China Storm, U.S. Economy Cloud Outlook

As retailers and vendors fill the showrooms of Seventh Avenue and the tents at Bryant Park with eyes on finding the best fall fashions, they'll also be...

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As retailers and vendors fill the showrooms of Seventh Avenue and the tents at Bryant Park with eyes on finding the best fall fashions, they’ll also be stressing out over the sour economy and a major snowstorm that has left parts of China crippled, threatening to hold up spring shipments.

This story first appeared in the February 4, 2008 issue of WWD.  Subscribe Today.

Innerwear executives preparing for the major fall market said the slowdown in the economy could force retailers to order fewer goods and hold off on fall orders until the economy gets a spike from the federal tax rebate program that is anticipated to take effect in June. For a majority of companies that manufacture in China, even if their factories have not been affected by the snowstorm, they’re dealing with getting samples shipped before the Chinese New Year on Thursday in the midst of the biggest storms China has seen in more than half a century.

Transportation networks throughout the Asian country have been laid low by three weeks of snowstorms that have racked up billions of dollars in damages and stranded millions of migrant workers traveling home for the Chinese New Year. While many of the apparel manufacturing centers are located in southern China, along the East Coast, where the storms were somewhat less severe, commercial and passenger transportation lines were paralyzed by the winter storms blowing across the north.

The storms have killed 60 people, according to reports; closed roads; disrupted the rail system, and deepened a coal shortage that has forced power plants to shut down and factories to cut production. Large cities have experienced widespread blackouts due to the coal shortage. Three-quarters of China’s electricity supply is fueled by coal. In one extreme case, parts of Chenzhou, a city of 1.2 million people in the central Hunan province, were without power for eight days, according to reports.

August Silk, owned by Hong Kong-based High Fashion International Ltd., has 35,000 employees in China.

“Our shipments haven’t been affected yet — our bigger concern is on the personal level,” Ellen Dawson, corporate executive vice president and chief merchandising officer for August Silk, said. “Right now, everyone is trying to get sales productions out before the Chinese New Year, which is a bigger issue, because companies close for two weeks. It’s really more about Chinese New Year than the snowstorms, but when you couple the two together, that’s where the problem is.”

August Silk’s sample room in China closes today, and its factories, on Tuesday. As long as factories didn’t lose electricity over the weekend, Dawson predicts August Silk’s shipments will be in the clear.

WD-NY, a trend-chasing better business based in China, has had its boats delayed for a week, flights canceled for days and rails closed because of no power. WD-NY’s offices closed early last week for three weeks for the Chinese New Year, and the effects of the storm might have been worse if the company had not prepared for the New Year.

“You always get caught in the middle of Chinese New Year,” said Warren Donner, president of WD-NY. “We brought goods in early to prepare.”

Wes Card, chief executive officer of Jones Apparel Group, said there had been no delays “of consequence” and all of the company’s first-quarter deliveries are on schedule.

“We plan around the Chinese New Year anyway, so we are always conservative in planning out the first quarter, so we are set,” Card said.

China has a major share of the innerwear import market and, as these firms get set for this week’s market, getting their goods shipped in a timely manner was on their minds.

Marcia Leeds, ceo of Richard Leeds International, said, “The snowstorm in China is a bad problem, but it has not affected our market week samples because we had them here well over a week ago. The big problem now is that our factory, which is one hour outside of Shanghai, has a lot of snow. Roads are closed, the four-lane highway to Shanghai is closed and there are many power outages. Our factory has a generator, so they are still able to sew, but production is quite slow now. FedEx is closed so no packages are going out or in. Since the factory was starting to slow down in preparation for the Chinese New Year, they are not greatly affected, but many of the workers that live in the province are not able to get home for the holiday.”

As for the business of selling lingerie in a tough economy, Leeds said: “We have no slowdown of buyers coming in for market week, but we do anticipate that they will be more cautious and will wait to see what the outcome of the economy will be. For sure, they will be placing opening orders and then come back when they have a better sense of the marketplace and selling.”

Seth Morris, president of the Carole Hochman Design Group, said, “The winter storm in China is not dramatic at this point, but it’s creating issues at some point with samples coming into market. It is holding up deliveries up to one to two weeks, depending on the part of China we are in.”

Josie Natori, ceo of the Natori Co., noted that deliveries of samples from China are an issue at a number of companies.

“We’ve definitely heard that, for some vendors, the storm in China has had an impact,” Natori said. “But it’s not affected us. The impact really is on market samples. But they were going to close down anyway for the Chinese New Year. I’m hearing that trucks can’t get anywhere and can’t pick up samples from factories.”

Victor Lee, president of NAP Inc., said, “We are working right now to make sure our last group of samples are coming in. Yes, [the storm] definitely caused a wrinkle, but overall, it depends on the location of the factories in China.”

Donna Nadeau, president of the luxury division of Komar Co., said she was not concerned about the China factor.

“We may have a few samples caught up in customs, but we have a design studio with design hands in New York. They’re working over the weekend and we’re in pretty good shape,” said Nadeau.

Gale Epstein, president and creative director at Hanky Panky, observed, “All of our production is done in the [New York] metro area. We’ve always been so proud to produce here, and now, with the quota issues and weather pattern problems in China, we’re thrilled. I’m excited about fall because we have lots of new product and packaging ideas for Christmas.” New products include variations of panties such as decorative thongs with ruffles and bows and new styles of bikinis and high-rise and low-rise undies, she said.

Steve Chernoff, chairman of Rago Inc., said he has his reservations regarding production in China as well as retail turnout at this week’s market.

“I think this economic downturn is going to continue until the second quarter. Budgets are reduced and there is a fear of buying, most certainly a lack of aggressive buying. But with us, retailers will have the product when they want it because we produce 100 percent in the U.S.,” said Chernoff.

While the China factor is of concern, weighing most heavily on the minds of vendors is the economic slowdown and the impact of retailing.

“We absolutely expect to see all of the usual players in the market,” said Morris of Carole Hochman. “Hopefully, people will come in with a fresh attitude and turn a new page. Certainly business has been challenging. I think everybody, retailers and suppliers, will be cautious with the perfect storm of economic conditions going on right now. People have to be cautious, but not optimistically cautious, and I expect people will be playing it much closer to the vest.”

Natori said, “Christmas for us was better than expected. But clearly, there’s a softness in consumer spending and I think we’ll be working much harder to ensure we give [retailers] a reason to buy.”

Among Natori’s checklist for fall are expanded offerings of “lifestyle” lounge looks in the Josie and Cruz lines, sophisticated dual-purpose items in luxe fabrics in the Natori and Josie Natori collections and the new Natorious ready-to-wear collection of easy separates.

François Cornet, export manager for Lejaby, a brand owned by The Warnaco Group, said the Lejaby business, which is “for sale,” had increased revenues since the brand began selling directly to U.S. stores from France last year.

“The perception of the U.S. market is quite positive because we took the market direct a year ago. We still manufacture a little bit in France, but mostly in Tunisia,” said Cornet. “And we are on target despite the market being tough. We are very optimistic.”

Regarding retail turnout, Lee of NAP said: “In terms of what we’re finding, all of the major retailers are coming in. We are expecting a strong turnout despite the economic climate. But it appears that specialty stores are split between attending the lingerie market week and the Curve show and the Lingerie Americas show later this month. As of yet, we don’t know of specialty stores that will be going to both shows. It’s one or the other.”

Lee added that a new brand will be launched for fall: Odille Oasis, a “contemporary, sophisticated and flirty” line of foundations and sleepwear. NAP has the exclusive distribution rights in the U.S. for the London-based brand.

Komar’s Nadeau noted that a new brand that was introduced for spring, Donna Nadeau The Green Side of Life, will be expanded for fall.

“Sixty percent of the line is in eco-friendly fabrics like organic cotton and terry and bamboo,” she said. “That was an exclusive for Neiman’s for spring. The fall line will feature more sleepwear and at-homewear styles and more organic fabrics including soy, Tencel and Modal, and will be available to other stores.”

Guido Campello, vice president of marketing and innovation at Cosabella, said he was expecting a strong reaction to a new licensing pact with HBO and a line of lingerie bearing the Sex and the City label, and designer licensee Carmen Marc Valvo.

“We are optimistic because we manufacture in Italy and we’re in a special place right now with Cosabella’s new brands. We’re definitely not just lingerie anymore, but also apparel with resort dresses, tops and pants by Cosabella Apparel,” said Campello. “We’ll be able to pick up the slack, but everybody is expecting [smaller] retailers will order shorter. Boutiques tend to let go of orders when they’re short of money.”

— With contributions from Whitney Beckett and Kristi Ellis

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