Macy's Inks Exclusive Sean John Deal with Diddy

As department stores gird themselves for what is expected to be a no-holds-barred fight for market share, Macy's (M) continues to press its celebrity-driven strategy to revive sales with an exclusive deal with rap mogul Sean "Diddy" Combs.

Sean John, the fashion brand fronted by the artist formerly known as Puffy, will be available only at Macy's stores beginning with its spring men's sportswear line arriving in October, and it will have its own in-store shops at key Macy's locations, such as its 34th Street flagship in New York. Macy's has been carrying Sean John since the line launched in 1999 with men's sportswear; it later expanded to a full line of menswear, fragrances and women's apparel.

Officials of Macy's -- which already has exclusive deals with Madonna, Martha Stewart and Tommy Hilfiger, among other notables -- had hinted that they had another deal coming when they met with investors in late April to lay out their strategy to grow as retail emerges from the recession. The company, which is also the parent company of Bloomingdale's, has made star-powered exclusives a big part of its merchandising plans.

Macy's CEO Terry Lundgren said his stores are not tapped out in terms of how many exclusive brands they can handle. The Sean John deal fills in some "white space" in the menswear department in stores, but with annual sales around $24 billion, there is plenty of room, he said.

Macy's will reap a bounty of publicity, free and otherwise, from the deal. "I'm going to be on every talk show in the world," said Combs, who has a new album out June 28 and a new movie, "Get Him to the Greek," opening this summer. He promised to plug the fashion line in every public appearance.

Department Stores Take Aim at Rivals' Customers

Most department store chains have looked to private labels and exclusive deals to restore some luster to their brands and lure back some of the fashion shoppers they've been losing to specialty stores since the 1990s. Earlier this year, Saks (SKS) Chairman Steve Sadove estimated his stores' stock is 20% to 25% exclusive items. Mid-price chains such as J.C. Penney (JCP) and Kohl's (KSS), and discounters such as Target (TGT), have built entire strategies around big-name exclusive brands.

The department stores are preparing for a serious fight for market share this year, both among themselves and against specialty retailers. While they are hopeful that the economy is turning, most merchants don't anticipate the market will see a lot of additional spending among consumers. At the same investors meeting in late April, Lundgren was blunt in saying he expects Macy's sales growth this year will come at the expense of its rivals.

Analysts appear to agree. Looking ahead toward spring and summer sales, some observers are already warning investors that the department store sector may have tapped out its potential. Too much focus on the same fashion categories will lead to bruising battles for market share.

For apparel companies, on the other hand, exclusive deals can be a comfortable set of golden handcuffs. While they limit the number of stores where merchandise is available, the department stores guarantee it better display in stores, plus marketing help and merchandising support that can be prohibitively expensive for an apparel company to finance on its own.

"This is one of the greatest business moves I've made in my life," said Combs. The Sean John brand has annual sales of $525 million, and although neither he nor Macy's executives would give hard numbers, Combs added: "We expect to do a couple of billion more."