Fashion Industry News Roundup: 06/12/09

1.) The Problem with Luxury:
"If you want to hazard a guess at which luxury brand might be next to stumble, take a quick spin around the second or third floors of New York City's Bergdorf Goodman department store. There you will find racks upon racks -- sometimes, entire collections -- of designs by Marc Jacobs, Chanel, Dior, Armani, Thakoon and Alberta Ferretti marked down 40%. What's impressive is not only the steep markdowns, but also the sheer volume of merchandise that remains. In some cases, every size of a silhouette is still available, indicating that not a single shopper bought the look."

The article goes on to note that sales figures for Neiman Marcus and Saks are down 27% and 26.7% (respectively) while luxury brands are busy shaking up their creative and management teams, with CEO's and designers in and out so fast that I'm getting a severe case of whiplash just trying to keep up with the shuffle.

For example: designer Esteban Cortazar has been shown the door after less than two years at Emanuel Ungaro; only days after di Risio stepped down as CEO of Versace, former Jil Sander CEO Gian Giacomo Ferraris was named as his replacement; Kim Winser, CEO of Aquascutum, departed after her buyout bid was rejected by the Japanese company that owns Aquascutum, with the company now shopping Aquascutum around to other, deeper pockets; and just last week, it was rumored that Karl Lagerfeld was stepping down as head designer from Chanel to be replaced by Lanvin's Alber Elbaz who would be replaced by Olivier Theyskens who was just recently ousted as head designer for Nina Ricci. My, but that was a mouthful.

Chanel and Lanvin spokespeople quickly issued statements quashing that particular rumor. Thank god.

Meanwhile, Eddie Bauer may file for bankruptcy protection: "the U.S. outdoor-clothing chain may seek bankruptcy protection as soon as this week, according to five people with knowledge of the discussions . . . Eddie Bauer, which opened its first sporting goods store in Seattle in 1920, has reported annual losses for the past three years. The Bellevue, Washington-based company operates about 370 stores in the U.S. and Canada. No final decision has been made about a bankruptcy filing."

2.) Speaking of Neiman Marcus and its Dismal Sales Numbers:
"For the Neiman Marcus Group, there's no shortcut out of the recession. 'We don't believe it will end until sometime in 2010,' Neiman's president and chief executive officer Burt Tansky said . . . The Dallas-based Neiman's, once thought impervious to downturns, has been reeling as much as any retailer under the weight of the recession ... The outlook isn't rosy: 'We are expecting current trends to continue and expect to see our inventories continue to adjust down over the next several quarters," the executive said.'

The Women's Wear Daily article dishes the details on the Neiman recovery plan, including salary and staff cuts, inventory reductions (by as much as 25%), shifting focus from high-end items to more mid-price designer brands and items, postponing new store openings (though the September opening of the store in Bellevue, Washington will proceed), and consolidating departments and management teams.

Mr. Tansky gives the impression that Neiman Marcus is hunkering down for a long, drawn-out battle with the economy. He's optimistic that they'll survive as a company, but they'll have a different focus and a much leaner structure as the changes go into effect.

The below clip is probably the last of its kind you'll see produced as a Neiman ad campaign -- it's frivolous, whimsical, giggly and jarringly out of step with the present cultural/economic mood. No wonder their sales are tanking:

In related news, Neiman competitor Saks Fifth Avenue shelled out some serious cash for a sleek new look for its top tier designer brand showroom: "Construction on a renovated, bronze-trimmed, artistically detailed third level at Saks' Manhattan flagship is nearing completion ... It's also undoubtedly been among the most expensive selling floors to create. Industry sources estimated the cost of the project at north of $30 million . . . With the luxury sector among those hardest hit by the recession, Saks is shifting its designer assortment so that its top tier, designated as "best," will eventually account for 25% of the chain's total volume, from the current 33%. The "better" and "good" price zones will account for roughly 75% of the offering. It's more about getting designers to lower their prices than eliminating labels entirely, Saks officials said."

Does it really make sense to lay out $30 million to showcase merchandise that will be contributing an estimated 8% less to the company's bottom line? There was a mention that Saks will now start carrying Chanel Ready-to-Wear for the first time, and that Chanel had a good amount of say in where their storefront would be placed and how it would look, so maybe it's all about luring customers in to see the beautiful clothes (that they won't buy) where they will then be distracted by the beautiful shoes, bags and cosmetics (that they hopefully will buy). "'Will you walk into my parlor?' said the spider to the fly" . . . or, you can catch more flies with honey.

The Wall Street Journal even notes that brands are adjusting their mindset regarding product lineup and pricing: "Below the elevated sphere of Hermès International and LVMH Moët Hennessy Louis Vuitton, nearly every apparel retailer is reducing the price of nonsale items. Coach has adapted its product mix to achieve a 10% to 15% reduction in unit prices next fiscal year. Abercrombie & Fitch in May also announced "meaningful" price reductions. . . . Morgan Stanley's Michelle Clark estimates fall merchandise orders for department stores are down 10% to 20%, with luxury retailers cutting the most."

More here: "'The luxury consumer now wants to understand why the price is what it is,' said Michael Fink, a consultant in New York and former women's fashion director for Saks. 'It's not going to return to the hype and the waiting lists" for designer goods' . . . 'It has definitely made us all reconsider what we're doing, how we're doing it, and who we are trying to reach as a customer,' designer (Vera) Wang said at a May 20 event in New York. 'In a way, it has been a reality check for all of us.'"

In related news, market research specialist and Bain & Co partner Claudia D'Arpizio spoke at a Global Luxury Summit recently and stated that brands that have their own stand-alone boutiques will fare better than brands that are dependent on chain stores and department stores to sell their goods: "In general, whoever has stronger control of their retail network is well-equipped now to react to this,' D'Arpizio said, since 'you have in your hands all the levers to really understand how the consumers are changing' . . . D'Arpizio, who studies the global luxury market from Milan, expects sales of luxury goods -- including high-end handbags, jewelry and clothing -- to fall 10 percent this year after being flat last year."

One luxury retailer that's bucking the downward trend is Harrod's of London: "Harrods has seen an influx of shoppers from the Middle East, China, India and some former Soviet states, whose currencies have strengthened against the pound, giving them more to spend . . . 'Local shoppers are reining in spending, but as long as you have wealthy tourists coming in, Harrods will benefit,' Sandra Halliday, global managing editor at fashion forecaster WGSN said in a telephone interview. 'In uncertain times you want the certainty of names people have heard of.'"

In other words, established designer names = cash register *kaching!*

Video clip below that gives a brief overview of Harrods:

3.) Somebody at Sephora Needs a Better Proofreader:

Please explain to me again how perfume pencils can be 100% fragrance free? I'm a little confused on the concept . . . (thanks to Marin for the tip).

4.) The Sweet Smell of an Industry in Turmoil:
"While department store sales of beauty products fell 3% in dollars in 2008 ... the decline was most profound in the fragrance industry, according to NPD Group, a market research firm . . . The drop is even more notable when the rise in fragrance prices is taken into account, said Allan Mottus, an industry analyst, who estimates that unit sales dropped 10 to 12 percent last year. It's like the movie industry, where a jump in ticket prices obscures a drop in the number of tickets sold. Among the losers? Those celebrity scents, which fell around 20%."

The author of the article notes that the decline in sales is even worse when you take into account that new fragrance launches (combining mainstream and niche) were topping 1,000 a year as of the end of 2008 -- that's about 3 new fragrance releases a day -- but that 2009 has seen a slowdown in the number of fragrances launched onto the market. An analyst with NPD correlated the decline in sales with the increase in light, sheer perfumes -- if it doesn't really smell like much, then why waste your money on it? On the other hand, sales of fragrances $100 and more increased by 10% in the first quarter of 2009, so the high-end seems to be holding its own. More Chanel Les Exclusifs, please!

And since we're on the topic of more fragrance releases than the market can reasonably handle: Tom Ford's Softer Side: White Musk -- "While Ford honed in on musk as the linchpin of the collection, he also aimed to offer a varied take on the theme. 'Musk is an ingredient I've loved for a long time,' he said, adding the note was in vogue in the Seventies. 'When mixed with other ingredients, it gives another tone that's animalic; there's warmth and a sensuality that's like skin. I think it makes things smell more human.'"

Ford's White Musk will be a four fragrance series added to his already extensive Private Blend collection. Ford admitted that his existing fragrances are on the darker, deeper side, so he wanted to add products that would appeal to the consumer searching for a softer, more feminine fragrance. The bottles will be white and gold instead of his already existing black and gold palette that he presently uses for his Private Blend series -- "'I wanted [the brand] to be perceived more as a fragrance house than as designer fragrances,' said Ford of his decision to tweak Private Blend's existing flacons for the White Musk Collection. 'I was careful to choose a bottle architecture that would create a unified statement.'"

Photo of bottles for the upcoming Ford White Musk series below (from WWD):

5.) Hermes Braces Itself for the Uncertain Future:
"The world's second-largest luxury goods group in terms of market value behind LVMH said it had postponed the opening of two shops in China and two leather goods plants in France . . . (CEO Patrick) Thomas said its stores continued to perform well, except in Japan, and that the wholesale business, which made up 20% of turnover, continued to suffer, particularly in the tableware and watch units, as retailers kept inventories low . . . But the wholesale perfume business was starting to recover, he said, as stocks were starting to run out."

Mr. Thomas states that he believes the present downturn in the luxury market will last over two years before we begin to see a recovery, and that Hermes would likely experience a profit margin of 0-1% for 2009 as opposed to the 25% profit margin in 2008.

Is a brand still considered desirable when demand for its product is flat?

And about those watches: "The Swiss watch industry has cut more jobs as the global financial crisis begins to have an increasing impact . . . Zenith has slashed 70 jobs out of 250, following 24 job losses in January ... Franck Muller of Geneva, cut almost a half of its workforce last week, shedding 200 jobs out of 428 ... (and) Metalor, which specialises in precious metals, is to cut 50 out of its current 457 jobs in its division that supplies the watchmaking industry."

6.) Comme de Garcons Turns 40:
"'I really felt that I was on my own,' Ms. Kawakubo says. 'I never felt my work had anything to do with being a woman. I am not a feminist. I was never interested in any movement as such. I just decided to make a company built around creation, and with creation as my sword, I could fight the battles I wanted to fight' . . . 'It is true to say that I 'design' the company, not just clothes,' Ms. Kawakubo says. 'Creation does not end with just the clothes. New interesting business ideas, revolutionary retail strategies, unexpected collaborations, nurturing of in-house talent, all are examples of Comme des Garçon's creation.'"

The Comme de Garcons perfume brand alone brought in almost $5 million for the brand in 2008. A video clip below from the Comme des Garcons Spring/Summer 2009 collection:

7.) Luca Turin Makes For a Snooty Dictionary:
"A rich, tasteful fragrance sauntered by one evening on long legs. I was at a Fragonard party in Paris with the perfume expert Luca Turin, and he shrugged it off. 'Luxury scent,' he said. 'Not chic.' . . . 'What is chic?' I asked. He said, 'Um,' and squinted at the ceiling as if the definition were written up there. 'Chic,' he finally said, 'is when you don't have to prove you have money. Chic is not aspirational. Chic is all about humor, which means chic is about intelligence.' Then he added: 'And there has to be oddness. Luxury is comfortable, expensive and conformist. But chic, which, of course, must be polite and not incommode others, can be as weird as it wants.'

Dictionary definition of chic:

In this instance, Turin resembles Karl Lagerfeld wrinkling his nose at the thought of Heidi Klum as a model, saying she's bourgeois and too fat for the runway: "She is no runway model. Heidi Klum is simply too heavy and has too big a bust. And she always grins so stupidly. That is not avant-garde - that is commercial."

I don't have a problem with commercial fragrances if they smell good. I'll take an attractive, aspirational fragrance over cheap and harsh any day. Besides, wouldn't the fashion industry be a more consumer-friendly endeavor if it employed more Heidi Klums and less Naomi Campbells?

8.) These New Pearls Just Aint What They Used to Be:
"The cultured pearl empire created by Kokichi Mikimoto has had a run of over one hundred years but now the decrease in jewelry sales and the rise of the pearl industry in China is changing things . . . Growers who have been cultivating pearls for years are considering getting out of the industry. Pearl farms are closing down as the market shifts . . . In China, growers have had great success in cultivating pearls that can be as big and round as the prized Japanese akoya pearls. China has 50 times Japan's pearl production capacity and can flood the market with cheaper pearls. Japan is also facing competition from South Sea and Tahitian pearls."

The Japanese pearl industry produces one-fifth the revenue it did in the 1990's, but the pearl industry as a whole suffers not just from over-supply and a decrease in jewelry sales due to the present recession, but also from the reputation of pearls as a traditional (i.e. stuffy, old-fashioned) gem. A video clip below from the Japanese cultured pearl industry:

9.) The Bigger Picture for Fashion:
"Part of the problem is over-capacity--there's just too much stuff around. We have our It Bags and Manolos. Indeed, we're exhausted by the very thought of them . . . At the same time, a great many people in the fashion world would share the photographer Horst's view that "fashion is a universe full of art and excess where no one thought of the outside world," ... This may be why many designers do not know how to fully relate the Internet to fashion-imaginatively. I mean only that it took radio roughly 40 years to reach 50 million people, while it took the Internet just 4 years to reach the same number of people."

My own experience with ordering the Chanel Les Exlusifs from the Chanel website gave me a glimpse of how a luxury brand can embrace the Internet without cheapening its hard-won image or its reputation for service, so there is hope in that respect, but regarding the luxury over-capacity? That's going to be a more difficult hurdle to overcome.

For example: Commodity luxury hurts sector near-term -- "Beyond the global financial meltdown that has sapped the portfolios of many of the wealthy, the luxury sector itself is to blame for the sharp downturn in spending on pricey goods, due to the preponderance of brands selling a myriad of items that have diluted the cache of the notion of luxury . . . 'There are too many brands participating in luxury handbags, there are too many brands participating in luxury ready-to-wear, luxury watches, luxury jewelry, and the service has been less than optimal, to put it nicely,' Pedraza said at the Reuters Global Luxury Summit in New York."

When every luxury brand sells limited-edition watches, special edition bags and super exclusive jewelry pieces, then none of these terms holds any meaning. Rather than focusing on what a particular brand was good at, they each jumped on every available consumer bandwagon, resulting in a glut of perfumes, cosmetics, shoes, bags, sunglasses, jewelry, clothing and timepieces, slapped with logos and increasingly blinged-out just to attract attention in such a cluttered market.

The noise I keep reading from analysts, pundits and actual industry members is that the recession will clear the field of extraneous brands and goods (after a couple of years of serious clearance sales), with the remaining players rebooting their business models and moving back into what made their brands special in the first place -- quality materials, superior workmanship, exemplary design. In the meantime, we're drowning in bags, shoes, clothing, sunglasses and pearls.

My solution is a to pick up a bucket and start bailing. Prices for quality goods are getting lower by the month as companies struggle to liquidate excess inventory (the presence of more goods than there is demand for the goods results in a temporary deflation in the form of discount sales). I just snagged a great Chloe tote for my sister -- I'll put it aside in a closet and give it to her at Christmas. It's a beautiful red matte leather with solid hardware, streamlined detailing and not a stitch out of place. It was 65% off the original price, so instead of it being a genuinely nice but way overpriced bag, it's a genuinely nice and maybe even a little under-priced bag. Score!

Update: Prada just announced that it rebuffed investor overtures this past week, refusing to sell a stake in the company for cash the way that Roberto Cavalli just recently sold a chunk of his company for investor cash -- and then had to agree to turn over control to management outside the family.

#1) This could mean that Prada is healthy and doesn't need the investor cash to survive (they just recently opened a new boutique in Madrid; or #2) they're trumpeting their refusal of the investment as a means of ginning up interest in bigger offers from bigger fish. I mean, it is Prada itself that's making this announcement, and it's not like anybody was asking.