Luxury & Fashion Biz News: August 5th, 2011 (Luxury sells briskly but the economy is shaky, Annick Goutal changes hands, and the emergence of DIY fashion)
1.) Luxury Retailers are Back in the Black:
“Even with the economy in a funk and many Americans pulling back on spending, the rich are again buying designer clothing, luxury cars and about anything that catches their fancy. Luxury goods stores, which fared much worse than other retailers in the recession, are more than recovering — they are zooming . . . ‘They’re buying the special pieces, whether it’s the exotic leathers, the more fashion-forward pieces,’ said Stephen I. Sadove, the chairman and chief executive of Saks Fifth Avenue. ‘There’s a dramatic decline in the amount of promotions in the luxury sector — we’re seeing higher levels of full-priced selling than we saw pre-recession.'”
The article notes that luxury spending is closely tied to stock market performance, and as the stock market has been logging steady gains over the last year, so have sales of designer brand merchandise. It’s also good to keep in mind that just because the stock market is going up doesn’t mean that the overall economy is doing any better, only that a certain HNW (High Net Worth) investor category is feeling less nervous.
For example, the more that central banks print money while keeping interest rates close to zero, the more that newly printed money will flow directly into the stock market — not because the economic indicators are so deeply enticing, but because the stock market is one of the few places left where cash can potentially earn a dividend. The subsequent rise in share prices (as all that newly printed money gushes into the market) leaves investors with large stock portfolios feeling very good about their bank accounts, which means they’ll whip out the American Express at the Barney’s counter with a bit more vim and vigor.
*NOTE 1: “Ha!” I imagine they must say, “I laugh in the face of stubbornly high unemployment numbers and a wobbly global outlook!”
But the effect is not trickling down: “Apparel stores are holding near fire sales to get people to spend,” writes Stephanie Clifford. “Wal-Mart is selling smaller packages because some shoppers do not have enough cash on hand to afford multipacks of toilet paper. Retailers from Victoria’s Secret to the Children’s Place are nudging prices up by just pennies, worried they will lose customers if they do anything more.”
Though the latest downward spiral in the DOW Jones might just curb the enthusiasm for high-end spending a tad: US Stocks Suffer Worst Week Since Financial Crisis
It’s like a gigantic shell game, isn’t it? Quantitative Easing causes basic prices for food and raw materials to go up, which forces companies to charge more for their products in order to retain a profit margin, which artificially (and temporarily) boosts GDP, news of which makes the stock markets rally, which increasingly pads investment portfolios, which leads to greater luxury spending, which can only be sustained through more Quantitative Easing, which will then cause basic prices for food and raw materials to climb even higher . . . and so on.
It’s a vicious cycle when you don’t have a portfolio in the game, with lower-end shoppers increasingly dependent on heavy retail discounting to make ends meet. Mass-market chains like Sears and Dillards have suffered worrying 23% drops in sales over the last five years, and a recent article in TIME reports that retailer Jos. A. Bank has resorted to “Buy one, get two free!” promotions, along with a wide selection of 70% off deals, just to keep customers coming through the door.
So all it takes is one good gust of reality to blow the whole thing down — Are we heading for Meltdown 2?: “There was a whiff of August 2007 in the air on Thursday as financial markets tumbled around the world. More than a whiff, in fact. The familiar stench of panic was back as shares fell heavily, bond yields in Spain and Italy rose and the search for a safe haven sent the price of gold to a new record level. Banks took an especially severe pummeling amid fears that they were exposed to the two big concerns of investors: a break-up in the eurozone and a double-dip recession in the global economy.”
*RELATED ‘Back in the Black’ NEWS:
Italian luxury leather brand, Bottega Veneta, reports a near 40% jump in profit from last year, with total revenues increasing by almost 30%: “Italy’s fastest growing luxury brand, Bottega Veneta — a non-quoted brand within Gucci Group — has just posted its latest financial results and they are pretty stellar . . . Bottega Veneta opened nine new stores in the first six months of 2011. The house closed the first half of 2011 with 157 directly operated stores, compared to 148 at the end of 2010.”
Bottega Veneta designer Tomas Maier knows how to please
Saks Fifth Avenue key revenue figure jumps in July: “For the second quarter, revenue in stores open at least a year rose 15.5%. Total revenue rose 12.8% to $583.3 million . . . Better-performing categories included women’s clothing and shoes and men’s clothing and accessories.”
Neiman Marcus July revenue figure rises: “Revenue for Neiman Marcus and Bergdorf Goodman stores open at least a year rose 7.7%, benefiting from strong sales of designer handbags, shoes and women’s contemporary sportswear. Other strong sellers included evening wear, beauty products and men’s goods as Neiman’s well-heeled shoppers continued to spend.”
Nordstrom Comps Delivers Yet Again: “Total retail sales in July 2011 climbed 11.5% to $993 million from $890 million for the four-week period ended July 31, 2010. The rise in July 2011 comparable store sales is primarily driven by the company’s ‘Anniversary Sale’, which recorded a 6.7% year-over-year increase. July is typically the second largest sales month for Nordstrom.”
High-End Retail Outscoring the Rest: “‘High end and online are the two best parts of retail,’ New York City based retail analyst Howard Davidowitz tells JCK. ‘The wealthy have gotten tremendously richer over the last two years. In the Trump Tower, they are buying $10 million apartments like it’s nothing.'”
*FLY IN THE OINTMENT: The credit rating for the United States was just downgraded on Friday evening from AAA to AA+ — the first time a downgrade has occurred for the U.S. Many pension funds and investment vehicles require a AAA rating to keep their money invested, so the potential for chaos on Wall Street come Monday morning is primed as big investment firms and funds — both domestic and international — could withdraw their money from U.S. Treasuries.
*MORE FLIES: Manufacturing indexes in the U.S., Europe and China declined in July, raising concern that the global recovery is losing momentum.
It should be interesting to see what effects (if any?) this kind of news will have on high-end and luxury spending in the next year.
2.) BEAUTY & FRAGRANCE UPDATES:
A.) Last week’s rumor that Korean cosmetics giant Pacific Amore was eyeing a purchase of high-end French fragrance brand Annick Goutal from Starwood Capital is now a fact: “Amore Pacific Corp. said that it has completed a deal to take over French luxury perfume brand Annick Goutal . . . It was the first overseas merger and acquisition case for the nation’s largest cosmetics maker with nearly 40 percent of the domestic market share.”
The Annick Goutal brand has been an increasingly neglected jewel in the Starwood crown, so Amore Pacific’s takeover spells nothing but good news for the brand’s future. A spokesman for Amore Pacific noted that the purchase of the highly regarded Annick Goutal gives Amore Pacific a foot in the door of European and American beauty markets while also providing an opportunity to expand their perfume business in China.
Below is a video review from Katie Puckrik’s YouTube channel for Annick Goutal’s Le Mimosa, one of the lighter, fresher fragrances from Goutal that Amore Pacific is hoping will ensure their success as they expand into new markets:
“The flower is sweet with a dirty mind”
Speaking of expanding into new territories, check out fragrance expert Puckrik’s newly unveiled FUMEFINDER app for mobile phones & devices (it will also work on your desktop/laptop), a concise means of accessing Katie’s encyclopedic knowledge and impeccable taste when it comes to choosing which fragrance to wear to the office, or to the movies, or to a restaurant, or if you feel like curling up in front of the TV with a jug of wine and a stack of Dr. Who DVD’s.
*NOTE 2: Guilty as charged.
FumeFinder will guide you through the sometimes confusing minefield of sexy, clean, subtle, fresh, foodie and more (not to mention those sticky gender distinctions), and if you purchase an item after clicking a link from her site, you’ll support her ever growing ambitions for world dominance. Or something.
Plus she’ll be able to feed Rodrigo the Perfume Dog a better class of chow, and who could say no to that?
B.) The Michael Jackson perfume is a go, but the late singer’s father has been escorted from the building: “There will be a Michael Jackson line of perfumes, but it won’t be coming from Michael’s father, Joseph. I can tell you exclusively that the Michael Jackson estate is in negotiations right now to market its own brands through a conventional big time cosmetics company. The perfume has been created, the bottles are being designed, and a name is being decided upon.”
Oh, I know! How about going the Truth in Advertising route and call it “Michael Jackson: Bad” . . .
The bigger question is, will it sell? There are doubts that the U.S. would prove to be a very good market for a Michael Jackson perfume, as the pop-star’s reputation took several serious hits near the end of his life. But international opinion remained steadily positive, and there’s more to the perfume market than U.S. consumers alone.
For example, see item #C below.
C.) Consumption of perfumes in the Middle East is among the highest in the world, according to a report from Fragrance Foundation Arabia: “The Middle East fragrance market has high potential for growth, and is set to touch $10 billion by 2015, backed by a young and largely fashion-conscious population with a growing trend towards consumer urbanization and higher spending propensity . . . The young also spend disproportionate amounts of income on beauty products and in regions where incomes rise; disposable incomes tend to ebb from purchasing necessities and flow into luxury products.”
And you were wondering why oud-prominent and Arabian influenced scents went from fringe fad to flooding the market? Now you know.
*RELATED: Fragrance manufacturers in the West show growing interest in Middle East perfumes — “Well known international brands have begun to recognise the untapped potential in the regional market, and are beginning to target Arab clientele. At the same time, the growing interest in traditional Arabian scents offers regional perfumers a huge opportunity to extend their reach beyond Middle Eastern shores to the more developed markets of the West.”
Dubai will host the first ever Fragrance Foundation Arabia summit in September of 2011.
D.) Cosmetics company Shiseido announced that while sales grew, it still booked a loss for the first half of the year due to the unforeseen March, 2011 earthquakes and flooding in Japan: “While domestic (Japanese) sales grew only 2.6%, sales outside Japan jumped 16%, helped by the Bare Escentuals purchase (in 2010): revenue in the Americas climbed over 40% in the quarter.”
The natural disasters caused severe disruptions to the company’s supply chain which the company worked quickly to overcome, and they’re continuing to push in new directions for growth, including a new e-commerce site in the U.S., followed by online retailing in China.
E.) Raise your hand if you want to smell like Lithuania: “Lietuvos Kvapas is Lithuania’s “national perfume” – or, strictly speaking, its national air freshener, since it is not, Rutkauskas admitted, designed to be dabbed behind ears or on wrists . . . The prime minister’s chief of staff ordered bottles to give to the heads of other Baltic states at a recent summit, and the foreign minister sent one to every foreign ambassador in Vilnius, the capital.”
You can find everything you ever wanted to know about the scent of Lithuania here: Lietuvos Kvapas
Other scented oddities: Let’s all smell Like BBQ!
3.) QUICK HITS:
A.) GAP changes its demographic focus with a new Fall ad campaign: “The campaign is part of San Francisco-based Gap’s shift to target young consumers after previously seeking to lure a wide audience with neutral workplace basics, classic denim and bright scarves. The clothes didn’t connect with consumers in recent years and the retailer has shaken up the Gap North America brand and replaced its president and head designer.”
Video clip below of a behind-the-scenes look into GAP’s makeover:
Because skinny jeans are so not last year?
GAP says that it’s new target audience is the millennial (or Generation Y) — “There are about 80 million of them, born between 1980 and 1995 . . . they are tech savvy, with every gadget imaginable almost becoming an extension of their bodies. They multitask, talk, walk, listen, type and text. And their priorities are simple: they come first.”
Some analysts think that GAP has an uphill battle in trying to change its more neutral, office-friendly image to something that the young stylish crowd wants to embrace. And I admit, I have a hard time wrapping my brain around the idea that, in order to appeal to consumers born after 1980, GAP is pushing a line of jeans called 1969.
But they’re also serving free tacos out of food trucks, so, yeah, watch out for skyrocketing profits!
B.) Sunglasses are selling like crazy: “Sales of sunglasses in duty free and travel retail industries powered through the US$1bn barrier mark last year with a growth of +28.5%, easily outperforming the luxury goods category as a whole, which grew by +16.5%.”
Sunglasses are another one of those accessories, like keychains and scarves, that designer brands have realized can attract aspirational consumers who can’t ordinarily afford what the brand is widely known for producing. Is that Bottega Veneta handbag too expensive? Get a pair of BV sunglasses, instead. Can’t afford a Cartier watch? Then Cartier sunglasses will do the trick.
When Pakistani ambassador Hina Rabbani Khar arrived in India for a series of meetings, her designer brand accessories, including Roberto Cavalli sunglasses, caused a commotion among the world press, seriously boosting the profile of the Roberto Cavalli brand among the region’s consumers.
For example: “The Indian media gushed (First they sent bombs, now they send bombshells), while Pakistan’s was less enamored (Does this expensively dressed minister represent a country which is under hefty debt?). But Khar — Hermes purse, Roberto Cavalli sunglasses and all — very much represents Pakistan. And especially Pakistani political culture.”
Speaking of India and designer brands, LVMH is investing significantly in India to create a country rich in designer brands and luxury consumers: “The investment in Genesis Luxury Fashion will help the private equity fund tap the country’s luxury and designer wear segment, pegged at about USD 250 million and growing at 30% a year. Industry insiders say that with rising consumerism in the country, the designer and luxury fashion wear segment is increasingly attracting investor interest in the country.”
C.) Former Chloe executive is appointed new chairman of global high-end knitwear brand St. John: “St. John, which does around $400 million in volume, has been ramping up its marketing and is back on track after some challenging years. In an interview in May, McMahon told WWD, ‘We’re a brand on the move. We really believe that our future success will be in our ability to capture the daughters of our current customer.'”
Toledano stepped down as chairman of Chloe last August after eleven years with the brand, which saw major growth and an increasingly high profile while he was in charge. St. John, an arguably more conservative and safe-playing style brand than Chloe, is hoping he can shake things up on their end and help woo a new clientele to their stores.
St. John will launch a new costume-jewelry collection this fall, and has a handbag line in the works for 2012.
Because what the world needs now is more costume-jewelry and handbags, apparently. You heard it here first!
D.) Slow Clothes and the bourgeoning DIY movement in Brooklyn: “Tamara Mose Brown, an assistant professor of sociology at Brooklyn College, who lives in Kensington, says Ms. Beaumont exemplifies the economic growth occurring in Brooklyn, driven by small businesses, restaurants and clothing shops. ‘Brooklynites are feeling that they want to have this identity away from Manhattan and the air of consumerism,” Professor Brown said. “There’s this element of self-preservation and economic sustainability.'”
The article focuses on Sarah Kate Beaumont, a DIY producer of clothing and hand sewn household goods, and the author touches upon themes of pride and sustainability that I’ve been exploring through the Artisan Series on this site. Well worth the read.
Speaking of which, I talked on the telephone yesterday with independent Berkeley perfumer Mandy Aftel of all-natural luxury fragrance brand Aftelier, and she echoed the sentiments found in the article above — that while most other niche perfumers outsource the production, bottling and distribution, she enjoys the process of creating everything herself and having direct contact with her customers, and wouldn’t dream of giving that up.
“Everything a customer receives of mine is something I’ve personally touched from start to finish,” she said, “And I take great pride in that fact.”
Loving the work you do and caring about the quality level of the product you produce is not a lost art, and people like Sarah Kate Beaumont and Mandy Aftel inspire the hope that the future of luxury and fashion can be more than a mass-produced, marketing-driven one.