborating on product development. These exchanges may be public, such as the WorldWide Retail Exchange (WWRE), or private, such as Wal-Mart Stores Inc.'s Retail Link and other portals that individual retailers, brands, and trading companies have established for B2B communications with their own networks of customers and suppliers.

wholesale, catalog, and Internet sales, as well as through their own retail stores. Within the wholesale channel, manufacturers often try to sell to various types of retailers, including department stores, specialty stores, discount stores, and national chains. In the past decade, many manufacturers have opened their own retail stores, reducing their dependence on the wholesale channel while potentially increasing sales. This strategy has benefits -- it permits manufacturers to showcase an entire line of products, enhance brand awareness, test new products, and directly collect customer feedback -- but it also carries the risk of alienating retailers who carry the same merchandise. Some manufacturers have also established outlet stores to move older inventory. For instance, Liz Claiborne operated 399 specialty retail stores and 336 outlet stores as of December 30, 2006.

Differences exist in the distribution mix for men's, women's, and children's items. For example, more women's apparel than men's is purchased in specialty and department stores. Men's apparel is more prevalent in discount stores and general merchandise chains. In the children's segment, a considerably higher portion of apparel is purchased in discount stores. Because children quickly outgrow their clothing, parents are less inclined to spend a lot of money on a single item and, therefore, more inclined to shop at discount stores. Fashion is increasingly responsive to the styles sought by the preteen and teen markets, whose influence is rising. When promoting a product, however, manufacturers and retailers must not only take the user into account, but the shopper as well. For example, many men's apparel items actually are purchased by women.

Direct to consumer: Internet and catalog Specialty retailers the most important channel

Consumers buy apparel and accessories from a variety of retail outlets. Based on data from the NPD Group, a market research firm, specialty stores accounted for 30.8% of apparel dollar purchases by consumers in 2006, followed by mass merchants (19.9%), department stores (16.2%), national chains (14.6%), off-price retailers (7.5%), direct mail/e-tail pure plays (5.1%), factory outlets (1.7%), and all other retailers (4.2%). ("All other retailers" is a category consisting of warehouse stores, dollar stores, company stores, and miscellaneous retail outlets.)

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APPAREL STORE VS. DEPARTMENT STORE SALES

(In billions of dollars)

180 160 Apparel stores 140 120 100 80 60 40 20 0 1995 96 97 98 99 00 01 02 03 04 05 06 E2007 Discount department stores Conventional and national chain department stores

E-Estimated. Source: US Department of Commerce.

Although the Internet accounted for about 6.5% of total apparel, footwear, and accessories sales in 2006, according to research firm Forrester Research, we believe that it has strong potential for growth as a distribution channel. The Internet permits consumers to shop from anywhere at any time they wish and to make easy price comparisons, conveniences that shoppers seem to appreciate. Manufacturers use Internet sites for marketing and informational purposes, as well as to make sales. The Internet enables apparel and footwear brands to customize merchandise to shoppers' specific needs, which enables firms to achieve better pricing along with developing a more emotional bond with the consumer. Both Nike Inc. and Polo Ralph Lauren are at the forefront of this strategy. Selling by catalog is another important method of distribution. Before the advent of the Internet, it was the primary way to shop at home. Today, however, most retail apparel brands combine catalog sales with e-commerce sales under the moniker "direct to consumer." This is part of an overall branding strategy to meet consumers' needs 24/7 and, thereby, strengthen the emotional bond that is part of the branding experience. Catalogs are a form of advertising or direct marketing, bringing the product to the

22

consumer. Many retailers report that receipt of the catalog spurs shoppers to the Internet or the store for the purchase occasion.

CONSUMER CONFIDENCE INDEX

(1985 = 100)

160 140

KEY INDUSTRY RATIOS AND STATISTICS

Gross domestic product (GDP). Reported quarterly by the US Department of Commerce, GDP tracks the market value of all goods and services produced by labor and capital in the United States; it is, thus, the broadest measure of aggregate economic activity. As the economy expands and contracts with the business cycle, economic growth is measured by changes in inflation-adjusted (or real) GDP. Two consecutive quarters of decline in real GDP generally signal that the economy is in a recession. Real GDP rose 3.6% in 2004, 3.1% in 2005, and 2.9% in 2006. As of October 2007, Standard & Poor's was projecting increases in real GDP of 2.0% for 2007 and 2.1% in 2008. Real disposable personal income. This measure of consumers' after-tax personal income, adjusted for inflation, is reported each month by the US Department of Commerce. Disposable income influences the level of expected consumer spending. When incomes are rising, consumers are willing to spend more than previously, which bodes well for apparel and footwear sales. Conversely, when incomes are declining, consumers are more likely to defer spending and save their money. In 2006, nominal disposable personal income rose 5.9%, following increases of 4.1% in 2005 and 6.4% in 2004. As of October 2007, Standard & Poor's was projecting that disposable income would increase 6.0% in 2007 and 4.9% in 2008. Consumer confidence. The Conference Board, a private research organization, conducts a monthly poll of 5,000 representative US households to gauge consumer sentiment, and it compiles an index of consumer confidence based on the results. The index represents a relative measure of how Americans feel about the strength of the economy, business trends, their job security or employment prospects, and their future earning prospects.

120 100 80 60 40 1995 96

97

98

99

00

01

02

03

04

05

06 2007

Source: The Conference Board.

High consumer confidence usually is accompanied by increased spending and borrowing. Conversely, when consumer confidence is low (usually due to uncertainty about the future), personal expenditures are likely to be cut back or postponed. Because consumer spending accounts for about two-thirds of the nation's economic activity, this measure is widely watched. In 2003, the Conference Board's index of consumer confidence fell to 61.4 in March -- its lowest level since October 1993 (when it was 60.5) -- largely reflecting consumer concern over the US war with Iraq. The most recent reading was 95.6 (1985=100) in October 2007, its lowest level in nearly two years (98.3 in November 2005) on perception of weaker business conditions and a less favorable job market. Consumer price index (CPI). Released monthly by the Bureau of Labor Statistics (BLS), this index measures changes in the prices of commodities, fuel oil, electricity, utilities, telephone services, food, and energy. The "core" CPI smoothes out the index by removing the volatile food and energy categories. The BLS also releases specific price indices for both the apparel and footwear industries. These inflation rates reflect and influence pricing decisions of apparel and footwear companies and their suppliers. Most companies try to pass on cost increases to the consumer. When these increases are large, however, consumers, stunned by high prices, may hold back on spending -- a condition known as "sticker shock." While prices for many products and services tend to rise over time, that trend does

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APPAREL PRICE INDEXES

(1982­84=100)

220 CPI-Total 200 180 160 Men's and boy's apparel 140 120 Women's and girl's apparel 100 1997 98 99 00 01 02 Footwear

03

04

05

06

2007

CPI-Consumer price index. Source: Bureau of Labor Statistics.

not hold for apparel, for which prices have fallen annually from 1998 through 2005. In 2006, apparel prices, as measured by the CPI-Apparel index, were unchanged at 119.5. The September 2007, index reading remained 119.5, a 1.8% year over year decline from the level in September 2006. As of October 2007, Standard & Poor's was projecting overall inflation, as measured by the CPI, at 2.7% for full-year 2007 and 1.8% for 2008. CPI increased 3.2% in 2006. Interest rates. The level of interest rates influences management decisions regarding business acquisitions, new product introductions, capital expenditures, dividends, and stock repurchases. High or rising interest rates increase the cost of borrowing, making companies less likely to expand facilities or to make other capital expenditures. During such times, apparel and footwear manufacturers may postpone or cancel plans to upgrade or expand manufacturing capacity. The level of interest rates also affects consumers' purchasing decisions. Higher interest rates can curb consumer spending, as people begin to pay down their credit cards and rein in their expenses. The Federal Reserve Board (the Fed) sets monetary policy and can take actions that directly affect short-term interest rates in the US banking system. After slashing short-term interest rates 11 times during 2001 to prop up a recessionary economy, the Fed did not change rates until November 6, 2002, when it lowered both the discount and the fed funds rates by 50 basis points to 0.75% and 1.25%, respectively, in response to the sluggish economic recovery. The federal funds

rate was last lowered in June 2003, to 1.00% from 1.25%. By mid-2004, with output expanding and payrolls growing, the question was when the Fed would raise rates. A cycle of rate hikes began in late June 2004, with a 25-basispoint increase to 1.25%. By October 2006, the Fed had raised the federal funds rate a total of 17 times, to 5.25%. Despite these increases, interest rates remained low on a historical basis, and particularly so compared with rates in the late 1970s and 1980s. In September 2007, on concerns of tighter credit conditions intensifying the housing downturn and restraining economic growth, the Fed cut both the federal funds rate and the discount rate by half a point, to 4.75%. As of October 2007, Standard & Poor's was projecting the interest rate on Treasury bills (a proxy for short-term interest rates) to average 4.4% in 2007 and 4.0% in 2008. The rate was 4.7% in 2006. We project that the yield on 10-year notes (a proxy for longterm interest rates), which was 4.8% in 2006, will drop to 4.7% in 2007 and then rise to 5.1% in 2008. Our projection for the federal funds rate is 5.1% in 2007.

HOW TO ANALYZE AN APPAREL COMPANY

While there are substantial differences in operating a branded apparel/accessories company and a specialty apparel retailer, there are many similarities. Let's start there. A good starting point is to assess the current macroeconomic environment, with emphasis on trends in employment, and consumer income and spending. The state of the economy in general, and consumer income and spending in particular, influence the amount of money consumers are willing or able to spend on clothing and accessories. Demographic and lifestyle trends also can be important determinants of consumer demand. At the macroeconomic level, the economy, employment, and retail sales need to be assessed. Is the economy expanding or contracting, or is it headed for a recession? Are new jobs being created? If so, at what pace? What is the trend in the unemployment rate? Changes in trend -- incremental growth or decline -- can be more meaningful than the absolute numbers. Are consumer spending and

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Qualitative factors

The following discussion explains several qualitative factors used to analyze apparel or accessories branded companies and specialty apparel retailers. Customer demographics and target market. The growth potential of an apparel brand or specialty retailer depends primarily on three factors: the size of the target market for the company's products, the market's growth rate, and the company's market share. It is important to identify the firm's target customers and assess whether the company is successfully addressing their needs and wants from both a marketing and design

Evaluating a company's competitive stance

Because of the glut of apparel and accessories offerings, any characteristic that favorably distinguishes a company and its

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overall retail sales growing or contracting? Are consumer incomes rising, and are consumer debt levels too high relative to income? On a more micro level, it's useful to determine whether consumers are spending more or less on apparel and accessories relative to other goods. Are apparel and accessories prices rising or falling relative to other discretionary goods? What are the dominant fashion trends in these product categories and how rapidly is the fashion silhouette changing? How are the nation's changing demographics influencing demand for apparel, accessories, and footwear? Once the industry's outlook has been evaluated, the analyst then can evaluate the prospects of a specific company, be it an apparel brand or an apparel retailer. Analysts evaluating apparel brands and retailers have the added advantages of being able to test merchandise quality, compare it with alternatives, and assess the selling environment in terms of customer service and visual accoutrements. When visiting a retail location, things to note include how much square footage a store devotes to selling particular products compared with competitors, whether merchandise appears to be selling at full or discounted prices, merchandise display formats, and how complete (or broken) collections appear. Also important are overall traffic trends and the average age of the typical shopper. One also should observe the degree of merchandise differentiation from competing brands across distribution channels because consumers shop multiple channels -- discount, specialty, luxury retailers, and mass merchandisers. Although the operations in one or two stores may not be indicative of the entire chain, the analyst can get a general understanding of a retailer's store concept and how effectively it is being implemented.

products gives it a competitive advantage in the marketplace. Such traits can include the following: Brand names. In the apparel and accessories industries, a strong and recognizable brand name is the key to success and drives store (internet site) traffic. Through marketing efforts, companies try to create a wellknown brand name that consumers will identify with a high-quality or fashionable product. Brand loyalty is built over time as companies support advertising and promote brand awareness. For example, through meticulous positioning and aggressive promotional support over the years, Quiksilver Inc. has transformed itself from a niche brand of board shorts into a leader in the youth-oriented, casual-lifestyle apparel and accessories segment. This specialty retailer promotes brand awareness through its store windows, which are refreshed as often as weekly with new displays of its fashion products. Product differentiation. A company also can create a competitive advantage by differentiating its product line from that of its competitors. Differentiation allows a company to charge higher prices and generate brand loyalty among consumers. This practice is gaining in importance as basic merchandise becomes increasingly indistinguishable to consumers. In reality, a company does not have to create a markedly different product, but it must create a perception of difference. Companies can cultivate an aura of difference through marketing, using advertising to create a brand image. For example, while Juicy Couture's terry warm-up suits are similar to other makes, this Liz Claiborne Inc. unit has used marketing to help differentiate its brand, creating strong demand for its goods.

standpoint. If the firm targets a narrow demographic group, such as senior citizens or teenagers, it is also crucial to evaluate the ramifications of expected changes in the segment's population growth. Because a small group of consumers typically provides a large share of a specialty retailer's revenues, a successful company must know its core customers and understand their purchasing habits. At Chico's FAS Inc., for example, the target market is 35- to 55year-old females with an annual household income of $75,000 or more -- a market size of approximately 14.8 million women. Chico's loyalty program, Passport Club, has 3.2 million active members (1.7 million permanent and 1.5 million preliminary); this group accounted for 97% of sales in the 12 months ended August 2007. For category-dominant companies in an established segment, sales growth is typically driven by gains in market share rather than by overall market growth. Retailers operating in emerging or fast-growing segments often benefit from growth in total sector sales. Coach Inc., for example, has benefited from both market share and overall market growth since its initial public offering (IPO) in 2000. Distribution. What distribution channels does the company use -- its own retail outlets, mail-order catalogs, department stores, specialty chains, off-price outlets, the Internet, or other methods? Has it recently expanded or narrowed its distribution system? If it has consolidated its distribution infrastructure, has it realized any operating synergies by doing so? Expanding the channels of distribution can reduce an apparel or footwear manufacturer's reliance on any particular channel. Companies must choose channels with some thought to the targeted consumer groups, and the desired price points and brand images. For example, a company trying to sell first-quality designer clothes in a mass-market outlet could dilute its brand irreparably. New product development. For apparel and accessory companies, sales drivers are new fashion trends, new silhouettes, and new fabrications (fabrics that have been processed with chemicals and provide new functionality), which may meet consumers' needs better than existing designs.

For footwear companies, new products are crucial to drive growth in the short term. In the athletic footwear segment, new product development centers mainly on technology, with manufacturers aiming their extensive research and development efforts at improving the performance and endurance of athletic sneakers. Similarly, sports apparel brands develop fabrics with improved functionality in an effort to expand their market. Assessing management. In the apparel and accessories branded and retail businesses, as in most industries, a company with a superior management team can distinguish itself from its peers by creating successful competitive strategies. For apparel and accessories companies, in addition to top management, lead designers and merchandising and procurement officers should also be evaluated. When evaluating a management team's ability to create, recognize, analyze, and act on market opportunities, we ask several questions. What is management's financial and operating philosophy? How long have the senior managers been with the company? What are the managers' track records, both individually and working as a team? If managers have taken control recently, what was their previous experience? Has the company been adept at integrating acquisitions? Do growth strategies make sense in light of the current environment and the company's particular situation? Are management's interests aligned with those of its shareholders? Manufacturing costs. Despite technological advances, apparel remains a laborintensive industry. Thus, most domestic apparel and footwear companies manufacture products in low-labor-cost regions, including the Far East, the Caribbean basin, and Latin America. China is a particularly large exporter: approximately $23.2 billion of Chinese-made apparel was shipped to the US in 2006, according to the US Department of Commerce. Moreover, most of the larger domestic industry participants do no manufacturing at all, but rather source their merchandise in the aforementioned locales by developing strategic relationships with garment and footwear factories there. A growing number of apparel firms perform only the entrepreneurial functions involved in apparel manufacturing --

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buying raw materials, creating designs, preparing samples, arranging for production and distribution, and marketing the finished product. Notable exceptions include Carter's and VF Corp., both of which manufacture a portion of their branded merchandise.

INVENTORY/SALES RATIO -- RETAIL APPAREL

2.8 2.7 2.6 2.5

What's unique to retailing?

In addition to the aforementioned factors, specific areas of analysis for a specialty apparel retailer with regards to its business strategy include real estate, inventory, samestore sales, and technology. Real estate. "Location, location, location," a maxim of the real estate business holds true for retailers. Factors that affect the potential profitability of a store include the area's demographic profile (age and income) and population growth. Growing populations and wealth accumulation can bolster a company's long-term viability in a region. Ideally, a store should be located in an area with a demographic profile that closely matches the store's target demographic. There are many specialty retail concepts and formats, with locations ranging from mall stores to strip center outlets to lifestyle centers. Analysts should evaluate the availability of transportation and other factors governing a location's accessibility to its target customer. Pay attention to specialty chains with concentrated geographic exposure, for it will then be necessary to evaluate the economic environment or other characteristics (such as weather patterns) of those regions, along with their influence on apparel and accessories demand. Geographic concentration can increase a retailer's risk profile in cases such as regional power outages, earthquakes, and hurricanes, or civil unrest. Most specialty apparel retailers lease their stores, a practice that provides financial flexibility that companies in other industries may not have. Leases eventually expire, which gives retailers the flexibility to relocate or close units. Sometimes, however, due to competition in the industry and the pressure to increase earnings, retailers close unprofitable units with unexpired leases. Doing so creates a contingent liability that they have to account for: they may take a reserve for store closings, pay off the entire lease, and then write off that amount.

2.4 2.3 2.2 1997

98

99

00

01

02

03

04

05

06

2007

Source: US Department of Commerce.

Inventory: a retailer's crucial asset. For retailers, having the right merchandise in the right place at the right time is crucial. Merchandise held in inventory is a retailer's most important asset. Although buildings, property, and equipment usually exceed its value in dollar terms, inventory is what generates sales, making it the key determinant of success or failure, profit or loss. While other variables such as price, location, and service may influence consumers' decisions to buy, the actual merchandise in the store must meet customers' expectations and reward their loyalty over time. The importance of the planning, buying, and controlling of merchandise inventory cannot be overstated. An analyst should consider inventory growth and inventory turns to determine how well the company is managing its inventory. (Issues related to industry operations are discussed in this Survey's "How the Industry Operates" section.) Same-store or comparable store sales. This is the most closely watched quantitative indicator for retailers. Defined as the change in sales from the preceding year at stores open for a certain period (usually at least 12 months, but sometimes as long as 24 months, depending on the company), this measure is a barometer of basic demand. Many companies release these numbers on the first or second Thursday of each month for the preceding month. Because the same-store sales number excludes growth from newly opened stores, we see it as a better indicator of organic growth. Looking only at total sales gains can be misleading, as a company that aggressively opens new units can generate strong sales

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gains even if its stores are generally unprofitable. Same-store sales trends also give a better indication of the state of business than a single month's numbers do. Technology. Well-designed information systems can give a retailer a competitive edge over its peers by providing valuable data on the preferences and buying patterns of its customers. Organizations must be adept at gathering, understanding, and using information collected at the store level and analyzing the learnings to improve merchandise assortments, store allocation, distribution, expand customer service, and increase their market share. IT can shorten the supply chain between supplier and vendor networks as well as integrate internal systems and thereby streamline work flow and reduce expenses.

able. With apparel and accessories brands, any trends in discounts and allowances given to retailers also should be considered. Gross profit margin. A company's gross margin is calculated as net sales minus the cost of goods sold, expressed as a percentage of gross sales. It generally reflects a company's sales volumes, product mix, pricing, sourcing, and operational (including manufacturing) efficiency. The cost-of-goods-sold line may comprise a number of items other than merchandise, including costs of purchasing, warehousing, distribution, freight, occupancy, and insurance. Gross margin should be evaluated on both an absolute basis and a relative basis. If a company's gross margin is high compared with its peers, the company may possess a competitive advantage. An analyst also should look for trends in gross margin. Are any industrywide factors, such as overcapacity, cutting into gross margins? Excessive merchandise inventories and competitive pressures tend to induce a higher level of promotional selling and markdowns, which, in turn, will reduce gross margins. Conversely, does a particular company have a product in high demand, allowing it to charge a premium price as demand exceeds supply? If possible, determine what is causing fluctuations in gross margin and whether those trends will persist. Comparable-store sales can explain gross margin trends for retail operations. Other relevant indicators for apparel and accessories brands and retailers include average selling prices (ASPs), initial markups (IMUs), units per transaction (UPT), average ticket (AT), and inventory turns (discussed later). Operating profit margin. This figure is derived by dividing the operating profit (gross profit minus selling, general, and administrative expenses) by sales revenues. The operating margin indicates the efficiency and profitability of the entire enterprise -- not just the manufacturing operations, but also the corporate, selling, and distribution operations. Nonrecurring items should be excluded from margin calculations to give the analyst a baseline for comparing results going forward. Because the operating margin reflects costs that can be managed to some degree

Quantitative factors

After getting a grasp on the company's competitive position, the next step is to analyze its financial statements -- the income statement, the balance sheet, the statement of cash flows, and various components of each. Although these are three separate financial statements, they are very much interrelated and need to be analyzed together. The analyst should also scrutinize the company's earnings quality.

Income statement

The income statement records the financial operations of a firm over a given time period. Among the major items on an apparel or footwear company's income statement that the analyst should examine are trends in revenues, gross profit margin, and operating margin. Revenues or sales. As in most other industries, an income statement analysis for an apparel brand or retailer begins with the top line: sales. A company's sales growth should be compared with that of its competitors and the overall market. It is important to determine what is driving sales growth. Is it pricing, volume gains, or acquisitions, or for the retailer, same store sales gains? Is the sales growth broad-based or driven by only a few categories? Is the company gaining market share or just riding the market's overall growth? All things being equal, a more conservative revenue recognition policy is desir-

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(salaries, commissions, advertising, and so forth), it usually is easier to control than the gross margin. The company may derive a certain degree of expense leverage from increased sales levels, thereby improving operating margins. Consequently, an increase in the operating margin typically indicates that management is using its resources more efficiently, allowing fixed costs to be spread across greater volumes. On the other hand, a trend of narrowing operating margins may be a warning sign that management is not operating at its most efficient level.

ly, a low turnover rate indicates that goods are not moving rapidly. Inventory buildup is less of a concern for basic merchandise, which can be sold throughout the year, than it is for fashion-oriented products.

Statement of cash flows

It is necessary to estimate cash inflows (or sources) and outflows (uses) to determine the net cash flow generated (or used) by a company's operations. How does the company plan to raise and utilize its cash? The cash flow statement has three sections: operating, investing, and financing. The operating section reflects cash generated from, or used in, operations, after adjusting for noncash items (such as depreciation and amortization), and including changes in working capital components. For example, if a manufacturer anticipates higher sales from seasonal activity, it may need cash to build inventory levels. The investing and financing sections capture other sources and uses of cash outside the company's operations. Possible sources include the issuance of debt, or equity capital and dividends received from affiliated companies. Potential uses include repurchasing shares of common stock, paying dividends, reducing debt, or reinvesting in the business via either capital expenditures or acquisitions.

Balance sheet

The balance sheet reports major categories and the stated values of assets, liabilities, and stockholder's equity at a specific point in time. Cash and equivalents. A company's cash position needs to be analyzed concurrently with its ability to generate cash. If a company continually operates with net cash outflows because of working capital needs and capital spending, one should look at the level of cash and marketable securities on the balance sheet to determine how long the company can fund operations before it will need to tap the capital markets. Inventory. Inventory management is crucial to retailers and manufacturers alike. They must have the right products on hand in the right amounts; failure to do so could lead to fashion misses or being caught short during an important selling season. Having too much inventory raises costs and ties up capital. It also may signal impending gross margin declines, in cases where the products must be discounted in order to sell them before they go out of style. Inventory levels are generally available from a company's balance sheet. The effectiveness of inventory management can be measured by the inventory turnover ratio. This ratio, calculated by dividing the cost of goods sold by its average inventory, should be reviewed for trends and compared with peer averages. Inventory turnover ratios for apparel and footwear companies, while generally comparable, could vary widely from company to company. A high turnover rate indicates that goods are selling well relative to the average amount of inventory kept in stock. Converse-

Other factors

In addition to the income statement and balance sheet items outlined earlier, several other factors are important to consider when analyzing an apparel or footwear company. A company's order backlog indicates what its sales will be like over the next few months. Although this information is not included in the financial statements, some apparel and footwear companies report it separately. Certain companies in the athletic footwear and apparel segment report worldwide "futures orders." This measure covers products scheduled for delivery between certain dates, usually over the next three to six months, and is another way to project revenues. In the apparel industry, deliveries scheduled for future seasons are reported as "bookings."

Corporate governance

Before the scandals at Enron Corp., WorldCom Inc., and Parmalat Finanziaria

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SpA, corporate governance (CG) was viewed simply as the system by which companies are directed and controlled. In the aftermath of a series of corporate collapses, however, the global consensus on CG has broadened. In the largest sense, CG addresses the guiding principles that form the basis for managing a company, incorporating values of transparency, accountability, integrity, and responsibility towards maximizing shareholder value. Governance assessments are extending even further to the field of corporate responsibility in a proactive and preventative strategy. The Organisation for Economic Cooperation and Development (OECD) defines corporate governance as the system by which business corporations are directed and controlled, the distribution of rights and responsibilities among different participants in the corporation (such as the board, managers, shareholders and other stakeholders), and spells out the rules and procedures for making decisions about corporate affairs. We take it to mean, at the very least, that boardroom compensation is linked to performance, directors are of high caliber, and auditors are independent. CG typically addresses risk management and internal controls, corporate culture, stewardship and accountability, board operations and composition, and the monitoring and evaluation of activities. Additionally, the growing importance of intangible assets (such as brand value or corporate reputation) and their effect on market capitalization suggests that potential legal penalties pale in comparison to the risk of a plummeting share price. For consumer product companies in particular, the relationship between good CG and corporate social responsibility (CSR) are intertwined: accusations of sweatshops and child labor have resulted in consumer boycotts and loss of brand equity, along with a decline in share price. Therefore, we see the best CG efforts including supply chain alignment with CSR in order to avoid guilt by association. Many large institutional investors are incorporating the assessment of CG into their investment decisions in the belief that compliance with CG initiatives will reduce a company's cost of capital and lower its risk profile, as well as deliver sustainable shareholder value.

G LOSSARY

Allowance from vendors -- Price adjustment to a buyer for damaged merchandise or for the return of unsatisfactory merchandise. Assortment plan -- The range of merchandise in a category that managers intend to keep in a store at a certain inventory level. Basic item -- Apparel with a style and demand that are generally constant, and which must remain in stock to satisfy customers. Brand -- A name that identifies the goods of one seller. Business-to-business (B2B) exchanges -- Online marketplaces that enable trading partners to conduct real-time business transactions. Buyer -- The person responsible for the merchandising operations of a retail outlet or a specific department. Carryover merchandise -- Goods left over from a preceding season that are offered for sale in the following season. Cash discount -- A price reduction given by a supplier to customers paying their invoices before the end of a stated discount period. Centralized buying -- A practice among retail chains in which merchandise is purchased by staff from corporate headquarters. Co-op money -- A vendor's contribution to a retailer for the promotion of merchandise. Diffusion brand -- A lower-priced designer line launched to reach a different channel (usually mass market) but still convey a message of exclusivity or prestige. Direct buying -- Buying straight from the manufacturer without going through an intermediary. Electronic data interchange (EDI) -- A computer network linking retailers, manufacturers, and the entire retail distribution pipeline. Factoring -- The practice of selling manufacturers' and wholesalers' account receivables to financial institutions. Fashion cycle -- The life span of a clothing style, from its rise in popularity to its decline. Fashion/specialty center -- A strip center with mainly upscale apparel shops, boutiques, and craft shops carrying high-end fashion or unique merchandise. It is usually found in high-income trade areas.

Fashion trend -- A style that has moved from limited to wide acceptance. Fast fashion -- Term used to describe stores like H&M that turn over styles quickly, encouraging the customer to buy now because the product will be gone tomorrow. Gross margin -- The difference between net sales and the total cost of goods sold, expressed as a percentage of net sales. Gross profit -- Net sales minus the cost of goods sold. Jobber -- A middleman who buys from a manufacturer and sells to a wholesaler. Knockoff -- An item that is an exact or similar reproduction of goods made by another manufacturer. Lifestyle center -- Often located near affluent residential neighborhoods, a strip center that typically includes at least 50,000 square feet of space occupied by upscale, national-chain specialty stores. It also features restaurants, entertainment, and, frequently, one or more conventional or fashion specialty department stores as anchors. Markdown -- A reduction in the retail price of an item, expressed as a percentage of the original price of the merchandise. Markon -- The difference between the cost as billed (before deductions for cash discount) and the retail price. Markup -- An increase in an item's price. Merchandise vendor allowances or vendor allowances -- Wholesalers and manufacturers provide retailers with multiple forms of support to enable the swift movement of goods through the channel. The forms of support include cooperative advertising, payroll reimbursements, and markdown reimbursement programs, all of which have an adverse impact on wholesalers' and manufacturers' profit margins, although they may in fact increase retailers' profits. Net -- A vendor's billing term signifying that no cash or trade discount is allowed. Open to buy -- The amount of money that a retailer is willing to invest in inventory for future sales; it is affected by current sales trends. Out of stock -- The absence of merchandise in certain styles, sizes, and/or colors in a store's inventory.

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Outlet center -- A strip center, mall, or cluster of stores, usually located in a rural or tourist location, that consists mainly of manufacturers' outlet stores selling their own brands at a discount. There are no anchor stores. Point-of-sale (POS) terminal -- Electronic devices at store checkout counters that read the universal product code (UPC) on product labels in order to tally each customer's sale. POS terminals collect other data that enable stores to track sales trends and to assess the effectiveness of promotions. Price point -- The price range at which a line of merchandise is offered for sale. Private label -- Merchandise designed by a retailer that carries the store's own brand name. Quick response -- A partnership between a vendor and retailer through which orders are automatically replenished via computer links. Ready-to-wear -- Any article of apparel manufactured for sale in a retail store (that is, not custom made). Same-store sales -- The measure of year-on-year sales growth or decline for a store or chain of stores. The figure excludes new and closed stores, which can skew results. Also referred to as comparable-store sales. Scanning -- The electronic reading of a bar code that yields such product information as price, color, and size. Shrinkage -- Loss of inventory due to accounting errors, misdirected shipments, mistakes in ringing up charges or pricing goods, bookkeeping errors, spoilage, breakage, and thefts by employees, vendors, or customers. Stockkeeping unit (SKU) -- A single item of merchandise, as measured for inventory management purposes.

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Stock turnover -- The number of times during the year that inventory is sold out. The figure is derived by dividing total cost of goods sold by average inventory value.

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I NDUSTRY R EFERENCES

PERIODICALS

Apparel Edgell Communications 4 Middlebury Blvd., Randolph, NJ 07869 (973) 252-0100 Web site: http://www.apparelmag.com Monthly; aimed at apparel industry executives, with a focus on technology, new products, and business strategy. Apparel News CaliforniaMart 110 E. 9th St., Ste. A-777, Los Angeles, CA 90079 (213) 627-3737 Web site: http://www.apparelnews.net Weekly; online apparel newsmagazine and fashion trade portal for manufacturers and retailers. The Apparel Strategist P.O. Box 406, Fleetwood, PA 19522 (610) 944-8291 Web site: http://www.apparelstrategist.com Monthly and annual; contains apparel industry statistics, news, and trends. DNR Fairchild Publications Inc. 750 Third Ave., 10th Fl., New York, NY 10017 (212) 630-3600 Web site: http://www.dnrnews.com Weekly; focuses on the men's apparel industry. Footwear News Fairchild Publications Inc. 750 Third Ave., 10th Fl., New York, NY 10017 (212) 630-4880 Web site: http://www.footwearnews.com Weekly; covers current trends and issues in the footwear industry. WWD (Women's Wear Daily) Fairchild Publications Inc. 750 Third Ave., 6th Fl., New York, NY 10017 (212) 630-4600 Web site: http://www.wwd.com Daily; focuses on the women's apparel industry.

TRADE ASSOCIATIONS

Cotton Incorporated 6399 Weston Pkwy., Cary, NC 27513 (919) 678-2220 Web site: http://www.cottoninc.com A worldwide organization funded by cotton growers and importers that provides research and promotional support to increase demand for and the profitability of cotton; publishes Lifestyle Monitor, a newsletter about consumer attitudes and behavior. LIMA (International Licensing Industry Merchandisers' Association) 350 Fifth Ave., Ste. 1408, New York, NY 10118 (212) 244-1944 Web site: http://www.licensing.org A worldwide organization that works with licensors and licensees for the advancement of professionalism in licensing through research, national and international seminars, trade events, and publications. National Sporting Goods Association (NSGA) 1601 Feehanville Dr., Ste 300, Mt. Prospect, IL 60056 (847) 296-6742 Web site: http://www.nsga.org Represents more than 22,000 sporting goods retailer/dealer outlets and 3,000 product manufacturers, suppliers, and sales agents. SGMA International 1150 17th St. NW, Ste. 850, Washington, DC 20036 (202) 775-1762 Web site: http://www.sgma.com Provides manufacturers, producers, and distributors with information and statistics related to the global sports apparel, athletic footwear, and sporting goods equipment industries; formerly called the Sporting Goods Manufacturers Association. US Association of Importers of Textiles & Apparel 13 E. 16th St., 6th Fl., New York, NY 10003 (212) 463-0089 Web site: http://www.usaita.com Nonprofit industry association representing textile- and apparel-importing firms before the US government, the business community, and the public.

MARKET RESEARCH FIRMS

American Apparel & Footwear Association (AAFA) 1601 N. Kent St., 12th Fl., Arlington, VA 22209 (703) 797-9056 Web site: http://www.apparelandfootwear.org Provides apparel and footwear manufacturers with industry statistics and other demographic information.

The Conference Board 845 Third Ave., New York, NY 10022 (212) 759-0900 Web site: http://www.conference-board.org A not-for-profit, nonadvocacy business membership and research organization that calculates and disseminates leading economic indicators and an index of consumer confidence.

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The NPD Group Inc. 900 W. Shore Rd., Port Washington, NY 11050 (516) 625-0700 Web site: http://www.npd.com A market research and consulting organization providing global sales and marketing perspectives; combines consumer information with point-of-sale data collected from retailers and other distribution channels. Planalytics Inc. 1325 Morris Dr., Ste. 201, Wayne, PA 19087 (800) 882-5881 Web site: http://www.planalytics.com A consulting firm that helps companies make more effective and profitable decisions by forecasting weatherdriven changes in supply, demand, and prices for products and services. Teenage Research Unlimited 707 Skokie Blvd., 7th Fl., Northbrook, IL 60062 (847) 564-3440 Web site: http://www.teenresearch.com A market research firm specializing in the teen demographic; provides qualitative and quantitative research.

GOVERNMENT AGENCIES

Bureau of Labor Statistics (BLS) Postal Square Building 2 Massachusetts Ave. NE, Washington, DC 20212 (202) 691-5200 Web site: http://stats.bls.gov This division of the US Department of Labor is the principal fact-finding agency of the federal government in the broad fields of labor, economics, and statistics. Its major programs include the consumer price index, the producer price index, the employment cost index, and the national compensation survey. US Department of Commerce 1401 Constitution Ave. NW, Washington, DC 20230 (202) 482-4883 Web site: http://www.doc.gov This cabinet-level department is responsible for various government agencies that monitor and regulate US commerce. Among its many divisions is the Census Bureau, which publishes population statistics and projections.

CORPORATE INFORMATION

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Many corporate filings with the federal Securities and Exchange Commission, including 10-Ks and 10-Qs, are available through its Edgar Web site: http://www.sec.gov/edgar/searchedgar/webusers.htm In addition, most apparel and footwear manufacturers operate their own Web sites.

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D EFINITIONS

FOR

C OMPARATIVE C OMPANY A NALYSIS TABLES

Operating revenues Net sales and other operating revenues. Excludes interest income if such income is "nonoperating." Includes franchised/leased department income for retailers and royalties for publishers and oil and mining companies. Excludes excise taxes for tobacco, liquor, and oil companies. Net income Profits derived from all sources, after deductions of expenses, taxes, and fixed charges, but before any discontinued operations, extraordinary items, and dividend payments (preferred and common). Return on revenues Net income divided by operating revenues.

Price/earnings ratio The ratio of market price to earnings, obtained by dividing the stock's high and low market price for the year by earnings per share (before extraordinary items). It essentially indicates the value investors place on a company's earnings. Dividend payout ratio This is the percentage of earnings paid out in dividends. It is calculated by dividing the annual dividend by the earnings. Dividends are generally total cash payments per share over a 12-month period. Although payments are usually calculated from the ex-dividend dates, they may also be reported on a declared basis where this has been established to be a company's payout policy. Dividend yield

Return on assets Net income divided by average total assets. Used in industry analysis and as a measure of asset-use efficiency. Return on equity Net income, less preferred dividend requirements, divided by average common shareholder`s equity. Generally used to measure performance and to make industry comparisons. Current ratio Current assets divided by current liabilities. It is a measure of liquidity. Current assets are those assets expected to be realized in cash or used up in the production of revenue within one year. Current liabilities generally include all debts/obligations falling due within one year. Debt/capital ratio Long-term debt (excluding current portion) divided by total invested capital. It indicates how highly "leveraged" a company might be. Long-term debt includes those debts/obligations due after one year, including bonds, notes payable, mortgages, lease obligations, and industrial revenue bonds. Other long-term debt, when reported as a separate account, is excluded; this account generally includes pension and retirement benefits. Total invested capital is the sum of stockholders' equity, longterm debt, capital lease obligations, deferred income taxes, investment credits, and minority interest. Debt as a percent of net working capital Long-term debt (excluding current portion) divided by the difference between current assets and current liabilities. It is an indicator of a company's liquidity.

The total cash dividend payments divided by the year's high and low market prices for the stock. Earnings per share The amount a company reports as having been earned for the year (based on generally accepted accounting standards), divided by the number of shares outstanding. Amounts reported in Industry Surveys exclude extraordinary items. Tangible book value per share This measure indicates the theoretical dollar amount per common share one might expect to receive should liquidation take place. Generally, book value is determined by adding the stated (or par) value of the common stock, paid-in capital, and retained earnings, then subtracting intangible assets, preferred stock at liquidating value, and unamortized debt discount. This amount is divided by the number of outstanding shares to get book value per common share. Share price This shows the calendar-year high and low of a stock's market price. In addition to the footnotes that appear at the bottom of each page, you will notice some or all of the following: NA--Not available. NM--Not meaningful. NR--Not reported. AF--Annual figure. Data are presented on an annual basis. CF--Combined figure. In this case, data are not available because one or more components are combined with other items.

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C OMPARATIVE C OMPANY A NALYSIS -- A PPAREL & F OOTWEAR

Operating Revenues

Million $ Yr. End OCT JUN DEC JUN DEC # JAN DEC DEC # JAN # MAY # JAN # MAR OCT AUG DEC DEC DEC # # # # # # JAN SEP # JAN # JAN # JAN # FEB # JAN JUL # FEB # JAN # # # # # # # # # # # # # # # JAN JAN JAN JAN JAN 1,550.2 A 1,501.3 F 17,404.6 D 883.7 1,224.7 1,344.1 1,481.6 16,057.9 757.9 1,092.1 JAN JAN JAN JAN JAN 10,671.0 A 1,882.1 1,447.2 2,796.7 D 5,570.2 9,669.0 1,724.9 1,391.5 2,667.3 4,944.2 9,408.0 1,546.7 1,229.8 2,656.5 D 4,240.0 1,243.9 1,459.6 D 14,913.5 675.8 827.8 JAN JAN JAN JAN JAN 15,943.0 1,460.5 791.6 D 751.6 546.4 16,023.0 1,283.9 D 678.5 725.1 464.6 16,267.0 1,112.7 A 594.5 D 656.5 372.5 15,854.0 837.4 578.0 572.0 299.7 8,934.0 1,392.7 1,040.3 2,783.3 3,920.6 972.2 A 1,355.5 D 13,327.9 598.7 D 548.4 547.3 1,054.6 1,300.3 1,338.2 5,750.0 490.5 779.7 1,000.3 A 1,306.0 5,653.0 438.9 590.3 754.9 1,166.8 5,355.0 390.7 518.8 707.1 985.9 4,779.0 338.8 473.2 H 717.1 757.2 4,509.0 14,454.7 828.3 546.8 443.3 243.4 8,445.0 A,C 1,295.0 846.4 2,878.0 3,531.3 875.6 1,408.6 11,981.2 647.5 422.8 875.9 F 681.5 D 3,067.5 1,646.5 NA 836.4 F 603.8 2,755.7 A 1,404.6 1,668.7 789.6 F 539.4 2,332.3 1,066.9 1,157.5 A 747.3 F 456.6 2,285.7 768.5 A 797.9 748.3 F 409.4 2,412.4 C 531.1 671.4 705.7 F 324.8 1,993.8 A 378.1 657.0 275.9 464.0 695.0 701.4 4,379.0 13,847.9 746.8 505.4 F 336.1 211.0 9,363.0 1,273.2 684.8 2,913.7 2,986.6 855.6 1,320.2 10,709.0 602.7 349.0 JAN JAN JAN JAN JAN 3,318.2 1,413.2 2,794.4 C 2,342.9 2,470.9 2,784.7 1,204.3 2,309.4 2,073.1 2,292.1 A 2,021.3 964.2 1,881.2 D 1,853.6 1,941.8 1,707.8 734.9 1,520.0 1,587.7 1,832.1 1,595.8 550.9 1,463.1 1,382.8 1,841.4 1,364.9 304.8 1,371.9 1,308.9 1,755.8 335.4 NA 326.4 807.1 C 1,527.8 491.5 F NA 1,016.3 64.1 143.8 95.9 143.1 515.5 332.0 8,092.0 A 5,284.4 461.3 303.1 F 43.6 155.1 8,644.8 483.5 155.3 2,333.7 1,689.8 776.5 616.2 6,689.4 D NA 156.4 205.3 1,827.5 A,C 160.0 1,501.1 113.2 1,424.2 76.3 1,374.4 NA 1,493.0 NA 1,671.3 NA 1,063.8 NA 5.6 25.8 NA 24.0 11.2 4.9 5.9 NA 11.7 38.4 NA 19.0 22.1 9.7 15.0 (3.4) 11.7 12.2 10.1 32.9 13.4 2.1 14.6 25.0 1.8 12.7 7.2 9.3 10.0 NA 22.9 2,090.6 4,287.4 2,362.3 821.0 6,215.8 D 1,908.8 3,746.3 A 1,780.9 A 763.8 6,502.4 A 1,641.4 3,305.4 A 1,266.9 A 719.4 A 6,054.5 A,F 1,582.0 A 1,405.0 2,649.7 C 2,439.3 975.0 705.5 A 596.9 578.9 5,207.5 A,F 5,083.5 D,F 1,431.9 2,363.7 620.6 A 556.4 5,518.8 F 1,359.6 1,180.4 194.6 391.8 5,137.2 A 4.4 13.8 28.4 7.7 1.9 7.9 12.6 30.6 8.1 2.4 NA 1.8 19.4 35.9 15.3 12.3 7.1 4.4 16.0 9.0 34.2 NA 14.7 17.8 13.3 13.8 5.6 2.9 14.4 9.4 17.5 21.0 2.6 8.1 16.1 (0.8) 13.3 12.6 2.6 10.2 8.0 28.5 9.5 14.4 32.6 7.5 (4.4) 28.3 21.7 19.2 17.3 21.0 13.0 7.8 4.7 12.9 11.3 17.2 NA 11.6 35.3 30.0 2.5 1.7 (0.5) 13.8 16.7 3.6 17.6 10.4 9.1 4.0 4.9 12.7 15.3 1.3 8.4 16.6 12.1 1,961.8 D 4,994.3 416.8 532.9 1,143.4 D,F 2,064.6 D 4,847.8 382.2 470.9 1,121.8 D,F 2,555.7 A 4,632.8 337.0 419.0 A 1,325.7 A,F 2,346.5 A,C 2,204.7 A 4,241.1 3,717.5 292.9 NA 330.2 300.1 1,121.7 A,F 764.6 2,281.8 3,448.5 A NA 299.7 677.3 1,521.0 2,217.5 NA 215.1 703.2 2.6 8.5 NA 9.5 5.0 (3.0) 7.7 NA 12.2 11.0 (5.0) 3.0 9.1 13.1 1.9 129 225 ** 248 163 154 363 1,214 210 121 ** 172 989 ** 856 290 162 178 ** 302 2,570 NA 570 737 252 403 71 302 317 261 1,723 352 123 389 932 120 330 200 244 260 ** 783 209.6 2,111.5 1,214.4 4,472.8 A 4,742.8 204.8 1,710.4 C 1,041.0 4,683.7 A 5,074.2 173.1 A 1,321.1 960.3 4,632.7 4,649.7 A 149.4 953.2 781.7 NA 4,375.3 A 127.5 719.4 663.9 NA 4,340.9 A 124.7 616.1 546.3 NA 4,097.2 A 75.4 NA 205.9 A NA 1,034.1 10.8 NA 19.4 NA 16.5 10.9 27.9 17.3 NA 3.0 2.3 23.4 16.7 (4.5) (6.5) 278 ** 590 ** 459 272 ** 506 ** 491 136 219 ** 219 160 140 317 915 195 127 ** 141 830 ** 708 257 150 170 ** 271 2,192 1,160 511 545 194 393 70 303 278 224 1,662 300 112 357 896 114 293 173 240 240 ** 698 2006 2005 2004 2003 2002 2001 1996 10-Yr. 5-Yr. 1-Yr. 2006 2005 2004 230 ** 466 ** 450 168 209 ** 195 189 121 280 651 184 118 ** 134 603 ** 576 230 127 161 ** 229 1,665 805 457 413 146 351 66 308 241 196 1,505 240 109 320 792 114 251 160 237 223 ** 529 Compound Growth Rate (%) Index Basis (1996 = 100) 2003 198 ** 380 ** 423 154 191 ** 154 160 116 224 501 152 101 ** 129 509 ** 466 197 120 152 ** 225 1,199 555 407 363 137 297 59 300 182 191 1,311 193 103 288 670 119 232 125 220 199 ** 351 2002 169 NA 322 NA 420 145 168 NA 140 109 103 207 363 148 99 NA 140 476 NA 448 171 121 152 NA 237 829 467 353 331 139 228 56 274 180 180 1,016 157 98 268 545 123 209 113 229 179 NA 270

Ticker

Company

APPAREL, ACCESSORIES & LUXURY GOODS ASHW § ASHWORTH INC COH * COACH INC FOSL § FOSSIL INC HBI HANESBRANDS INC JNY * JONES APPAREL GROUP INC

KWD LIZ MFB MOV OXM

§ * § § §

KELLWOOD CO LIZ CLAIBORNE INC MAIDENFORM BRANDS INC MOVADO GROUP INC OXFORD INDUSTRIES INC

PVH RL ZQK UNF VFC

* § § *

PHILLIPS-VAN HEUSEN CORP POLO RALPH LAUREN CP -CL A QUIKSILVER INC UNIFIRST CORP VF CORP

VLCM WRNC

§ VOLCOM INC WARNACO GROUP INC

APPAREL RETAIL ANF * ABERCROMBIE & FITCH -CL A ARO AEROPOSTALE INC AEO AMERN EAGLE OUTFITTERS INC ANN ANNTAYLOR STORES CORP BWS § BROWN SHOE CO INC

CTR CHIC CHRS CHS PLCE

§ § §

CATO CORP -CL A CHARLOTTE RUSSE HOLDING INC CHARMING SHOPPES INC CHICOS FAS INC CHILDRENS PLACE RETAIL STRS

CBK CWTR DBRN FINL FL

§ § §

CHRISTOPHER & BANKS CORP COLDWATER CREEK INC DRESS BARN INC FINISH LINE INC -CL A FOOT LOCKER INC

GPS GCO GYMB HOTT JOSB

* § § § §

GAP INC GENESCO INC GYMBOREE CORP HOT TOPIC INC JOS A BANK CLOTHIERS INC

LTD MW PSUN PSS ROST

* §

LIMITED BRANDS INC MENS WEARHOUSE INC PACIFIC SUNWEAR CALIF INC COLLECTIVE BRANDS INC ROSS STORES INC

SSI SMRT TJX TWB URBN

§ § * §

STAGE STORES INC STEIN MART INC TJX COMPANIES INC TWEEN BRANDS INC URBAN OUTFITTERS INC

Operating Revenues (continued)

Million $ Yr. End DEC DEC DEC DEC # MAY DEC DEC DEC 579.1 1,293.2 597.9 F 1,152.1 509.5 1,160.2 A 598.2 A,F 953.2 372.3 1,099.3 586.4 A,F 804.2 323.5 953.6 A,C 561.8 F 688.3 316.4 816.3 570.3 F 766.4 290.8 779.6 601.6 A,F 777.9 NA 299.0 610.2 A,F 808.8 NA 15.8 (0.2) 3.6 14.8 10.7 (0.1) 8.2 13.6 11.5 (0.0) 20.9 ** 433 98 142 1,205.4 1,567.6 1,141.9 1,006.5 1,565.7 1,061.0 920.3 1,500.6 991.9 835.0 1,342.1 888.9 A 943.6 1,190.9 827.1 960.4 1,183.6 720.1 NA 690.0 511.0 A NA 8.6 8.4 4.6 5.8 9.7 19.8 0.1 7.6 ** 227 223 ** 227 208 ** 388 98 118 ** 217 194 ** 368 96 99 354.7 A 304.4 80.7 A 501.1 16,325.9 108.6 264.8 30.2 A 508.6 14,954.9 13.5 A 214.8 69.0 H 484.1 13,739.7 1.2 121.1 131.4 429.2 D 12,253.1 NA 99.1 A 156.5 C 290.4 C 10,697.0 NA 91.5 101.4 236.1 9,893.0 C NA 101.8 45.0 106.8 9,186.5 NA 11.6 6.0 16.7 5.9 NA 27.2 (4.5) 16.2 10.5 226.7 15.0 167.6 (1.5) 9.2 ** 299 179 469 178 ** 260 67 476 163 ** 211 153 453 150 ** 119 292 402 133 ** 195 174 ** 319 92 85 2006 2005 2004 2003 2002 2001 1996 10-Yr. 5-Yr. 1-Yr. 2006 2005 2004 2003 Compound Growth Rate (%) Index Basis (1996 = 100) 2002 NA 97 348 272 116 NA 173 162 NA 273 93 95

Ticker

Company

FOOTWEAR CROX § CROCS INC DECK § DECKERS OUTDOOR CORP ICON § ICONIX BRAND GROUP INC KSWS § K-SWISS INC -CL A NKE * NIKE INC -CL B

SKX TBL WWW

§ SKECHERS U S A INC TIMBERLAND CO -CL A § WOLVERINE WORLD WIDE

OTHER COMPANIES WITH SIGNIFICANT APPAREL OPERATIONS BEBE BEBE STORES INC JUN COLM COLUMBIA SPORTSWEAR CO DEC HMX HARTMARX CORP NOV JCG J CREW GROUP INC # JAN

Note: Data as originally reported. S&P 1500 Index group. * Company included in the S&P 500. Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year. ** Not calculated; data for base year or end year not available. A - This year's data reflect an acquisition or merger. B - This year's data reflect a major merger resulting in the formation of a new company. C - This year's data reflect an accounting change. D - Data exclude discontinued operations. E - Includes excise taxes. F - Includes other (nonoperating) income. G - Includes sale of leased depts. H - Some or all data are not available, due to a fiscal year change.

Net Income

Million $ Yr. End OCT JUN DEC JUN DEC # JAN DEC DEC # JAN # MAY # JAN # MAR OCT AUG DEC DEC DEC # # # # # # JAN SEP # JAN # JAN # JAN 51.5 37.2 108.9 166.6 NA 44.8 10.8 99.4 194.0 63.9 34.8 15.1 64.5 141.2 43.0 JAN JAN JAN JAN JAN 422.2 106.6 387.4 143.0 65.7 334.0 84.0 293.7 81.9 41.0 216.4 84.1 224.2 63.3 43.3 28.8 73.6 29.3 49.7 24.6 46.9 14.3 2,379.3 204.8 54.3 60.0 100.9 46.9 31.4 11.0 40.6 100.2 23.0 NA (163.2) 194.9 31.3 88.7 80.2 45.2 45.8 22.4 46.3 66.8 8.9 155.2 400.9 93.0 39.2 535.1 111.7 308.0 107.1 43.3 518.5 58.6 190.4 81.4 33.6 474.7 14.7 171.0 58.5 29.3 397.9 30.4 174.2 37.6 26.9 364.4 10.7 172.5 28.0 23.2 137.8 NA (861.2) 168.7 10.9 105.5 29.1 0.9 43.1 21.5 (4.4) 42.2 46.6 21.1 254.7 27.8 50.1 52.3 23.1 317.4 8.9 26.6 51.2 66.3 313.6 (7.6) 26.3 49.8 68.9 279.7 27.0 22.9 39.7 42.0 231.2 NA 20.1 20.3 37.7 192.1 NA 17.1 10.6 37.6 155.7 NA 11.7 19.6 18.5 117.3 11.7 24.7 299.5 NA (8.2) 24.7 NA 5.9 8.7 20.3 7.0 NA (7.2) 1.9 30.4 1.0 494.3 77.6 322.5 (146.0) (0.7) 388.7 78.1 218.5 274.3 8.2 261.7 90.6 449.6 301.8 7.3 146.6 68.3 NA 328.6 2.5 85.8 58.9 NA 332.3 2.8 64.0 43.7 NA 236.2 1.4 NA 13.6 NA 80.9 (3.8) NA 19.0 NA NM (5.6) 5.0 NA 15.7 10.3 23.7 13.1 23.1 4.7 6.0 NA NM 32.8 NA 51.9 32.4 12.5 22.0 NA NM NM NA 2006 2005 2004 2003 2002 2001 1996 10-Yr. Compound Growth Rate (%) 5-Yr. (19.6) 50.5 12.2 NA NM (11.0) 5.8 NA 24.0 37.7 70.8 18.4 27.1 11.0 31.2 NA NM 20.1 57.8 29.7 37.5 133.4 3.6 11.6 NM 31.6 NA 1-Yr. NM 27.2 (0.6) 47.6 NM (8.7) (19.8) 210.5 88.4 2.2 39.0 30.2 (13.2) (9.6) 3.2 (2.0) 48.2 26.4 27.0 31.9 74.6 60.3 14.8 244.1 9.6 (14.1) NA 2006 68 ** 571 ** (181) 56 164 ** 429 266 838 342 798 159 179 ** NM 1,711 ** NM 1,650 323 732 ** NM NM ** Index Basis (1996 = 100) 2005 (52) ** 574 ** 339 61 204 ** 228 261 603 263 919 176 173 ** NM 1,354 ** 4,957 945 202 638 ** NM NM 210 2004 585 ** 666 ** 373 176 201 ** 225 254 316 162 698 136 158 ** NM 877 ** 3,785 730 213 496 ** NM NM 141 2003 522 ** 503 ** 406 183 180 ** 195 202 79 146 502 119 133 ** NM 830 ** 1,013 1,165 231 447 ** NM NM 75 2002 179 NA 433 NA 411 112 149 NA 172 103 164 149 322 109 122 NA NM 790 NA 1,498 925 222 652 NA NM 3,457 29

Ticker

Company

APPAREL, ACCESSORIES & LUXURY GOODS ASHW § ASHWORTH INC COH * COACH INC FOSL § FOSSIL INC HBI HANESBRANDS INC JNY * JONES APPAREL GROUP INC

KWD LIZ MFB MOV OXM

§ * § § §

KELLWOOD CO LIZ CLAIBORNE INC MAIDENFORM BRANDS INC MOVADO GROUP INC OXFORD INDUSTRIES INC

PVH RL ZQK UNF VFC

* § § *

PHILLIPS-VAN HEUSEN CORP POLO RALPH LAUREN CP -CL A QUIKSILVER INC UNIFIRST CORP VF CORP

VLCM WRNC

§ VOLCOM INC WARNACO GROUP INC

APPAREL RETAIL ANF * ABERCROMBIE & FITCH -CL A ARO AEROPOSTALE INC AEO AMERN EAGLE OUTFITTERS INC ANN ANNTAYLOR STORES CORP BWS § BROWN SHOE CO INC

CTR CHIC CHRS CHS PLCE

§ § §

CATO CORP -CL A CHARLOTTE RUSSE HOLDING INC CHARMING SHOPPES INC CHICOS FAS INC CHILDRENS PLACE RETAIL STRS

37

NOVEMBER 29, 2007 / APPAREL & FOOTWEAR INDUSTRY SURVEY

38

NOVEMBER 29, 2007 / APPAREL & FOOTWEAR INDUSTRY SURVEY

Net Income (continued)

Million $ Yr. End # FEB # JAN JUL # FEB # JAN # # # # # # # # # # # # # # # DEC DEC DEC DEC # MAY DEC DEC DEC 73.8 123.0 7.3 77.8 66.3 130.7 23.6 3.8 33.8 138.6 15.9 (100.3) 19.3 120.1 8.7 (50.2) 26.5 102.5 3.4 (40.6) 27.8 88.8 (13.9) (11.0) 71.0 101.2 83.6 44.7 164.6 74.5 23.6 152.7 65.9 (11.9) 117.9 51.7 47.0 90.2 47.9 47.3 106.7 45.2 NA 20.4 32.9 NA 21.0 23.8 12.5 64.4 30.6 32.5 76.9 1,491.5 17.0 31.8 15.9 75.2 1,392.0 (1.5) 25.5 0.2 71.3 1,211.6 (1.2) 9.2 (11.3) 53.8 945.6 NA 1.6 (3.9) 28.7 740.1 NA 1.6 (2.3) 23.3 668.3 NA 3.7 1.1 0.7 795.8 NA 23.7 39.7 NM 6.5 NA 17.4 9.8 NA 19.3 (11.2) 20.0 NA 79.9 NM 27.0 17.4 8.5 (1.1) 13.1 21.6 6.7 NM NM JAN JAN JAN JAN JAN 55.3 37.2 776.8 64.8 116.2 55.9 50.9 690.4 54.5 130.8 51.4 38.1 664.1 41.6 90.5 53.4 3.9 658.4 28.5 48.4 54.4 20.7 578.4 47.3 27.4 (11.6) 15.4 540.4 39.6 15.0 14.0 26.0 213.8 NA 13.3 14.7 3.7 13.8 NA 24.2 NM 19.3 7.5 10.4 50.6 (1.0) (26.9) 12.5 19.0 (11.2) 279.5 (3.9) 103.9 2.1 7.1 58.8 (38.5) 12.3 11.3 (5.9) (69.1) 1,950.1 JAN JAN JAN JAN JAN 675.0 148.6 39.6 125.4 241.6 666.0 103.9 126.2 74.2 199.6 705.0 71.4 106.9 35.1 169.9 717.0 50.0 80.2 (0.1) 228.1 496.0 42.4 49.7 105.8 201.2 519.0 43.3 27.6 45.4 155.0 434.2 21.1 7.4 107.7 80.9 4.5 21.5 18.2 1.5 11.6 5.4 28.0 7.5 22.5 9.3 1.4 43.0 (68.6) 69.0 21.0 155 703 535 116 299 394 143 363 ** 876 ** 837 2,839 NM 187 ** 496 255 ** 586 31 620 JAN JAN JAN JAN JAN 778.0 68.2 71.2 13.6 43.2 1,113.0 62.6 32.9 22.4 35.3 1,150.0 48.5 17.1 39.7 24.5 1,030.0 29.6 25.7 48.0 16.6 477.5 36.4 21.8 34.6 10.9 (7.8) 38.3 4.6 28.6 6.5 452.9 10.6 31.8 2.6 0.3 5.6 20.5 8.4 18.2 NM NM 12.2 73.1 (13.8) 46.0 (30.1) 9.0 116.3 (39.2) 22.6 172 647 224 530 NM 246 593 103 872 NM 153 491 1,703 69 247 399 196 323 ** 986 ** 871 1,392 NM 175 ** 806 227 ** 622 99 30 254 459 54 1,544 NM 162 337 1,442 33 210 366 147 311 ** 682 ** 699 21 NM 152 ** 748 201 ** 660 67 (799) 33.7 55.4 79.0 32.4 247.0 30.4 41.6 52.6 60.5 263.0 27.0 29.1 30.9 61.3 255.0 39.3 12.5 8.0 47.3 209.0 38.5 9.4 37.9 25.0 162.0 32.9 1.8 35.3 18.4 111.0 (0.6) 10.8 18.9 18.8 169.0 NM 17.7 15.4 5.6 3.9 0.5 98.4 17.5 11.9 17.3 10.8 33.2 50.2 (46.5) (6.1) NM 512 418 172 146 NM 384 278 322 156 NM 269 164 326 151 2006 2005 2004 2003 2002 2001 1996 10-Yr. 5-Yr. 1-Yr. 2006 2005 2004 2003 NM 115 43 251 124 227 281 81 1,869 NM 165 237 1,082 (0) 282 381 15 308 ** 365 ** 250 (990) NM 119 ** 577 157 ** 572 37 (400) Compound Growth Rate (%) Index Basis (1996 = 100) 2002 NM 87 201 133 96 105 345 69 1,347 4,361 114 201 670 98 249 388 80 270 NA 207 NA 44 (345) 3,926 93 NA 442 146 NA 488 14 (323)

Ticker

Company

CBK CWTR DBRN FINL FL

§ § §

CHRISTOPHER & BANKS CORP COLDWATER CREEK INC DRESS BARN INC FINISH LINE INC -CL A FOOT LOCKER INC

GPS GCO GYMB HOTT JOSB

* § § § §

GAP INC GENESCO INC GYMBOREE CORP HOT TOPIC INC JOS A BANK CLOTHIERS INC

LTD MW PSUN PSS ROST

* §

LIMITED BRANDS INC MENS WEARHOUSE INC PACIFIC SUNWEAR CALIF INC COLLECTIVE BRANDS INC ROSS STORES INC

SSI SMRT TJX TWB URBN

§ § * §

STAGE STORES INC STEIN MART INC TJX COMPANIES INC TWEEN BRANDS INC URBAN OUTFITTERS INC

FOOTWEAR CROX § CROCS INC DECK § DECKERS OUTDOOR CORP ICON § ICONIX BRAND GROUP INC KSWS § K-SWISS INC -CL A NKE * NIKE INC -CL B

SKX TBL WWW

§ SKECHERS U S A INC TIMBERLAND CO -CL A § WOLVERINE WORLD WIDE

OTHER COMPANIES WITH SIGNIFICANT APPAREL OPERATIONS BEBE BEBE STORES INC JUN COLM COLUMBIA SPORTSWEAR CO DEC HMX HARTMARX CORP NOV JCG J CREW GROUP INC # JAN

Note: Data as originally reported. S&P 1500 Index group. * Company included in the S&P 500. Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year. ** Not calculated; data for base year or end year not available.

Return on Revenues (%)

Yr. End OCT JUN DEC JUN DEC # JAN DEC DEC # JAN # MAY 1.1 5.1 6.7 9.4 4.6 1.1 6.5 2.3 5.7 4.6 0.5 23.4 6.4 7.2 NM NM 22.7 7.5 4.7 5.4 4.7 19.8 9.4 9.7 6.5 2.6 6.8 NM 6.3 3.8 2006 2005 2004 2003 4.9 15.4 8.7 NA 7.5 2.9 6.6 9.2 6.9 3.5 2002 2.0 11.9 8.9 NA 7.7 1.9 6.2 NA 6.7 2.7 2006 0.6 33.2 9.7 7.1 NM 1.4 7.7 11.3 8.9 5.8

Return on Assets (%)

2005 NM 32.7 10.2 5.1 6.0 1.5 10.3 NM 5.2 5.7 2004 6.2 31.8 13.2 NA 6.9 4.6 11.1 NM 6.1 6.2 2003 7.0 27.7 12.8 NA 8.2 5.4 11.4 NA 6.2 6.7 2002 2.6 24.5 13.6 NA 9.2 3.7 10.9 NA 6.3 5.5 2006 0.9 44.5 13.8 11.1 NM 3.4 12.3 43.5 14.3 12.3

Return on Equity (%)

2005 NM 42.8 14.9 8.1 10.3 3.5 16.6 NM 8.3 14.6 2004 8.6 43.3 19.1 NA 11.6 9.8 18.5 NM 8.9 18.4 2003 8.8 42.7 17.9 NA 13.6 11.5 19.5 NA 8.9 18.5 2002 3.3 42.0 19.5 NA 15.8 8.3 19.7 NA 9.8 11.2

Ticker

Company

APPAREL, ACCESSORIES & LUXURY GOODS ASHW § ASHWORTH INC COH * COACH INC FOSL § FOSSIL INC HBI HANESBRANDS INC JNY * JONES APPAREL GROUP INC

KWD LIZ MFB MOV OXM

§ * § § §

KELLWOOD CO LIZ CLAIBORNE INC MAIDENFORM BRANDS INC MOVADO GROUP INC OXFORD INDUSTRIES INC

Return on Revenues (%) (cont'd)

Yr. End # JAN # MAR OCT AUG DEC DEC DEC # # # # # # JAN SEP # JAN # JAN # JAN # FEB # JAN JUL # FEB # JAN # # # # # # # # # # # # # # # DEC DEC DEC DEC # MAY DEC DEC DEC 12.7 9.5 1.2 6.8 13.0 11.3 3.9 0.4 9.1 12.6 2.7 NM 5.9 6.5 7.3 4.4 10.5 7.0 2.6 10.2 6.6 NM 8.8 5.8 6.0 12.6 1.5 NM 18.2 10.1 40.3 15.3 9.1 15.6 12.0 52.9 14.8 9.3 NM 11.9 0.3 14.7 8.8 NM 7.6 NM 12.5 7.7 NA 1.6 NM 9.9 6.9 5.0 7.6 5.8 8.4 12.6 0.6 NM JAN JAN JAN JAN JAN 3.6 2.5 4.5 7.3 9.5 4.2 3.4 4.3 7.2 12.0 4.1 2.6 4.5 6.2 10.9 5.5 0.3 4.9 4.8 8.8 6.2 1.5 4.8 7.3 6.5 7.1 7.4 13.4 11.9 13.9 34.1 13.3 7.1 20.8 14.5 10.8 12.3 12.9 16.2 12.3 1.5 20.3 7.9 10.2 13.1 10.7 19.7 36.0 16.5 11.5 23.8 14.9 8.1 21.3 11.8 18.8 13.6 5.0 NM JAN JAN JAN JAN JAN 6.3 7.9 2.7 4.5 4.3 6.9 6.0 9.1 2.8 4.0 7.5 4.6 8.7 1.3 4.0 8.0 3.6 7.7 NM 5.8 5.9 3.3 5.9 3.7 5.7 10.0 13.4 5.0 9.1 11.2 10.7 9.8 17.0 5.8 10.9 10.1 7.7 17.1 2.9 10.0 7.6 8.8 14.0 9.4 19.8 NM 17.2 0.4 26.9 14.5 4.8 21.8 10.8 12.5 16.0 3.6 NM JAN JAN JAN JAN JAN 4.9 4.7 9.0 1.8 7.9 6.9 4.9 4.8 3.1 7.6 7.1 4.4 2.9 6.0 6.6 6.5 3.5 4.4 8.4 5.5 3.3 4.4 4.0 7.8 4.5 9.0 9.6 16.2 4.4 12.8 11.8 9.4 8.5 7.8 13.1 11.3 9.0 5.3 14.2 11.7 10.2 6.9 9.3 19.8 10.4 9.5 6.1 16.5 NM 15.1 8.9 1.0 15.8 7.7 15.2 NA 7.5 NM 25.7 12.9 NM 20.0 9.3 8.5 17.5 1.9 NM 6.2 5.3 6.1 2.4 4.3 6.2 5.3 5.3 4.6 4.7 6.2 4.9 4.1 5.3 4.8 10.1 2.4 1.1 4.8 4.4 11.4 2.0 5.3 3.3 3.6 11.8 10.7 10.1 5.0 7.5 12.3 10.6 8.7 10.1 8.0 12.4 10.9 6.8 12.2 8.6 21.1 6.3 1.8 12.2 8.1 26.1 5.2 8.8 7.4 6.8 5.4 9.2 9.2 18.8 9.0 8.3 5.7 13.2 9.5 16.5 11.0 5.0 15.3 15.4 11.6 NA 1.6 NM 16.7 11.2 10.6 17.3 8.9 13.7 19.2 0.7 NM 5.9 5.5 3.6 10.1 NA 5.4 1.8 3.6 13.8 3.8 4.4 2.8 2.8 13.2 3.7 4.2 2.4 1.8 13.0 2.9 6.1 5.5 1.9 12.6 1.3 12.3 10.8 6.6 16.2 NA 11.2 3.4 6.9 22.6 9.2 9.3 6.0 5.2 23.8 8.7 8.5 5.8 3.5 26.0 6.9 12.8 13.7 4.1 27.4 3.0 19.9 19.9 12.4 20.7 NA 16.1 19.6 21.9 7.4 11.4 14.7 18.4 25.8 6.4 23.9 24.9 21.5 7.5 18.5 27.7 10.3 12.2 37.1 18.0 18.8 56.7 15.8 11.5 24.7 22.4 17.9 18.6 17.3 19.9 15.6 2.9 NA 19.9 6.7 13.2 28.4 18.1 17.1 18.6 18.6 14.9 13.6 21.5 20.6 13.4 11.5 26.3 27.7 17.4 25.1 11.9 24.9 11.4 17.0 38.9 16.2 27.2 221.5 20.0 25.5 30.0 23.3 14.0 31.7 16.2 23.0 17.2 10.1 NA JAN JAN JAN JAN JAN 12.7 7.5 13.9 6.1 2.7 12.0 7.0 12.7 3.9 1.8 10.7 8.7 11.9 3.4 2.2 12.0 7.4 3.9 6.4 2.6 12.2 5.7 6.1 5.8 2.5 20.9 19.7 21.6 9.3 6.2 21.3 18.5 20.3 5.8 4.4 15.8 23.6 20.8 5.1 5.5 17.2 20.5 7.5 9.3 6.6 22.1 18.0 12.6 8.5 6.4 35.2 35.7 30.1 13.7 13.7 40.1 32.1 27.7 8.3 9.9 28.3 39.7 27.9 7.2 11.6 17.2 10.2 9.9 30.2 15.1 15.8 18.3 12.9 17.3 15.9 23.7 20.4 8.1 19.3 24.3 18.6 13.4 24.1 5.8 22.3 10.8 15.1 41.4 13.8 26.1 NA 24.1 1.1 35.1 23.2 8.6 32.5 14.8 15.2 19.5 7.7 NA 14.0 4.0 18.3 3.3 21.7 3.3 18.7 173.1 NA NM 22.0 5.1 39.8 4.2 84.1 4.2 NA 233.8 NA NM 24.3 11.2 44.4 8.2 103.4 8.5 NA NA 25.5 34.6 9.8 13.1 14.4 13.5 8.2 7.0 32.6 9.4 24.5 11.1 2.9 16.2 16.8 24.4 15.3 13.8 25.0 21.7 14.2 9.8 21.9 NM 32.6 12.1 1.7 44.5 10.7 18.8 NA 14.1 NM 33.7 21.6 NM 29.4 12.9 10.1 21.6 4.7 NA 7.4 9.4 3.9 4.8 8.6 5.9 8.2 6.0 5.7 8.0 3.6 5.8 6.4 4.7 7.8 0.9 6.5 6.0 4.9 7.6 2.2 7.1 5.3 4.6 7.2 8.1 11.7 4.0 5.0 10.0 5.9 10.6 6.8 6.0 10.2 2.5 7.6 9.6 5.5 10.2 NM 7.9 10.1 5.8 10.2 4.1 9.2 8.6 5.4 9.4 19.6 18.3 11.5 9.1 17.6 19.8 16.5 16.2 11.1 19.4 11.4 12.3 15.7 9.6 21.2 NM 13.0 16.3 9.1 21.9 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 11.3 15.8 15.4 9.0 18.9 NA NA 29.0 40.1 16.4 12.1 16.3 18.2 19.4 8.3 34.8 4.0 30.1 9.3 12.0 9.9 15.4 14.3 22.0 14.0 23.4 18.6 13.0 8.1 18.1 19.9 33.9 14.5 9.7 42.1 24.8 14.8 NA 2.6 NM 21.7 18.9 20.5 24.6 12.9 16.2 24.8 1.9 NA

Return on Assets (%) (cont'd)

Return on Equity (%) (cont'd)

Ticker

Company

PVH RL ZQK UNF VFC

* § § *

PHILLIPS-VAN HEUSEN CORP POLO RALPH LAUREN CP -CL A QUIKSILVER INC UNIFIRST CORP VF CORP

VLCM WRNC

§ VOLCOM INC WARNACO GROUP INC

APPAREL RETAIL ANF * ABERCROMBIE & FITCH -CL A ARO AEROPOSTALE INC AEO AMERN EAGLE OUTFITTERS INC ANN ANNTAYLOR STORES CORP BWS § BROWN SHOE CO INC

CTR CHIC CHRS CHS PLCE

§ § §

CATO CORP -CL A CHARLOTTE RUSSE HOLDING INC CHARMING SHOPPES INC CHICOS FAS INC CHILDRENS PLACE RETAIL STRS

CBK CWTR DBRN FINL FL

§ § §

CHRISTOPHER & BANKS CORP COLDWATER CREEK INC DRESS BARN INC FINISH LINE INC -CL A FOOT LOCKER INC

GPS GCO GYMB HOTT JOSB

* § § § §

GAP INC GENESCO INC GYMBOREE CORP HOT TOPIC INC JOS A BANK CLOTHIERS INC

LTD MW PSUN PSS ROST

* §

LIMITED BRANDS INC MENS WEARHOUSE INC PACIFIC SUNWEAR CALIF INC COLLECTIVE BRANDS INC ROSS STORES INC

SSI SMRT TJX TWB URBN

§ § * §

STAGE STORES INC STEIN MART INC TJX COMPANIES INC TWEEN BRANDS INC URBAN OUTFITTERS INC

FOOTWEAR CROX § CROCS INC DECK § DECKERS OUTDOOR CORP ICON § ICONIX BRAND GROUP INC KSWS § K-SWISS INC -CL A NKE * NIKE INC -CL B

SKX TBL WWW

§ SKECHERS U S A INC TIMBERLAND CO -CL A § WOLVERINE WORLD WIDE

OTHER COMPANIES WITH SIGNIFICANT APPAREL OPERATIONS BEBE BEBE STORES INC JUN COLM COLUMBIA SPORTSWEAR CO DEC HMX HARTMARX CORP NOV JCG J CREW GROUP INC # JAN

Note: Data as originally reported. S&P 1500 Index group. * Company included in the S&P 500. Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year.

39

NOVEMBER 29, 2007 / APPAREL & FOOTWEAR INDUSTRY SURVEY

40

NOVEMBER 29, 2007 / APPAREL & FOOTWEAR INDUSTRY SURVEY

Current Ratio

Yr. End OCT JUN DEC JUN DEC # JAN DEC DEC # JAN # MAY # JAN # MAR OCT AUG DEC DEC DEC # # # # # # JAN SEP # JAN # JAN # JAN # FEB # JAN JUL # FEB # JAN # # # # # # # # # # # # # # # DEC DEC DEC DEC # MAY 2.7 4.7 2.8 7.6 3.1 1.2 4.9 0.8 6.7 2.8 JAN JAN JAN JAN JAN 2.6 2.0 1.6 2.6 2.7 2.4 2.4 1.4 2.9 2.9 2.6 2.2 1.3 2.8 2.9 0.8 3.1 0.6 5.1 3.2 2.7 2.6 1.5 2.3 3.0 1.3 2.0 0.8 5.9 2.7 JAN JAN JAN JAN JAN 1.6 3.0 2.4 2.4 1.4 1.8 3.1 3.5 2.5 1.4 1.8 2.6 3.7 2.2 1.6 3.2 2.7 3.2 2.3 1.6 2.9 2.9 2.5 1.9 1.5 3.6 1.9 1.4 2.1 3.4 NA 2.0 1.1 5.3 2.3 JAN JAN JAN JAN JAN 2.2 2.5 2.2 2.6 2.2 2.7 2.2 2.7 2.2 1.9 2.8 2.4 2.1 2.6 1.9 2.7 3.1 2.6 3.8 2.1 2.1 3.1 2.2 3.2 1.8 3.5 21.1 0.0 0.0 0.2 34.2 9.1 0.0 22.1 13.1 2.8 0.0 25.9 0.0 0.0 0.1 0.0 21.1 0.0 5.5 3.8 2.1 1.5 2.7 3.9 3.9 2.0 1.1 2.7 2.8 3.6 2.4 1.9 2.7 2.7 6.2 1.8 1.7 3.2 2.8 5.3 1.5 2.9 3.0 2.2 0.0 0.3 25.7 0.0 8.7 0.0 0.0 32.7 0.0 11.8 8.6 23.4 0.0 0.0 3.0 38.6 24.2 0.0 23.5 0.0 0.6 0.0 29.9 0.0 0.0 10.3 0.0 44.8 0.0 6.1 2.4 2.8 2.1 3.3 NA 2.0 1.9 1.8 4.4 2.0 2.0 1.8 2.4 3.8 1.8 2.0 1.6 1.9 2.8 2.3 2.7 1.3 1.6 2.9 2.2 0.0 0.0 15.3 0.0 NA 0.0 0.0 18.3 0.0 0.0 6.7 0.0 23.1 0.0 0.0 0.0 0.0 11.2 0.0 15.8 27.6 37.2 0.0 0.0 4.9 39.3 18.1 0.1 25.3 5.5 0.6 0.0 24.9 0.0 0.0 20.4 0.0 44.4 0.0 10.9 9.5 0.0 25.1 0.0 0.0 0.0 0.0 12.7 0.0 19.4 34.2 28.6 0.0 0.0 24.6 10.7 20.2 0.3 24.5 5.6 2.6 9.5 29.2 0.0 0.0 0.0 27.2 57.0 0.0 12.5 JAN JAN JAN JAN JAN 2.1 2.4 2.6 2.3 1.9 1.9 2.7 3.0 2.6 1.7 1.6 2.9 3.3 2.4 1.8 2.4 3.0 2.8 3.6 2.2 2.8 2.5 3.0 3.0 1.9 0.0 0.0 0.0 0.0 21.6 0.0 0.0 0.0 0.0 24.8 0.0 0.0 0.0 0.0 11.3 0.0 0.0 2.1 13.1 21.9 8.8 1.9 12.7 3.0 5.4 2.8 4.8 2.6 NA 3.0 0.1 29.2 0.2 23.0 0.9 24.6 0.9 26.6 NA -0.1 0.0 0.0 2.8 14.6 25.8 0.0 0.0 26.5 0.0 0.0 0.0 0.0 0.0 0.0 24.0 44.2 36.1 0.0 0.1 12.4 9.9 6.5 1.1 18.6 3.7 0.2 0.0 32.3 0.0 0.1 NA 35.0 49.6 0.0 12.1 0.1 73.2 0.0 0.0 0.0 0.0 49.4 0.0 0.0 40.9 0.0 NA 0.0 0.6 118.8 0.0 14.5 6.8 54.5 0.0 0.0 0.3 156.8 16.8 0.0 38.3 34.7 6.5 0.0 59.2 0.0 0.0 0.1 0.0 219.4 0.0 7.5 2.8 2.6 1.7 1.8 2.5 3.0 1.6 1.7 1.6 2.1 2.4 2.3 2.5 1.5 1.7 2.7 2.5 3.0 1.8 2.5 3.5 2.3 2.2 1.9 2.4 25.0 16.0 43.6 29.9 16.2 28.4 1.1 43.7 27.9 18.5 32.9 14.8 21.3 30.3 17.9 35.1 16.3 20.4 15.7 32.6 47.8 17.1 13.7 19.9 26.2 79.6 42.6 121.3 206.5 40.6 91.0 4.5 139.6 229.3 53.4 0.2 42.4 0.0 0.0 0.0 0.0 56.1 0.0 0.0 56.7 0.0 0.0 0.0 0.0 569.1 0.0 21.2 15.6 57.4 0.0 0.0 5.0 138.0 42.3 0.0 39.6 0.0 1.3 0.0 90.9 0.0 0.0 32.0 0.0 NM 0.0 8.7 2.9 2.2 3.4 5.3 2.3 3.0 2.4 3.1 5.0 2.0 3.3 2.4 2.2 4.6 1.9 2.9 2.6 1.2 4.1 1.8 2.7 2.0 NA 4.6 2.5 43.4 20.7 54.7 16.6 27.5 44.7 16.9 68.4 24.6 29.6 38.7 20.5 71.6 12.4 43.2 29.1 21.3 19.6 8.3 40.6 32.4 22.2 NA 12.9 51.2 75.7 71.6 134.5 19.6 103.9 71.8 49.2 172.5 28.4 112.8 65.6 55.6 247.7 14.8 159.8 141.1 36.8 47.6 312.3 55.3 0.9 48.5 0.0 0.0 0.0 0.0 17.8 12.0 0.0 50.4 0.0 0.0 0.0 0.0 20.9 0.0 30.2 46.4 91.5 0.0 0.0 8.7 133.5 33.9 0.2 52.2 12.2 1.4 0.0 85.4 0.0 0.0 NM 0.0 NM 0.0 15.8 2.6 2.9 2.6 2.3 2.1 2.4 2.7 2.7 2.0 1.5 3.5 3.9 2.7 2.0 1.9 6.5 2.8 3.5 NA 2.3 4.0 1.8 3.1 NA 3.1 12.4 0.3 0.3 0.1 25.9 14.2 0.3 0.2 0.2 21.7 20.9 0.4 0.3 0.3 26.7 2.9 0.8 0.0 NA 23.8 3.6 1.3 0.0 NA 28.9 25.5 0.5 0.5 0.1 118.9 29.2 0.7 0.4 0.4 176.4 37.9 0.7 0.4 0.4 166.0 3.5 1.2 0.0 NA 101.0 47.0 53.6 143.2 10.3 121.7 130.4 36.0 40.0 97.7 71.5 1.0 53.7 0.0 0.0 4.1 30.1 34.0 19.0 0.0 74.6 NM 0.0 0.0 0.0 30.6 0.0 34.4 59.3 45.1 0.0 0.0 39.6 21.3 36.7 0.6 54.9 12.2 5.5 13.4 90.9 0.0 0.1 0.0 116.2 NM 0.0 19.5 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 2006 2005 2004 2003

Debt / Capital Ratio (%)

Debt as a % of Net Working Capital

2002 4.6 2.8 0.0 NA 109.8 47.3 61.7 NA 16.0 132.9 76.9 37.3 27.0 127.4 50.2 NA 0.3 0.0 0.0 5.7 40.0 42.4 0.0 0.0 103.2 0.0 0.0 0.0 0.0 0.0 0.0 50.0 96.1 57.0 0.0 0.1 22.5 23.3 11.9 3.1 48.2 8.5 0.2 0.0 102.9 0.0 0.3 NA 156.2 483.5 0.0 20.7

Ticker

Company

APPAREL, ACCESSORIES & LUXURY GOODS ASHW § ASHWORTH INC COH * COACH INC FOSL § FOSSIL INC HBI HANESBRANDS INC JNY * JONES APPAREL GROUP INC

KWD LIZ MFB MOV OXM

§ * § § §

KELLWOOD CO LIZ CLAIBORNE INC MAIDENFORM BRANDS INC MOVADO GROUP INC OXFORD INDUSTRIES INC

PVH RL ZQK UNF VFC

* § § *

PHILLIPS-VAN HEUSEN CORP POLO RALPH LAUREN CP -CL A QUIKSILVER INC UNIFIRST CORP VF CORP

VLCM WRNC

§ VOLCOM INC WARNACO GROUP INC

APPAREL RETAIL ANF * ABERCROMBIE & FITCH -CL A ARO AEROPOSTALE INC AEO AMERN EAGLE OUTFITTERS INC ANN ANNTAYLOR STORES CORP BWS § BROWN SHOE CO INC

CTR CHIC CHRS CHS PLCE

§ § §

CATO CORP -CL A CHARLOTTE RUSSE HOLDING INC CHARMING SHOPPES INC CHICOS FAS INC CHILDRENS PLACE RETAIL STRS

CBK CWTR DBRN FINL FL

§ § §

CHRISTOPHER & BANKS CORP COLDWATER CREEK INC DRESS BARN INC FINISH LINE INC -CL A FOOT LOCKER INC

GPS GCO GYMB HOTT JOSB

* § § § §

GAP INC GENESCO INC GYMBOREE CORP HOT TOPIC INC JOS A BANK CLOTHIERS INC

LTD MW PSUN PSS ROST

* §

LIMITED BRANDS INC MENS WEARHOUSE INC PACIFIC SUNWEAR CALIF INC COLLECTIVE BRANDS INC ROSS STORES INC

SSI SMRT TJX TWB URBN

§ § * §

STAGE STORES INC STEIN MART INC TJX COMPANIES INC TWEEN BRANDS INC URBAN OUTFITTERS INC

FOOTWEAR CROX § CROCS INC DECK § DECKERS OUTDOOR CORP ICON § ICONIX BRAND GROUP INC KSWS § K-SWISS INC -CL A NKE * NIKE INC -CL B

Current Ratio (cont'd)

Yr. End DEC DEC DEC 6.6 4.0 3.1 1.7 7.3 3.6 3.2 1.5 6.5 5.1 2.8 1.1 6.5 5.2 3.3 1.5 6.9 4.7 2.5 1.3 0.1 0.0 25.3 97.3 0.1 1.0 27.8 461.8 0.0 1.6 25.6 655.4 0.0 2.5 31.6 365.4 0.0 4.2 36.5 177.6 0.1 0.0 44.6 170.8 0.1 1.3 43.8 869.7 0.0 2.1 42.1 NM 0.0 3.3 48.3 NM 3.5 2.3 4.0 3.8 2.5 4.0 3.8 2.9 3.9 3.9 2.7 4.5 3.7 2.8 4.5 19.2 0.0 2.1 23.8 0.0 4.3 27.7 0.0 6.4 31.2 0.0 9.0 31.1 0.0 13.5 23.7 0.0 2.9 29.7 0.0 6.8 36.0 0.0 10.0 41.8 0.0 14.6 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 40.9 0.0 20.4 0.0 5.7 63.6 768.1

Debt / Capital Ratio (%) (cont'd)

Debt as a % of Net Working Capital (cont'd)

Ticker

Company

SKX TBL WWW

§ SKECHERS U S A INC TIMBERLAND CO -CL A § WOLVERINE WORLD WIDE

OTHER COMPANIES WITH SIGNIFICANT APPAREL OPERATIONS BEBE BEBE STORES INC JUN COLM COLUMBIA SPORTSWEAR CO DEC HMX HARTMARX CORP NOV JCG J CREW GROUP INC # JAN

Note: Data as originally reported. S&P 1500 Index group. * Company included in the S&P 500. Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year.

Price / Earnings Ratio (High-Low)

Yr. End OCT JUN DEC JUN DEC # JAN DEC DEC # JAN # MAY # JAN # MAR OCT AUG DEC DEC DEC # # # # # # JAN SEP # JAN # JAN # JAN # FEB # JAN JUL # FEB # JAN # # # # # JAN JAN JAN JAN JAN 23-17 15-9 22-9 50-30 20-9 18-13 16-9 23-11 47-27 20-10 35-20 52-31 22-13 28-14 18-14 24-15 51-24 22-9 19-11 18-11 31-20 42-10 19-14 16-10 16-12 20-14 14-7 33-19 38-16 18-10 16-12 20-9 17-11 53-18 NA-NA 17-12 43-19 17-8 43-20 24-14 17-11 32-13 17-9 30-21 24-10 19-12 30-13 19-7 34-14 37-9 30-9 29-11 61-47 16-5 16-6 20-10 15-9 21-14 31-13 21-7 15-8 28-7 22-9 30-16 NM-20 30-13 29-14 17-11 20-7 16-7 31-15 17-6 29-15 26-14 15-4 JAN JAN JAN JAN JAN 17-10 17-11 19-9 22-16 22-12 19-12 23-12 18-10 31-18 20-12 20-10 23-11 15-5 35-22 17-10 16-10 23-6 28-16 18-8 14-9 17-8 33-6 25-8 18-11 11-5 15 0 16 0 14 35 0 0 0 NA 22 0 0 15 25 34 0 0 0 0 35-15 18-10 28-18 25-18 NA-NA 22-15 NA-NA 0-0 NA-NA NM-NM 0 0 0 0 16 0 14 0 18 35 0 0 0 0 19 0 0 8 19 16 0 0 0 0 20-12 22-12 21-15 20-14 17-11 16-11 19-12 20-12 20-12 13-11 25-14 23-15 22-12 17-14 13-10 NM-NM 18-11 18-11 18-9 12-9 15-9 17-9 18-11 21-13 14-10 6 5 0 7 40 7 7 0 7 24 13 11 0 9 24 NA 0 21 0 4 0 17 41 0 0 0 0 22 0 0 6 15 7 0 0 0 0 NM 12 0 10 28 NA 0 0 0 0 0 15 46 0 0 0 0 8 0 0 0 10 8 0 0 0 0 42-28 18-13 19-7 15-9 19-12 40-25 15-11 NM-NM 19-15 20-11 19-13 15-11 NA-NA 18-12 16-11 16-9 15-10 NA-NA 16-9 15-4 19-12 15-11 NA-NA 15-9 11-7 78 9 0 12 22 74 8 NM 19 19 27 8 NA 15 17 25 9 NA 11 18 37 10 NA 7 31 14 0 0 11 30 NA NM 0 0 0 0 15 32 0 0 0 0 0 0 0 0 3 16 0 0 0 0 NM-88 35-19 21-14 7-5 NM-NM NM-NM 36-24 26-14 NA-NA 16-11 18-12 41-24 25-14 NA-NA 16-14 16-9 50-18 21-11 NA-NA 15-10 52-24 37-18 19-10 NA-NA 16-10 0 0 0 NA NM NM 0 0 NA 19 0 0 0 NA 15 0 0 0 NA 6 0 0 0 NA 0 0.0-0.0 0.0-0.0 0.0-0.0 NA-NA 1.8-1.4 2.8-1.8 0.7-0.5 0.0-0.0 1.3-0.8 1.9-1.2 0.5-0.3 0.4-0.2 0.0-0.0 0.5-0.4 3.6-2.3 0.0-0.0 0.0-0.0 1.4-0.9 0.0-0.0 1.9-0.8 0.0-0.0 1.2-0.6 3.0-2.2 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 1.1-0.6 0.0-0.0 0.0-0.0 1.0-0.5 1.8-1.4 2.0-1.5 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 2006

Dividend Payout Ratio (%)

Dividend Yield (High-Low, %)

2005 0.0-0.0 0.0-0.0 0.0-0.0 NA-NA 1.7-1.2 2.9-1.8 0.7-0.5 0.0-0.0 1.3-1.0 1.7-1.0 0.6-0.4 0.6-0.4 0.0-0.0 0.5-0.3 2.2-1.8 0.0-0.0 0.0-0.0 1.4-0.8 0.0-0.0 1.4-0.8 0.0-0.0 1.4-0.9 3.0-2.1 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 1.3-0.8 0.0-0.0 0.0-0.0 0.8-0.4 1.7-1.1 1.3-0.9 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 2004 0.0-0.0 0.0-0.0 0.0-0.0 NA-NA 1.1-0.9 2.0-1.4 0.7-0.5 NA-NA 1.3-0.8 1.5-1.1 0.9-0.5 0.7-0.5 0.0-0.0 0.6-0.5 2.5-1.9 NA-NA 0.0-0.0 2.2-1.1 0.0-0.0 0.8-0.3 0.0-0.0 1.7-1.0 3.6-2.3 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 1.1-0.7 0.0-0.0 0.0-0.0 0.6-0.4 1.3-0.9 0.5-0.3 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 2003 0.0-0.0 0.0-0.0 0.0-0.0 NA-NA 0.6-0.4 2.8-1.5 0.9-0.6 NA-NA 1.2-0.7 4.1-1.3 1.3-0.8 1.0-0.6 0.0-0.0 1.1-0.5 3.1-2.3 NA-NA 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 1.7-1.0 3.9-2.5 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.9-0.3 0.0-0.0 0.0-0.0 0.0-0.0 1.6-0.6 0.7-0.4 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 2002 0.0-0.0 0.0-0.0 0.0-0.0 NA-NA 0.0-0.0 3.2-2.0 1.0-0.7 NA-NA 0.8-0.5 4.3-2.8 1.4-0.9 0.0-0.0 0.0-0.0 0.8-0.5 3.1-2.1 NA-NA 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 2.9-1.4 4.1-2.1 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.4-0.2 1.1-0.5 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0

Ticker

Company

APPAREL, ACCESSORIES & LUXURY GOODS ASHW § ASHWORTH INC COH * COACH INC FOSL § FOSSIL INC HBI HANESBRANDS INC JNY * JONES APPAREL GROUP INC

KWD LIZ MFB MOV OXM

§ * § § §

KELLWOOD CO LIZ CLAIBORNE INC MAIDENFORM BRANDS INC MOVADO GROUP INC OXFORD INDUSTRIES INC

PVH RL ZQK UNF VFC

* § § *

PHILLIPS-VAN HEUSEN CORP POLO RALPH LAUREN CP -CL A QUIKSILVER INC UNIFIRST CORP VF CORP

VLCM WRNC

§ VOLCOM INC WARNACO GROUP INC

APPAREL RETAIL ANF * ABERCROMBIE & FITCH -CL A ARO AEROPOSTALE INC AEO AMERN EAGLE OUTFITTERS INC ANN ANNTAYLOR STORES CORP BWS § BROWN SHOE CO INC

CTR CHIC CHRS CHS PLCE

§ § §

CATO CORP -CL A CHARLOTTE RUSSE HOLDING INC CHARMING SHOPPES INC CHICOS FAS INC CHILDRENS PLACE RETAIL STRS

CBK CWTR DBRN FINL FL

§ § §

CHRISTOPHER & BANKS CORP COLDWATER CREEK INC DRESS BARN INC FINISH LINE INC -CL A FOOT LOCKER INC

GPS GCO GYMB HOTT JOSB

* § § § §

GAP INC GENESCO INC GYMBOREE CORP HOT TOPIC INC JOS A BANK CLOTHIERS INC

41

NOVEMBER 29, 2007 / APPAREL & FOOTWEAR INDUSTRY SURVEY

42

NOVEMBER 29, 2007 / APPAREL & FOOTWEAR INDUSTRY SURVEY

Price / Earnings Ratio (High-Low) (cont'd)

Yr. End # # # # # # # # # # DEC DEC DEC DEC # MAY DEC DEC DEC 33-16 18-13 50-27 25-14 42-18 18-12 16-9 NA-NA 48-19 18-14 20-9 NA-NA 43-15 20-10 18-7 NA-NA 25-9 18-11 30-12 NA-NA 21 4 0 0 14 0 0 NM 0 0 0 NA 0 0 0 NA 0 0 0 NA 19-9 23-15 20-13 16-10 17-11 19-14 25-12 15-11 19-12 NM-NM 18-9 16-11 19-5 19-11 16-11 0 0 20 0 0 20 0 0 17 NM 0 17 0 0 15 0.0-0.0 0.0-0.0 1.5-1.0 1.3-0.6 0.3-0.2 0.0-0.0 0.0-0.0 29-12 25-11 25-12 17-10 17-13 NA-NA 18-7 21-8 17-13 17-14 NA-NA 21-7 NM-NM 15-8 20-14 NA-NA 24-4 NM-NM 17-7 19-12 NA-NA 37-15 NM-NM 18-10 23-14 0 0 0 9 23 NA 0 0 8 21 NA 0 0 5 20 NA 0 NM 3 19 NA 0 NM 2 19 0.0-0.0 0.0-0.0 0.0-0.0 0.9-0.5 1.8-1.3 NA-NA 0.0-0.0 0.0-0.0 0.6-0.5 1.5-1.2 0.0-0.0 0.0-0.0 1.4-1.0 0.8-0.3 0.0-0.0 0.0-0.0 NA-NA JAN JAN JAN JAN JAN 18-13 21-13 17-13 22-13 42-19 16-11 22-14 18-13 20-12 42-24 15-10 21-8 20-15 22-11 43-16 11-6 NM-47 18-12 29-16 34-7 13-6 25-11 21-14 24-14 26-12 9 203 16 0 0 2 16 15 0 0 0 0 13 0 0 0 0 10 0 0 0 0 10 0 0 0.7-0.5 15.5-9.5 1.2-0.9 0.0-0.0 0.0-0.0 0.2-0.2 1.1-0.7 1.1-0.9 0.0-0.0 0.0-0.0 0.0-0.0 0.0-0.0 0.8-0.6 0.0-0.0 0.0-0.0 NA-NA 0.0-0.0 0.0-0.0 0.6-0.3 1.4-1.0 0.0-0.0 0.0-0.0 1.5-0.9 0.0-0.0 0.0-0.0 0.0-0.0 NA-NA 0.0-0.0 0.0-0.0 0.9-0.6 0.0-0.0 0.0-0.0 NA-NA 0.0-0.0 0.0-0.0 0.4-0.2 1.6-1.0 0.0-0.0 0.0-0.0 1.5-1.0 0.0-0.0 0.0-0.0 0.0-0.0 NA-NA JAN JAN JAN JAN JAN 19-13 15-10 45-23 18-11 18-13 15-11 19-10 17-12 24-10 23-16 19-12 17-11 18-12 34-18 29-18 13-8 24-9 23-10 NM-NM 19-11 23-13 28-9 20-11 14-9 18-12 35 7 0 0 14 36 0 0 0 15 114 0 0 0 15 29 0 0 NM 8 31 0 0 0 7 2.8-1.8 0.7-0.5 0.0-0.0 0.0-0.0 1.1-0.8 3.2-2.4 0.0-0.0 0.0-0.0 0.0-0.0 0.9-0.7 9.9-6.1 0.0-0.0 0.0-0.0 0.0-0.0 0.8-0.5 3.7-2.2 0.0-0.0 0.0-0.0 0.0-0.0 0.7-0.4 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 2.4-1.3 0.0-0.0 0.0-0.0 0.0-0.0 0.6-0.4 0.0-0.0 0.0-0.0 0.7-0.5 0.0-0.0 0.0-0.0 NA-NA 0.0-0.0 0.0-0.0 0.2-0.1 1.3-0.8 0.0-0.0 0.0-0.0 1.4-0.9 0.0-0.0 0.0-0.0 0.0-0.0 NA-NA

Dividend Payout Ratio (%) (cont'd)

Dividend Yield (High-Low, %) (cont'd)

Ticker

Company

LTD MW PSUN PSS ROST

* §

LIMITED BRANDS INC MENS WEARHOUSE INC PACIFIC SUNWEAR CALIF INC COLLECTIVE BRANDS INC ROSS STORES INC

SSI SMRT TJX TWB URBN

§ § * §

STAGE STORES INC STEIN MART INC TJX COMPANIES INC TWEEN BRANDS INC URBAN OUTFITTERS INC

FOOTWEAR CROX § CROCS INC DECK § DECKERS OUTDOOR CORP ICON § ICONIX BRAND GROUP INC KSWS § K-SWISS INC -CL A NKE * NIKE INC -CL B

SKX TBL WWW

§ SKECHERS U S A INC TIMBERLAND CO -CL A § WOLVERINE WORLD WIDE

OTHER COMPANIES WITH SIGNIFICANT APPAREL OPERATIONS BEBE BEBE STORES INC JUN COLM COLUMBIA SPORTSWEAR CO DEC HMX HARTMARX CORP NOV JCG J CREW GROUP INC # JAN

Note: Data as originally reported. S&P 1500 Index group. * Company included in the S&P 500. Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year.

Earnings per Share ($)

2006 (0.05) 1.03 1.10 2.30 2.33 0.86 2.98 (0.39) 1.05 2.93 2.15 2.96 0.90 2.26 4.65 1.36 1.08 3.83 1.02 1.29 1.14 1.00 2.33 1.01 1.03 0.91 1.08 1.28 1.03 0.75 52.80 2.12 0.66 0.28 1.51 1.18 NA (3.08) 1.99 0.40 0.41 1.21 1.16 1.20 1.88 0.71 1.75 4.30 (0.18) 1.73 0.54 1.53 3.67 1.10 1.77 0.40 1.40 3.26 2.41 2.90 (0.53) 1.06 2.97 2.60 2.60 1.15 0.95 2.47 1.71 2.19 NA 0.85 1.35 7.89 6.86 (1.42) 14.48 (0.31) (1.28) 11.99 0.95 9.20 13.18 5.49 2.44 15.92 4.01 6.36 11.00 7.10 9.57 7.74 (2.39) 12.50 (1.98) 0.61 0.70 1.28 4.73 2.44 0.56 0.41 0.98 NA 2.58 0.19 0.24 0.85 NA 2.59 5.73 2.57 7.72 NA 1.30 5.55 5.66 2.07 2.00 6.60 6.31 NA NA (2.23) (1.96) 10.75 7.13 (7.08) 12.69 J (7.10) (6.68) (15.78) 10.35 10.38 0.30 2.53 8.74 6.73 8.40 7.14 4.22 6.45 11.34 3.48 5.16 10.32 5.66 1.54 4.99 7.78 2.84 4.25 9.06 9.01 2005 2004 2003 2002 2006 2005 2004 2003

Tangible Book Value per Share ($)

2002 6.63 5.99 J 1.11 0.67 6.05 J 4.89 J NA NA 0.98 0.66 13.34 15.58 6.73 5.43 4.97 NA 11.24 J 9.89 J (1.47) 12.06 (16.10) 10.56 2.54 14.02 8.61 0.95 4.50 9.07 2.22 2.97 7.99 8.23 5.73 8.93 2.03 12.91 10.91 NA (36.67) 7.71 1.61 2.60 6.36 6.99 2006 10.45-6.17 44.99-25.18 23.84-15.89 24.77-17.75 36.10-27.30 34.84-23.20 44.50-33.40 22.84-8.49 29.68-17.91 55.20-34.34 52.90-31.24 83.15-45.65 16.08-11.60 41.63-28.65 83.10-53.25 41.40-18.24 28.22-15.75 79.42-49.98 22.01-14.05 33.01-14.83 45.15-32.00 34.00-18.52

Share Price (High-Low, $)

2005 12.38-5.95 36.84-24.51 28.95-14.96 NA-NA 37.48-26.47 34.65-21.83 43.82-33.70 20.74-10.65 20.38-15.24 57.58-33.34 35.38-24.11 56.84-34.19 18.12-10.63 45.75-28.00 61.61-50.44 37.82-24.40 27.53-19.70 74.10-44.17 23.64-12.03 22.69-12.97 34.77-20.41 19.67-12.28 2004 11.20-7.55 28.85-16.88 32.37-17.68 NA-NA 40.00-33.00 45.10-31.32 42.47-32.09 NA-NA 19.40-12.78 47.50-34.00 29.95-16.45 42.83-27.28 15.57-8.19 29.99-23.83 55.61-42.06 NA-NA 22.76-15.43 47.45-23.07 22.92-11.47 15.92-5.28 31.43-19.98 18.68-10.75 2003 8.70-5.00 20.42-7.26 20.13-10.63 NA-NA 37.44-25.61 41.53-22.65 38.90-26.23 NA-NA 15.38-8.65 35.83-11.01 18.20-11.16 31.52-19.30 9.77-6.05 28.27-14.00 44.08-32.62 NA-NA 18.23-0.00 33.65-20.65 15.42-4.29 7.79-4.40 27.19-11.37 17.00-10.55 2002 9.91-4.54 8.93-4.30 16.41-8.78 NA-NA 41.68-26.18 32.50-19.70 33.25-23.55 NA-NA 12.60-7.30 15.13-9.75 16.46-10.35 30.82-16.49 7.13-4.22 28.78-18.68 45.64-31.50 NA-NA 0.14-0.00 33.85-14.97 13.11-2.33 10.15-3.25 22.13-12.83 12.49-6.13

Ticker OCT 0.07 JUN 1.30 DEC 1.15 JUN 3.39 DEC (1.32) 0.82 2.50 1.21 1.95 2.96 2.71 3.84 0.76 2.04 4.83 1.19 1.61 4.79 1.33 1.74 2.01 1.56

Company

Yr. End

APPAREL, ACCESSORIES & LUXURY GOODS ASHW § ASHWORTH INC COH * COACH INC FOSL § FOSSIL INC HBI HANESBRANDS INC JNY * JONES APPAREL GROUP INC

KWD LIZ MFB MOV OXM

§ * § § §

KELLWOOD CO LIZ CLAIBORNE INC MAIDENFORM BRANDS INC MOVADO GROUP INC OXFORD INDUSTRIES INC

# JAN DEC DEC # JAN # MAY

PVH RL ZQK UNF VFC DEC DEC JAN JAN JAN JAN JAN

* § § *

PHILLIPS-VAN HEUSEN CORP POLO RALPH LAUREN CP -CL A QUIKSILVER INC UNIFIRST CORP VF CORP

# JAN # MAR OCT AUG DEC

VLCM WRNC

§ VOLCOM INC WARNACO GROUP INC

APPAREL RETAIL ANF * ABERCROMBIE & FITCH -CL A ARO AEROPOSTALE INC AEO AMERN EAGLE OUTFITTERS INC ANN ANNTAYLOR STORES CORP BWS § BROWN SHOE CO INC

# # # # #

Earnings per Share ($) (cont'd)

2006 1.64 1.65 0.89 0.94 NA 0.90 0.60 1.29 0.68 1.59 0.94 3.00 2.25 0.31 2.40 1.71 2.80 0.56 1.90 1.73 1.33 0.86 1.71 1.99 0.71 0.87 2.45 0.81 2.23 2.96 1.73 1.62 1.52 0.74 3.39 0.65 (0.18) 0.39 3.44 0.45 NA 0.22 3.01 0.26 NA 0.31 2.60 0.10 NA 4.45 21.26 6.36 0.09 1.13 2.48 1.33 0.61 2.19 1.15 (0.31) 1.66 0.88 1.26 1.21 0.79 10.71 7.65 8.19 8.56 6.93 7.40 7.47 7.20 7.14 6.67 5.86 6.54 2.32 15.04 3.07 (35.97) 0.26 2.58 0.51 2.20 2.68 (0.05) 2.32 0.01 2.04 2.31 (0.04) 0.91 (0.45) 1.52 1.79 NA 0.17 (0.17) 0.78 1.40 2.41 12.39 (1.71) 9.86 12.93 0.38 NA 8.65 5.80 (2.02) (0.63) 7.91 6.42 11.23 9.77 NA NA (0.00) (1.17) (0.88) (0.57) 4.86 3.64 8.13 7.22 6.85 4.89 5.59 2.09 11.72 4.57 (30.43) 1.38 1.18 1.48 1.62 0.80 1.25 0.90 1.36 1.21 0.56 1.25 0.09 1.30 0.83 0.31 1.24 0.50 1.09 1.42 0.18 10.57 6.59 4.64 11.57 4.09 10.22 7.44 3.70 10.53 3.40 9.39 6.45 3.06 9.29 2.47 8.71 5.42 2.74 8.20 1.82 9.71 5.37 2.36 7.45 1.45 23.53-16.67 18.34-11.27 29.84-22.16 44.53-25.75 29.89-13.65 25.13-10.16 60.56-27.97 20.39-9.51 37.81-22.54 50.60-37.76 33.58-14.80 37.61-24.80 30.20-20.26 26.86-13.05 62.55-42.85 9.97-5.50 43.56-24.00 1.66 1.93 1.69 1.09 1.38 1.50 1.32 1.41 0.52 1.15 1.38 0.86 1.05 0.00 1.50 0.97 0.69 0.67 1.56 1.29 1.60 12.83 7.15 10.48 6.54 J 1.69 10.64 7.33 9.33 5.81 J 1.31 9.32 6.03 8.44 5.23 J 6.78 8.18 5.39 8.42 5.00 J 5.93 8.20 3.99 8.21 4.15 J 32.60-21.62 41.75-28.76 25.26-13.12 33.64-20.36 31.80-22.12 25.50-18.81 37.44-20.10 29.05-20.33 25.74-11.35 31.37-22.34 21.59-15.79 26.47-16.81 25.96-19.95 32.65-18.85 33.77-18.93 NA-NA 47.25-16.92 10.64-4.16 36.89-27.52 45.77-37.55 18.19-11.18 41.01-27.28 25.70-18.90 30.97-13.45 59.76-41.00 10.48-6.09 NA-NA 1.26 2.73 1.04 0.50 2.07 1.29 2.19 0.56 0.86 1.46 1.15 1.35 0.87 1.01 1.08 0.55 1.66 0.75 0.73 0.76 6.30 10.41 8.68 J 5.01 11.54 6.26 8.33 8.39 J 4.57 8.90 5.62 5.04 7.00 J 4.21 6.79 5.22 9.58 6.75 J 4.65 5.31 4.00 8.06 5.80 J 3.44 4.52 21.39-15.91 43.72-25.50 49.11-20.78 15.64-9.43 48.12-22.14 22.70-15.90 42.89-25.16 23.80-11.21 23.49-13.28 40.62-21.10 25.72-18.12 31.39-14.98 18.33-10.87 32.30-13.85 26.74-14.84 27.89-17.35 23.01-14.27 25.78-17.25 17.72-9.20 32.86-20.95 18.89-12.30 19.18-7.60 26.82-20.64 26.75-13.28 24.24-9.16 NA-NA 49.12-16.90 6.34-2.00 30.01-17.06 46.22-32.90 15.25-7.51 33.99-24.35 21.66-13.40 18.74-7.31 62.18-49.22 8.82-4.05 NA-NA 0.85 0.45 0.88 1.25 1.70 0.74 0.33 0.52 1.27 1.69 1.05 0.15 0.13 1.00 1.47 1.00 0.12 0.52 0.52 1.15 6.07 3.41 2.70 9.23 12.37 5.20 2.65 1.15 8.64 10.59 4.45 2.18 4.27 7.69 9.12 4.74 1.47 3.89 6.73 7.94 3.82 1.31 4.58 5.63 6.34 31.25-17.57 31.26-18.69 28.09-16.91 18.81-9.55 28.00-21.50 20.30-12.36 22.97-10.75 19.56-8.26 23.39-13.29 29.95-18.74 22.82-14.65 14.09-3.26 9.73-7.25 19.69-12.52 27.59-19.97 31.15-9.00 4.48-1.69 7.89-6.10 16.22-5.18 23.70-9.28 23.47-12.01 20.24-11.82 18.38-11.79 31.39-13.60 23.20-7.87 18.46-10.88 20.83-7.84 24.56-10.74 17.59-11.89 28.08-16.29 14.20-7.56 9.65-4.22 23.70-15.54 23.69-13.45 10.32-2.09 NA-NA 21.99-3.31 2.69-0.55 25.18-10.61 34.27-21.19 10.24-5.16 29.67-15.10 14.39-9.53 9.48-3.25 59.39-31.55 4.62-1.82 NA-NA 1.44 0.49 0.83 1.07 2.31 1.13 0.70 0.56 0.79 1.60 0.91 0.52 0.36 0.58 0.86 1.20 1.06 0.41 0.40 0.34 8.77 7.14 4.41 4.02 NA 7.69 6.28 3.37 3.91 14.05 6.77 5.78 3.82 2.60 11.45 6.29 5.24 3.25 1.60 9.61 7.05 4.70 2.85 1.41 8.62 26.70-19.35 32.19-15.28 15.57-9.69 49.40-17.26 71.81-41.81 24.37-16.83 20.83-9.13 14.07-7.00 46.32-21.78 54.64-33.22 19.67-12.57 22.24-8.84 9.64-5.26 23.80-16.91 37.61-16.77 17.00-10.77 15.45-6.73 6.85-2.70 19.72-8.38 31.67-7.87 2005 2004 2003 2002 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002

Tangible Book Value per Share ($) (cont'd)

Share Price (High-Low, $) (cont'd)

Ticker

Company

Yr. End

CTR CHIC CHRS CHS PLCE

§ § §

CATO CORP -CL A CHARLOTTE RUSSE HOLDING INC CHARMING SHOPPES INC CHICOS FAS INC CHILDRENS PLACE RETAIL STRS

# JAN SEP # JAN # JAN # JAN

18.50-9.45 29.26-7.58 9.14-3.80 11.86-6.21 37.31-6.90 29.87-12.53 3.37-1.57 8.75-5.53 10.44-3.63 17.95-8.20 17.14-8.35 28.30-10.65 21.50-10.90 18.80-9.90 11.67-2.86 22.34-12.53 19.15-6.41 13.16-7.20 21.57-13.73 23.62-15.85 16.06-7.47 12.32-5.37 22.45-15.30 34.50-19.45 4.65-2.21 NA-NA 6.30-2.56 5.28-0.80 13.88-7.84 32.14-19.26 24.40-6.52 22.98-12.90 12.83-8.37 7.76-2.84 47.80-27.46 3.02-1.18 NA-NA

CBK CWTR DBRN FINL FL JAN JAN JAN JAN JAN JAN JAN JAN JAN JAN JAN JAN JAN JAN JAN

§ § §

CHRISTOPHER & BANKS CORP COLDWATER CREEK INC DRESS BARN INC FINISH LINE INC -CL A FOOT LOCKER INC

# FEB # JAN JUL # FEB # JAN

GPS GCO GYMB HOTT JOSB

* § § § §

GAP INC GENESCO INC GYMBOREE CORP HOT TOPIC INC JOS A BANK CLOTHIERS INC

# # # # #

LTD MW PSUN PSS ROST

* §

LIMITED BRANDS INC MENS WEARHOUSE INC PACIFIC SUNWEAR CALIF INC COLLECTIVE BRANDS INC ROSS STORES INC

# # # # #

SSI SMRT TJX TWB URBN

§ § * §

STAGE STORES INC STEIN MART INC TJX COMPANIES INC TWEEN BRANDS INC URBAN OUTFITTERS INC

# # # # #

FOOTWEAR CROX § CROCS INC DECK § DECKERS OUTDOOR CORP ICON § ICONIX BRAND GROUP INC KSWS § K-SWISS INC -CL A NKE * NIKE INC -CL B DEC DEC DEC

DEC DEC DEC DEC # MAY

SKX TBL WWW

§ SKECHERS U S A INC TIMBERLAND CO -CL A § WOLVERINE WORLD WIDE

OTHER COMPANIES WITH SIGNIFICANT APPAREL OPERATIONS BEBE BEBE STORES INC JUN 0.81 COLM COLUMBIA SPORTSWEAR CO DEC 3.39 HMX HARTMARX CORP NOV 0.20 JCG J CREW GROUP INC # JAN 1.74

3.66 2.77 19.18 18.57 3.61 3.46 (42.91) (44.05)

Note: Data as originally reported. S&P 1500 Index group. * Company included in the S&P 500. Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year. J-This amount includes intangibles that cannot be identified.

The analysis and opinion set forth in this publication are provided by Standard & Poor's Equity Research Services and are prepared separately from any other analytic activity of Standard & Poor's. In this regard, Standard & Poor's Equity Research Services has no access to nonpublic information received by other units of Standard & Poor's. The accuracy and completeness of information obtained from third-party sources, and the opinions based on such information, are not guaranteed.

43

NOVEMBER 29, 2007 / APPAREL & FOOTWEAR INDUSTRY SURVEY

Topics Covered by

INDUSTRY SURVEYS

Advertising Aerospace & Defense Agribusiness Airlines Alcoholic Beverages & Tobacco Apparel & Footwear Autos & Auto Parts Banking Biotechnology Broadcasting & Cable Chemicals Communications Equipment Computers: Commercial Services Computers: Consumer Services & the Internet Computers: Hardware Computers: Software Computers: Storage & Peripherals Electric Utilities Environmental & Waste Management Financial Services: Diversified Foods & Nonalcoholic Beverages Healthcare: Facilities Healthcare: Managed Care Healthcare: Pharmaceuticals Healthcare: Products & Supplies Heavy Equipment & Trucks Homebuilding Household Durables Household Nondurables Industrial Machinery Insurance: Life & Health Insurance: Property-Casualty Investment Services Lodging & Gaming Metals: Industrial Movies & Home Entertainment Natural Gas Distribution Oil & Gas: Equipment & Services Oil & Gas: Production & Marketing Paper & Forest Products Publishing REITs Restaurants Retailing: General Retailing: Specialty Savings & Loans Semiconductor Equipment Semiconductors Supermarkets & Drugstores Telecommunications: Wireless Telecommunications: Wireline Transportation: Commercial

GLOBAL INDUSTRY SURVEYS

Industry/Region Advertising/Asia, Europe Aerospace & Defense/Europe Airlines/Asia, Europe Autos & Auto Parts/Asia, Europe Banking/Asia, Europe, Latin America Biotechnology/Asia, Europe Broadcasting & Cable/Asia, Europe Chemicals/Asia, Europe Communications Equipment/Asia, Europe Computers: Hardware/Asia Construction & Engineering/Asia, Europe Consumer Electronics/Asia Electric Utilities/Asia, Europe Foods & Nonalcoholic Beverages/Asia, Europe Industry/Region Healthcare: Pharmaceuticals/Asia, Europe Healthcare: Products & Supplies/Asia, Europe Industrial Machinery/Asia, Europe Insurance: Life & Health/Asia, Europe Insurance: Property-Casualty/Asia, Europe Investment Services/Asia, Europe Oil & Gas: Production & Marketing/Asia, EMEA, Latin America Publishing/Asia, Europe Real Estate/Asia, Europe Retailing: Specialty/Asia, Europe Supermarkets & Drugstores/Asia, Europe Telecommunications: Wireless/Asia, Europe, Latin America Transportation: Commercial/Asia, Europe

Each of the topics listed above is the exclusive subject of an issue of Industry Surveys or Global Industry Surveys. To order an issue or receive subscription information, please call (800) 221-5277. For information about Industry Surveys and Global Industry Surveys, please call (800) 523-4534.

Standard & Poor's

INDUSTRY SURVEYS

55 Water Street New York, NY 10041

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