Luxury & Fashion Biz News: Luxury braces for a tough future, Flash Sale Sites are a lot less flashy, and is Kate Middleton fashion’s last best hope?
1.) Luxury brands ride a wave of consumer spending, but Wall Street braces for inevitable job cuts and bonus reductions.
Yeah, sure, Jean Paul Gaultier is launching a limited-edition champagne in collaboration with winemaker Piper-Heidsieck, French luxury goods conglomerate LVMH is reporting “bumper sales of Louis Vuitton handbags and Krug champagne” and hot Brit-brand Burberry touted a “45% sales bump to £528m in its first half, as it sold more in existing stores, expanded to new ones and saw strong returns from China”, but the future isn’t all financial wine and economic roses despite the PR department hype.
A Reuters article reports that the greater New York area is responsible for nearly a third of the annual $65 billion luxury retail market in the U.S., so any downturn in Wall Street salaries and bonuses will have distinctly negative repercussions for the balance sheets of high-end luxury and fashion companies.
As Wall St readies cuts, fears grow in luxury market: “A number of major banks have announced job cuts in recent months, including Bank of America, JPMorgan Chase, UBS AG and Goldman Sachs . . . Some other major banks have reported weak earnings, prompting Wall Street compensation consultant Alan Johnson to predict that bonuses overall may fall by 30 to 50 percent from last year.”
Erwan Rambourg, head of consumer and retail research at HSBC predicts sales of luxury goods in the United States will decline 10% in 2012, and the Financial Times notes that “high proportions of Burberry’s London and European sales are driven by sales to wealthy tourists, rather than domestic customers” — which can be a problem in a global economic stall.
*NOTE 1: For example, London’s Harrods department store sees profits spike due to tourist spending: “International visitors helped to drive the record results, with Chinese visitors the top spending customers, parting with £3,500 on average per store visit.” Chinese tourists have even been called “walking ATM’s“.
James Rickards, the author of Currency Wars: The Making of the Next Global Crisis responded to the China As Perpetual Economic Growth Machine cheerleaders with this pithy statement:
Overly simplistic, maybe, but he still has a valid point. See: China’s ghost cities and why they matter.
Investment advisor Mike Shedlock also points to structural weakness in the real estate development boom in China, which has been ground-zero for China’s record breaking growth numbers: Property Developers Hurting in China; New Homes Sales Down 50% in Shanghai; Preposterous Prices Won’t Last; Commodities to be Hit in Building Slump
Which is good information to have on hand when confronted by headlines such as this one from Market Watch: Worldwide Luxury Goods Market Poised to Surge 10 Percent in 2011 as Growth in China and Mature Markets Increases
*NOTE 2: See also: Lies, damned lies and statistics.
Maybe this is why Petah Marian writes for Just-Style (subscription required) that the psychological uncertainty of the future has had an impact on the way retailers view future prospects: “People are going to be opening smaller stores going forward, and finding ways to reduce space in existing stores. One of the people we were speaking to, a very well-known retailer, says digital is now up to over 20% of sales.”
Zachary Rodgers underscores the importance of going digital for retail in his article How Luxury Retailer Saks Courts the 1 Percent: “The web has … allowed Saks to make more aggressive use of drop shipping, a supply chain practice that lets a retailer ship to consumers directly from a vendor so it doesn’t need to keep the goods in stock. By expanding its catalog, Saks can generate higher sales and better compete with large online luxury retailers like Gilt Groupe . . . ‘You can have a limited number of categories in-store,’ CEO Stephen Sadove said. ‘Through drop-ship you can get into businesses you couldn’t get into otherwise.'”
*Off-topic, yet still relevant: Dior is reporting a 17.6% increase in sales for the third quarter despite having booted its head designer out the door, which may help explain why they’re presently in no great rush to name a successor. If it aint broke, don’t fix it, right?
2.) Flash Sale Sites Are a Lot Less Flashy These Days:
“These businesses burst onto the fashion scene during the recession to try to move a mountain of unsold clothes. Now there is less luxury inventory and flash sales sites are bigger . . . As companies grow, they can usually reduce costs by buying more in bulk. But as flash sales sites expand, they must get products from a shrinking supply, which raises costs. Gilt discounts used to be 70% (for top luxury brands), but 40% to 50% (for lower tier brands) is more common now.”
Former Neiman Marcus exec Steven Dennis is quoted in the article as stating that flash sale sites really came into their own due entirely to the glut of luxury goods on the market during the earlier years of the great global recession, but once luxury groups cut back permanently on production, the flash sale companies were left scrambling for supply, turning increasingly to brands that consumers have never heard of, not to mention creating their own branded merchandise that they sell at full price.
And what’s the point of that? If I’m going to buy full-price branded merchandise, why would I go to Gilt Groupe or Rue La La, known primarily for discounted and off-season merchandise? It’d be like lining up for hours to get into a Barney’s sample sale only to encounter racks full of merchandise without a slashed price in sight.
Waiting in line for a chance to snag some discounts
But you know, instead of scouring discount sites for luxury brand items (which is feeling more and more like Captain Ahab chasing his white whale), consumers are realizing that if they want to dress to impress, they can just rent the darn stuff instead of splashing out cash to buy something they won’t use or wear that much anyway:
Always Wanted a Vintage Chanel Bag? Now You Can Rent One For Under $300 on Rent the Runway — “Rent the Runway has an exciting new addition to their already amazing inventory of current season designer goods (and makeup). In addition to the latest from Proenza, Calvin Klein, Richard Chai and more, members will now be able to rent designer vintage.”
And the rent a designer name trend is doing brisk business in India, where wedding celebrations can last for days and busy working women would rather rent dresses and accessories than empty their wallets on fine garments that can’t be adapted to work or everyday wear:
In India, renting off the runway: “My shop does well during this season filled with events, marriages and card parties, right up New Year’s eve,’ says Neeraj Wadhera. The 48-year-old started her Rent a Party Dress venture two years back . . . ‘It makes economic sense,’ says Vinita Bhatia, 22, one of her loyal customers. Wadhera adds, ‘Working women have time constraints and find it simpler to hire dresses.'”
NYTimes fashion critic Cathy Horyn mentions a “readjustment” of consumer’s style expectations, praising useful and wearable examples of craft over the “fetishistic pile of stuff that no intelligent person would consider wanting for a second.”
Rick Owens Spring 2012 – a collection that’s Cathy Horyn approved
Or maybe the over-embellished, fetishistic fluff is what consumers now rent rather than buy?
*Other retail news: Fast-fashion retailer H&M announced a 7% drop in sales in September; the GAP is set to shutter 189 stores in North America in response to flagging demand (though they’re going ahead with expansion plans in China); Juicy Couture opens a big, glitzy flagship store in Beijing (I know! Juicy Couture? Why would anyone in China even care?); the iPhone is now the official communications tool for the fashion industry; and Anna Wintour is reportedly desperate to get Kate Middleton on the cover of Vogue, but the Queen allegedly disapproves.
The Middleton influence is felt across all fashion sectors, from jewelry to clothing to shoes, and even into hair style and makeup, and Wintour is understandably eager to harness that famous name and face to inject some life into the ailing Vogue empire.
Even the perfume Kate Middleton wore for her wedding has become a cash cow for British brand Illuminum, a brand art-directed by hairdresser Michael Boadi — the same man responsible for the execrable Boadicea the Victorious perfume line.
*NOTE 3: If I recall, Mr. Boadi flogged his Boadicea brand on the back of Michelle Obama’s rising popularity back in 2009, so he’s no stranger to dropping high-profile names.
Despite being dismissed as bland and boring by established designers like Vivienne Westwood, the Middleton effect (where Kate is seen wearing a particular item and demand immediately spikes in response) remains one of the most powerful influences today in celebrity/fashion synergy.
“If you made it and she wears it — BAM! It’s sold out”
*But don’t count out the pig!: The Muppet Effect is getting some definite play, too. Heading into the upcoming release of the new Muppet movie, fashion and beauty brands are hoping they can exploit the sassy, independent spirit of Miss Piggy for some love at the cash register: Piggy in a Couture Blanket: Miss Piggy as fashion icon
3.) BEAUTY AND FRAGRANCE NEWS:
A.) The L’Oreal Family is in the news again, with 88 year old L’Oreal heiress Liliane Bettencourt — who was a major shareholder of the L’Oreal company and a member of the board of directors — declared mentally unfit to manage her estate and placed in the guardianship of her grandson. Liliane, considered France’s richest woman, was diagnosed with moderate Alzheimer’s.
Bettencourt’s $21.5 billion estate will be administered by her daughter and grandson, who have stressed that this in no way impacts the daily operations of the L’Oreal company.
B.) 19 year old music and movie star Selena Gomez has decided she wants her celebrity perfume to appeal to . . . everybody!
What’s that saying? Oh, right — by trying to please everyone, you end up pleasing no one.
*Other astonishing celebrity perfume news: the Kardashian perfume empire is now estimated to be worth $50 million.
Yet I don’t know a single person who’s purchased a bottle (*offers a little prayer of thanks over that last point*).
*Speaking of gobs of money and sales of perfume: Marie-Helene Wagner at The Scented Salamander writes that, for the 21st century perfume market, oudh is the new patchouli in both its culture-spanning popularity and retail staying power.
*More gobs and sales: Paris department store Printemps revamps their first floor to feature exclusive perfume brands and lots of beauty advisors: “We’re giving prestige, allure and emotion back to fragrances,” Chief Executive Paolo de Cesare said as he walked through the new department earlier Tuesday. “One hundred and fifty years ago, perfume used to be a luxury item. But it’s become a self-service product, like buying cigarettes or yogurt.”
Perfume and beauty sales are already up 20% for Printemps since the spring, so maybe there’s something to this whole emotion and allure thing, after all. And here everybody was thinking that consumers were just . . . you know, walking ATM’s.
*Very cool news: Wired Magazine features an in-depth article about the development of synthetic perfumery materials for the modern fragrance industry: Engineering Replacements for Essential Perfume Ingredients — and the author doesn’t shy away from thorny issues like the increasing power of the IFRA (for example, perfumer Calice Becker “formulates her palette under the watchful eyes of roughly 75 safety experts”), the high-tech nature of contemporary perfumery (robots mix the formulae, not humans) and the swapping out of natural ingredients for synthetic substitutes in already established products.
C.) Upmarket skincare brands are getting squeezed by the recession: “Shoppers are trading down from up-market skincare products to mainstream brands as cost-of-living pressures continue to mount . . . Johan Berg, managing director of L’Oreal Australia and New Zealand, said while sales during the past year were “quite flattish” overall, this concealed a decline in sales from department and specialty stores and a 5 per cent lift in sales from supermarkets.”
A Wall Street Journal article about the Unilever company purchasing Russian cosmetics company Concern Kalina states that “personal-care products often carry higher margins than other consumer-goods items, such as laundry detergents, ice creams or mayonnaises”, so it’s no wonder that skincare and cosmetics companies are investing in getting consumers to purchase their cosmetics items at the grocery store.
Consumers will be attracted by lower prices than those charged at upmarket department stores, yet the money to be made is even better than on products ordinarily associated with supermarket shopping.
Or you can just buy JWoww’s newly launched skincare line and be done with it.
It’s like extra Velveeta on your cheesy fries