Luxury & Fashion Biz News: July 1st, 2011 (How Shaky is the Retail Landscape?)

Analysis – Retail bloodletting has only just begun:

“A string of retail failures in Britain could be the tip of the iceberg as shoppers cut back dramatically on non-essentials . . . The past few months have seen the collapse of a raft of well-known retail names, including wine seller Oddbins, home improvement firm Focus DIY, home furnishings retailer Habitat UK, Moben Kitchens owner Homeform, fashion retailer Jane Norman and discount department store chain TJ Hughes. Even retailers still in business are closing outlets as demand wanes and trade shifts to the internet.”

The article goes on to quote an analyst from business advisory firm Deloitte who predicts a wave of retail store closings and bankruptcies that will be worse than what happened in 2008/2009 when the worst shockwaves of the recession hit.

The end of this upcoming September will be crunch time for struggling shops and chain stores as fourth quarter rents become due and inventories have to be stocked for the holiday season — banks might be willing to provide financial support to retail endeavors that are showing a solid profit, but for those that are faring poorly, it’s unlikely that further funds will be made available for continued operations.

But it’s the mid-level shops and chains that are being hit the hardest as consumers pull back on “aspirational” spending. While high-end brands and chains are reporting steady growth (for example, the iconic Harrods department store in London is upping its offering of fine watches and jewelry and recently reported a significant increase in sales to Chinese tourists, who were spending an average of £3,500 ($5,655) on each visit to the store”), it’s the middle-class shopper that’s cutting back on discretionary spending, and this is having catastrophic effects on the middle ground between luxury purveyors and discount outlets.

But the retail landscape is just the canary in the economic coal mine — the rise of the budget-conscious shopper is having ripple effects across the globe, with manufacturing rates in China, Germany, Italy, Ireland, Spain, Greece, India and the UK cooling significantly due to a toxic cocktail of increasing raw material & wage costs + nervous consumer sentiment.

Related ripples: global steel production is down, global investors are nervously eyeing a Chinese economy in a state of wobble, the Philippines are blaming a dramatic decrease in imports on the fragile world economy, rising unemployment rates in the U.S. are crushing hopes of a recovery, Canada’s engine is stalling, Japanese exports have been hit by radiation concerns, and so on.

With such a high volume on the Shopper’s Blues channel, it’s no wonder that newlywed to the British Monarchy Kate Middleton’s every move is being covered by advertising dependent newspapers as the fashion/luxury industry’s great white hope. For example:

What Will Kate Middleton Wear for Her North American Visit?
Kate Middleton, a flawless fashion icon
Duchess of Cambridge takes style tips from the Queen
Kate Middleton’s Tour of Thirty Style Statements
Kate Middleton’s Style Is ‘Incredible’
Kate Middleton Sells a Dress a Minute
Kate Middleton is the Jackie Kennedy of Gen. Y
‘Kate effect’ helps drive fashion sales
Kate Middleton Shows Us How To Work Military Chic
Duchess dons Toronto label’s jacket
Another British designer feels full force of The Kate Effect
What Will Kate Middleton Wear On Her Canadian Trip?

Etc. Etc. and cursed Etc.

The Kate Effect in Canada

It reminds me of the frenzied overdrive the U.S. fashion/marketing industries shifted into when Michelle Obama first hit the scene (in concert with the financial meltdown and consequent recession) and they treated her every photographed move as a means of generating consumer excitement for whatever it was she happened to be wearing that day: ZOMG! J.CREW!!!

Thankfully, that particular hysteria has dulled to only a dim roar as the years have passed, but now that the marketing machines have discovered that the young and aristocratic Kate Middleton has pulling power, we’re back to square one . . . but I guess I can’t really blame them. If I owned a brand that was teetering on the brink of financial insolvency, I might very well scream out whatever well-known name was wearing/using my product, too.

*NOTE: Not all fast-fashion retailers are performing poorly. While Uniqlo and H&M are struggling, Spain’s Zara is doing bang-up business, with a recent Zara opening in Sydney, Australia resulting in 80% of the merchandise flying off the shelves within one day: Spain’s Zara the model of the successful retailer

Zara — what do they have that the others don’t?


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