By  on December 30, 2009

Fashion’s battle to attract dollars from thrifty consumers highlights a larger, almost existential struggle for the future of the apparel industry — which is already losing its iron grip on consumers’ discretionary dollars.

Despite the collective sigh of relief that the holiday season wasn’t as bad as last year, recent sales trends are still a sobering reminder for retailers. The hottest items this holiday weren’t apparel related but instead were iPhones and other smart phones, BluRay DVD players — even toy hamsters.

Day-to-day, the apparel industry also has a growing number of challengers, from apps to bars and restaurants to automakers hawking hybrids. The industry gets mixed grades for product innovation, marketing and other key business functions — and unless it acts fast, the downward spiral might accelerate.

The good news is observers believe the industry still has a chance to get out of its rut and begin anew.

“Fashion is being outfashioned by other industries,” said Marshal Cohen, chief industry analyst at The NPD Group. “The smart phones have now become probably not only the most passionate purchase, but also an expensive [and] frequent repurchase.”

While 43 percent of Black Friday shoppers polled by The NPD Group online said they had purchased apparel, 49 percent bought electronics, the leading classification. That trend held throughout the holiday season.

And apparel is expected to lose more ground next year. A survey of consumer spending from Kurt Salmon Associates found that 10 categories, from home goods and shoes to electronics and furniture, were headed into 2010 with more momentum than apparel.

To keep the attention of consumers and produce lasting success, fashion companies have to solve a relatively unique set of problems.

Apparel retailers have long lead times and have to basically guess what consumer tastes and even the weather will be like in six or nine months. And the inventory they buy is perishable, something like food in the grocery store, and it rarely makes economic sense to warehouse unwanted looks in the hope they’ll come back into style. The industry has to reinvent itself every few months, moving forward continually, or risk becoming dated.

But that reinvention has slowed on all fronts with the recession bearing down.

“Stores in the fashion world right now, they are dusty,” said Martin Lindstrom, marketing expert, branding strategist and author of “Buy-ology: Truth and Lies About What We Buy” (Doubleday). Although retailers introduced a number of concepts earlier this decade, innovation has largely sputtered, he said. And some of those concepts, such as Abercrombie & Fitch Co.’s Ruehl, have failed.

“They’ve reached a point where they’ve really been falling asleep and suddenly nothing new is happening,” Lindstrom said of fashion retailers. “It’s like going into a museum.”

By contrast, he said shoppers going online, on their computers or increasingly on their handhelds, are “constantly bombarded with new and interesting stuff.”

The wonders of the plugged-in world, from Twitter and Facebook to Flickr and beyond, are now available on the go and for a price.

“The functionality of the latest electronics marks a serious consumer challenge to the apparel industry,” said Warren Berger, author of “Glimmer: How Design Can Transform Your Life, and Maybe Even the World” (The Penguin Press). “There’s a sense out there that you have to have [the latest gadget] to be part of the current debate or the current lifestyle,” he said. “That’s a very compelling sales pitch. In the fashion design realm, you really don’t have that kind of compelling case you can make.”

Brand executives often brag that their line is like nothing else on the market, but that claim is often scripted hyperbole or too narrowly true to have any real relevance to consumers looking to stretch their extra dollars.

“There are very few needs when it comes to fashion,” said Robert F. Buchanan, a finance professor at Saint Louis University who was an equity analyst for 24 years.

Buchanan pointed to designer denim as the most recent new and compelling apparel offering to catch fire. Fashion companies are being too conservative and too safe and need to let their designers be creative to flourish and come up with the next big thing, he argued.

“I’d give them a D-minus for failing to look past the tip of their nose,” Buchanan said. “Right now, [fashion companies are] too focused on maximizing sales and profit, too uptight. Just let the designer relax and try new stuff out and at some point she or he will come up with something. Quit breathing down their necks because sales are slowing down.”

Publicly held fashion companies are often criticized for chasing short-term gains to turn in the sales increases Wall Street wants each month, or at least each quarter, at the expense of their longer-term success.

Miscalculations are common, forcing fashion companies to try to raise their prices or cut their costs to compensate.

“You have to have high [profit] margins to deal with the ebb and flow and the greater product risk than you have in consumables,” said Chris Donnelly, a partner in Accenture’s retail practice.

“You’re not just fighting the store you’re across the way from in the mall,” Donnelly said. “That’s one battle you need to fight, but you also need to fight this larger battle. It’s an arms race of sophisticated marketing.”

Donnelly described fashion’s reliance on the whims of style as “a blessing and a curse.” Hitting a trend right can lead to a large uptick in full-price sales, but missing the mark is often financially painful. Competitors from other industries are also always there, with a more consistent offering of other types of products to win the shopper’s dollar.

Marketing is the battle that fashion companies — an image-conscious group if ever there was one — are rather well prepared to fight.

“You have to be better at marketing than the average bear if you’re going to be successful,” said Mike Moriarty, partner and head of the retail practice at management consultant A.T. Kearney.

But the industry uses marketing to a different end than, say, consumer products firms.

“The difference in [fashion’s] marketing is that it is not so much reminding the consumer of how good the product is, but actually getting the consumer to get out of their chair and buy something,” Moriarty said. “As a result, successful fashion companies are going to be far more innovative and forward looking.”

Pairing up the right message with the right product is the tricky part.

“The consumer has been so hard to envision in the last year or two that it’s been very difficult for fashion companies to strike that success,” Moriarty said.

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