By Alexandria Sage - Analysis

DANA POINT, California (Reuters) - The private label apparel business is falling out of fashion in the struggling retail environment, as branded clothing is seen as a more compelling option for consumers -- and less risky to retailers.

For department stores, brand-centric is the order of the day, said apparel insiders this week assembled at the ICR XChange investor conference in Dana Point, California.

While shoppers have cut back sharply on buying nonessential items like clothing in the recession, they still show a preference for known brands when they do make purchases, industry executives and analysts said.

And even though stores have had to discount those famous names sharply -- making them all the more attractive to consumers -- the retailers with clout can go back to vendors to recapture lost margins.

"With branded apparel you have a bailout," said Sterne Agee analyst Sam Poser. "You (a retailer) can call (a vendor) and say, 'Our margins aren't what we agreed, send me a check.'"

The popularity of private label -- in which retailers put their own labels on what are often lower-priced goods made for them by vendors -- goes up and down in retail, said Brean Murray Carret analyst Eric Beder.

"At times it's seen as a savior and at times it's seen as a disaster," Beder said. "We had a period where people wanted more private label because department stores wanted a higher margin. But now private label has become more of a burden."

G-III Apparel Group Inc (GIII.O), which does private label for J.C. Penney Co (JCP.N) among others, has noticed the shift and is seeking more retailers who want to carry their own label.

"We need more private label opportunities," said G-III's Chief Operating Officer Wayne Miller. "They (retailers) want to do more branding."

As shoppers cut back on spending, each purchase takes on more importance, so consumers are less inclined to buy something that doesn't excite them.

"When push comes to shove, if you have less money to spend, you're going to spend it on something unique, something differentiated," said Beder. "And usually that's not private label."

HO-HUM FASHION

With even the hottest designers on discount these days, there is also little incentive to shop private label. Such merchandise often does not carry the same style as products from brands, which know how to add the sizzle to their goods.

"Most department store private label brands don't offer anything too exciting on a fashion level," said Needham & Co analyst Christine Chen, who cited Bloomingdale's Aqua line as an exception.

As Poser explained: "You can't do a blue and white shirt with a French cuff at private label. It has to be a volume item."

The importance of brands is seen at Wal-Mart Stores Inc (WMT.N), which has been touting the apparel labels it offers like surf brand OP and girl's denim line l.e.i.

"Branded product is what's moving," said Warren Clamen, chief financial officer of Iconix Brand Group Inc (ICON.O), which owns and licenses consumer brands, including Candie's, Rampage, Roca Wear and OP. "It's the bread and butter."

Amid fierce competition and a consumer averse to spending, department stores need to differentiate, said Raymond James' Sam Panella, speaking during a retail panel at the conference, which invites small- and mid-cap consumer companies.

"Getting the different brands in there, finding the next upcoming brand, being ahead of the curve (is important) to get that customer in that door," said Panella.

A key reason department stores have embraced the private label business is that it eliminates the middleman. Whereas most branded apparel sold at full price carries gross margins of 50 percent, private label equivalents can be 70 percent, said Beder.

"That was always the sexiness of it," Beder said.

But when discounting occurs, as retailers discovered this fall and holiday season, that boost in margin evaporates, and the retailer has no recourse in recouping it.

Many vendors have also been walking away from the private label business, including men's apparel maker Perry Ellis International Inc (PERY.O) and Brown Shoe Co Inc (BWS.N), where private label makes up 15 percent of its wholesale business, but is declining.

At Oxford Industries (OXM.N), the company sees growth in its Tommy Bahama and Ben Sherman brands, while it shrinks its private label businesses for men's tailored clothing and dress shirts to make that unit leaner and more profitable.

"The smart retailers out there are very focused on having special product, compelling product that brings the consumer into the store," said Tom Chubb, the company's executive vice president. "You have to give them a reason to come there."

(Editing by Phil Berlowitz)