By  on January 8, 2007

NEW YORK — Although the business of fashion and retailing is getting tougher and tougher, there is plenty of room to expand and grow a brand, according to a panel of industry experts who shared their outlook for 2007.

Offering consumers higher-quality goods that satisfy their desire for getting the best value on their purchases — whether it's a luxury item or a T-shirt from Target — is becoming increasingly critical to the success of a brand, the panelists said. Other dynamics that will impact business this year include ongoing M&A activity, a changing macroeconomic landscape and brand differentiation in an overbranded market. On the real estate front, "high-low" adjacencies will take center stage in key and secondary markets. Inside the store, improved service could make or break a brand.

Participants on the panel, hosted by Berns Communications Group, a business communications firm specializing in retail and fashion, were Dana Telsey, chief research officer at Telsey Advisory Group; Gilbert Harrison, chairman of Financo Inc.; Laura Pomerantz, principal of PBS Realty Advisors; David Wolfe, creative director of The Doneger Group; Etu Evans, founder of luxury footwear design firm Etu; Matt Vander Wyden, chief executive officer of Vista Global Brands and Born Sportswear, an emerging men's wear brand, and Laura Payne, designer of Penta. The panel was moderated by William Susman, chief operating officer of Financo, here at WWD's editorial offices.

DEAL-MAKING MANIA

As retailers saw tremendous private equity transactions last year, there could be even more deals this year. "I think the mood is there," Harrison said. "The consolidation has to continue because the smaller businesses, especially if you are selling to the department stores, can't get on the radar, and can't get on the matrix."

Large deals, however, can come at a cost. "The problem with the larger deals is that there are fewer target companies while some of the higher-priced companies are being bought at marginal returns," Harrison explained.

With more than $200 billion to invest, private equity funds are very active and extremely interested in new deals, Harrison said. "There is no question that private equity is getting deeper in the market. To some extent they are beating out or have beaten out the strategic buyers because they will pay more money for deals even though they don't have the synergies," Harrison said. "The strategics are waking up and they are realizing that they have to grow, and have to continue to grow. So I think we will see a lot more activity from them, as well."PRICE BECOMES AN ISSUE

This summer's surge in gas prices and expectations of rising interest rates left analysts fearing the worst for consumer spending. And this worry may not ease anytime soon, the panelists predicted, as even the wealthiest shopper becomes more price-sensitive.

"I definitely see that price is an issue," Payne said. "If [the consumer] doesn't see what she's going for, it doesn't matter how much it is. It could be the most beautiful jacket, but she's not going to buy it."

Consumers are increasingly searching for the highest-quality product at the most competitive price, the panelists said. And spending for the average consumer is generally tied to oil prices, the prices of consumer goods and the performance of the housing market, said Harrison. In the luxury sector, spending is driven by the performance of the stock market and economy as a whole. For wealthy consumers, there may be a greater desire to spend, especially on bigger-ticket items, but even luxury shoppers are beginning to tighten their purse strings.

Harrison said at a recent art auction, the "A" painting garnered some of the highest price tags ever while a lot of "B" and "C" artwork just didn't sell. "I think it's the same thing with some of the consumer goods," Harrison said. "People will stretch their spending on the best goods, but the mediocre stuff they just won't go for."

HIGH-LOW SHIFTS

While many shoppers are expected to continue hunting for value in apparel, they are more likely to splurge on accessories that can update last season's outfit. "I think when it comes to handbags and shoes, and other similar items, people tend to stretch for a price and they spare no expense," said Pomerantz.

And although accessories may make up for some lost sales in apparel, the category is still underserved in the market, the panelists said, adding that the segment could provide a big window of opportunity if retailers take advantage of it.

"I think accessories is something a lot of people look at last, and is something they should be looking at first," said Vander Wyden. "Consumers may go into a retail store looking to spend $120 on a shirt or jacket or sweater, but they can also spend $25 on a knit hat, or $40 on a scarf, or $50 on a belt, and walk away feeling really good about their purchase."Accessories enable the consumer to personalize their style, which is becoming a more important trend as shoppers look to customize their wardrobes.

"I think consumers are more educated and are more knowledgeable about fashion. They are able to mix and match," said Telsey. "I think they are more aware of brands. And where they buy their apparel and accessories is also important. But the idea of lifestyle dressing is the consumer's personality, not the brand's personality."

Shoppers are no longer walking into a department store and buying the outfit right off the mannequin. By mixing and matching brands and designers, they can create their own looks while balancing the value-price equation.

"The typical consumer is no longer head-to-toe in one brand," Payne said. "Now the woman who could be wearing a Gucci jacket could also be wearing an Abercrombie & Fitch T-shirt underneath it."

The success of fast-fashion retailers, such as H&M, Forever 21 and Payless, has made it even easier for shoppers to find trend-right items at moderate prices. "People are dressing in what's called 'high-low.' They will wear a pair of $250 jeans and a Born Cashmere jacket with a pair of Converse sneakers," said Vander Wyden.

REAL ESTATE HIGH-LOWS

The "high-low" trend also is affecting how retailers chose where they will open new shops, the panelists said. "We are going into certain centers and we are no longer just seeing all the luxury people together next to each other," Pomerantz said. "And it's the same on the street. In New York, just look around 57th Street. Here you have an Abercrombie & Fitch on 56th [Street] and Fifth [Avenue], and then Hugo Boss and Gucci and Prada nearby."

Meanwhile, as more of the luxury players move next door to specialty stores, and more companies plan expansions, a squeeze for real estate will become even more competitive this year. "When Hermès starts to go downtown and also eyes markets such as North Carolina, you know you have people looking at secondary markets in the luxury business," Pomerantz said.

European and Japanese retailers who are looking to roll out their businesses in the U.S. are also putting pressure on the "A" malls and some of the key urban markets, while developers are finding ways to leverage the trend."The [lease] prices are absolutely staggering. Outlet center Woodbury Commons asks $130 to $140 a square foot. How are you making money paying $130 a square foot?" Pomerantz said. "But you have to be there."

HOT BRANDS

While more consumers may be mixing and matching styles, there are some brands that continue to have a loyal customer base and will remain top destinations this year.

Telsey said among the specialty brands, Coach and J. Crew still will have people buzzing as the two companies keep evolving and reinventing themselves. Victoria's Secret's Pink line and new beauty division also will keep shoppers attracted to the lingerie store.

At the lower end, Payless is able to provide trend-right products at exceptionally low prices, which will make it a prime destination this year, Harrison said.

Brands such as Tory Burch and Ted Baker are also on the "what to watch" list. But one of the biggest surprises of 2007 may be a resurrection of Gap.

"I have the sneaking feeling that the Gap is going to sneak back to life when we aren't paying attention," said Wolfe. "They suddenly found that the Boomers, who have been so disillusioned and so disconnected to the department store, are coming into the stores to buy age-appropriate, price-appropriate clothes that actually fit."

For Evans, a passion for his work sets his brand and products apart from the competition. "You do what you love to do, and your customer buys that," Evans said. "But you have to be constantly innovating and gradually introducing them to something new."

When it comes to design, Evans said texture is important, "but for me, I am very interested in setting direction as a designer. So with a lot of the things I do, it may be a hand-carved heel that's put into production for a limited run or some hand-stitching. When I actually do the trade shows in Italy, we are two years ahead. So it has opened up a whole new world for my consumer and allows me to grow in my niche."

LESS IS MORE"We are moving away from the past decade of trashy, flashy personal style, because I hate to say this out loud, but I think fashion is slipping down everyone's priority list so rapidly that it's frightening," said Wolfe.

A shift away from the "bells, whistles, embellishment and detail" to a simpler, classic style, will mean reeducating the consumer on how to shop for quality instead of novelty design, Wolfe said. The trend also will give iconic brands a chance to reemerge in the fashion scene.

"Everyone knows what a Converse tennis shoe looks like….The iconic brands are classic and you don't have to think about them, and I think that's going to be the upcoming trend," Wolfe said.

As women turn away from the "barely there look" of today's celebrities and move toward classic fashion icons, a hot category this year will be dresses.

"I think people are into dresses. They are going to more events, whether it's the opera or a show," said Evans. "Dressing up is even happening with men. I was just at the movies and guys are wearing nice blazers and torn jeans and great-looking loafers."

MAY I TAKE YOUR ORDER?

Still, with simple fashion and a return to basics, retailers must provide consumers a reason to shop. "The role of the sales associates and managers is more important now than ever before," Telsey said.

While most shoppers expect service from a Nordstrom or Bergdorf Goodman, specialty and mass merchant customers also are expecting some TLC.

"I think the level of expectation is seeping down through society, and I think some people are delivering it," Wolfe said. "Like Abercrombie: Everyone says you can't train these drones who make minimum wage. When you go in there, every one of those cute kids says, 'Have you felt how soft our fleece is?' And then when they get it in your hand and you take it to the cash register, every single cash register person asks if you tried the fragrance. So I think that service is trickling down and even those at the bottom level can start delivering service with cheap goods," Wolfe said.This customer-centric service has made specialty retailers like American Eagle successful, and has experts saying that it is time for the reemergence of the specialty store.

"Consumers will go to what was Main Street USA for years and years ... and now I think they are finding themselves back in the specialty stores where they can get service and have a personal relationship with the shop owner or salesperson who will call them and say, 'I have something in that I think you need to look at,'" Vander Wyden said.

The specialty stores have become the true merchants that provide personalized e-mails with store and merchandise updates, as well as photos of new products and special promotions for loyal shoppers. While it may be more difficult to get salespeople at large department stores in line, service must begin with the designers and manufacturers, the panelists said. Face-to-face interaction with sales associates and customers while investing in people and technology is key to the success of any brand.

"I found that going in and educating the salespeople about what your products are about, who you're fitting, is huge. It really empowers the salespeople. They met you, they know what your line is about, and I found that every time I've done it our sales increase," Payne said.

While service has evolved, personal contact remains critical. "You can't design in a glass house. You have to really be out there, talking to them, seeing what their needs are, because it evolves every season," Payne said.

"For me, the way we stay ahead is we offer caviar, foot massages, things that people generally wouldn't do," Evans said. "And once someone is massaging your feet, they are going to give you whatever you ask for. I know that works. And then by having that interaction, I kind of know how to gauge whether I do more orange or more yellow."

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