Design Houses Wary as Milan Shows Begin

As the spring collections begin their European leg, uncertainty hangs over fashion houses and retailers.

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As the spring collections begin their European leg, uncertainty hangs over fashion houses and retailers like a menacing black cloud, with everyone apprehensive the downpour is about to begin.

This story first appeared in the September 22, 2008 issue of WWD.  Subscribe Today.

With the failure of some of Wall Street’s most storied firms and plummeting stock markets around the world, bad financial news has accumulated with stunning speed and promises to complicate operations in what has already proved a difficult market for many.

Indeed, while some smaller brands like Mila Schön are braving the weather with a return to the runway in Milan this week, other fashion week regulars are running for cover, with labels like Romeo Gigli and Giuliana Teso opting for more modest presentations, or like Trussardi and Belstaff, not showing at all.

Compounding the situation, stores in the U.S. have had to deal with the weak value of the dollar against the euro — although that situation has eased a bit recently — which has sent prices of European goods spiking. In the uncertain economic environment, it’s understandable that consumers are thinking twice before buying a $10,000 dress.

In response, European executives have concentrated on sharper pricing and more savvy collection segmenting. Others are ramping up creativity to find ways to offer consumers more special products. One thing is certain: no one thinks spring is going to be a walk in the park.

“In general, it is not one of the most comforting global scenarios,” said Cristiana Ruella, group managing director of Dolce & Gabbana. “All the mature markets are in difficulty.”

“We are expecting a tough season,” added John Hooks, deputy managing director of Giorgio Armani.

“We need to be realistic,” said Ralph Toledano, president of Chloé. “The economic situation is tough.”

Toledano said he has responded to retailers’ concerns over the ballooning prices of European collections in practical terms by “better segmenting the offer” and “developing a range of prices that correspond to demand.”

“We need four or five price zones,” he explained. “Each part of the collection has to offer a certain price range. We’ve felt pressure from retailers in Japan and the U.S. on price. It’s been clear and we’re responding.”

Toledano said pricing concerns have been most acute with the house’s See by Chloé secondary line. “We’ve never seen such concern about prices in the U.S. and Japan,” he said.

“In other countries we haven’t seen the same worry. But we can’t play with quality. And we know that when a piece is really special, people forget about the price. Retailers forget about the price of a special piece as soon as it sells.”

Staying the course is the message many fashion houses want to convey. Luxury, they say, is about continuity and delivering consistent products and image.

“We have to rely on long-term planning,” said Hooks at Armani. “I think it will take some time for these [financial] fluctuations to work through the system. We all plan too far ahead to be influenced by such recent trends, which may not last.”

Hooks said Armani would continue to aggressively open stores, including the largest Giorgio Armani store in the world in Milan, a new Armani concept store in New York on Fifth Avenue in February and a flagship in Tokyo. “We will continue to open around 50 new stores each year,” he said.

“These are all major investments in challenged markets,” Hooks continued. “We think that this is the right time to make them as it is only now that you know that whatever results you achieve come from our own efforts and creativity and not just from the general trend of the market.”

Ruella at Dolce & Gabbana said the company would defend its luxury positioning in the difficult market. “The attempt to give in to requests by American buyers to reduce prices would not fit with the commitment we have to our consumers to offer through our products a result that is always the best in terms of creativity image, quality and service,” she said. “Production takes place in Italy and this brings with it elevated costs.”

“I’m confident and calm,” said Versace chief executive officer Giancarlo Di Risio, who said that being in the upper echelon of the price scale has shielded Versace from turmoil so far.

“Perhaps [our high prices] shelter us from whatever possible slump that hits the market, which may affect midrange consumer goods more,” said Di Risio. “This doesn’t mean to say that we are not aware that the market will slump,” he said. “But our product focuses specifically on the top end of the luxury market.

“Economic crises always bring about a polarization of consumption towards the low or upper end. By working on the highest end of the market we should be less affected by market volatility,” Di Risio said.

So far that logic has applied to many of Europe’s leading luxury groups — from LVMH Moët Hennessy Louis Vuitton to Compagnie Financiére Richemont — which have seen fast-emerging economies compensate for slowdowns in the U.S. and Europe.

Whether the pileup of new bad financial news reverses remains to be seen. And the extent consumers will put the brakes on spending in the U.S. and Europe in the face of financial crisis is another sword of Damocles threatening to wound retail.

There is some modest good news: the declining value of the dollar against the euro, which retreated from a high of $1.60 to a euro over the summer to around $1.40 to a euro now.

“The dollar gaining value is very welcome,” said Toledano of Chloé. “It helps alleviate a lot of the pressure we’ve been feeling on prices.”

Not everyone is fretting prices are too expensive, though. In fact, some houses are even going more luxurious with the belief that the top luxury client — not the occasional aspirational shopper — will shelter them from difficulty.

Andrew Gn, the Paris designer known for his elaborate, couture quality dresses and coats, for instance, is introducing a made-to-measure line destined for his richest clients.

Paul Deneve, president of Lanvin, said the Paris house is also interested in “addressing luxury and a very high level clientele. What’s important is to give value for money. High prices are not an issue for us.”

Other houses hope they will be able to sidestep the financial storm by offering novelty.

Mounir Moufarrige, chief executive of Emanuel Ungaro, said the house is betting on designer Esteban Cortazar, who will show his sophomore collection for Ungaro, to create a fresh alternative for buyers.

“In this environment of financial turmoil a small house like ours has a chance,” said Moufarrige. “If you’re a buyer, you need a strong new offer.”

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