For a battered California economy that’s endured crushing hits from the housing market collapse, shrinking consumer spending, a tight credit market and natural disasters like fires and floods, 2009 could deliver even more painful blows — and already-hurting retailers may absorb a large share of the pain.
California is locked in its worst budget crisis, with Gov. Arnold Schwarzenegger declaring a financial emergency amidst a Legislature deadlock on how to close a two-year budget gap that grew to $42 billion, as job losses and stalled consumer spending cut income and sales taxes.
The City of Los Angeles, which has a $7.1 billion budget, is faring poorly as well — its deficit for fiscal year 2008-09 grew by $30 million in December alone, to $86 million from $56 million, largely due to lower-than-expected property and sales tax collections. The deficit for fiscal 2009-10 is expected to be $433 million.
“Things will certainly get worse before they get better. Residents and businesses are really hunkering down for the next year,” said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp. “This is a very rough environment for retailers, and there will be more bankruptcies and store closings, to be sure.”
While retailers slashed prices earlier than ever, sales of apparel and luxury goods fell by double digits, according to a SpendingPulse report on retail sales, with sales down 8 percent in December through Christmas Eve.
With recovery not expected until 2010, economists and retailers foresee tough times in the first half of 2009, and will need to sell spring merchandise at full price to hold profit margins.
“I don’t know how much more you can cut after going to 80 percent,” said Lisa Kline, whose namesake boutique chain tried to keep discounts at levels to lure consumers yet maintain some semblance of profits. “The early sales and discounts from the big chains are just killing specialty retailers.”
Following the worst holiday shopping season in years, 2009 projections are dismal for most retailers.
After her billionaire financier father took a stock market beating, teenage Russian designer Kira Plastinina, for example, shuttered recently opened U.S. stores, including shops on trendy Robertson Boulevard and Beverly Drive. Other boutiques, like Presse, Built by Wendy and the iconic Tracey Ross were also casualties of the tanking economy.
To hang on, many stores have changed strategies, revising expectations downward, drastically scaling back inventory, carrying merchandise at lower prices and altering marketing plans to compete for the fewer dollars being spent.
“Apparel is tanking; there’s just no way to keep women’s [clothing] on the same level it was a year ago,” said Kitson boutique chain owner Fraser Ross. “It’s accessories and gift sales that are really pulling the weight, and our sales staff knows to cater to the girls coming in — they’re the only ones spending right now.”
There are a few rare bright spots on the landscape, however, with e-tailers like Amazon.com and Orange County-based Buy.com posting record sales.
“We saw the best Black Friday and Cyber Monday to date,” said Buy.com chief Neel Grover. “We’re reaching a broader demographic than ever, skewing younger and to more women, as we’ve nearly doubled our product categories.”
Michael Mente, co-founder of revolve.com, dropped projections for the new year and expects his Los Angeles store to account for less than 5 percent of Revolve’s overall sales.
“We want the store to be one of those places in L.A. people just have to go to, but clearly that’s going to be a few years down the road because the timing isn’t right,” Mente said. “When the big stores cut prices, we have to follow suit. It’s a tough game. We just try to have different and unique items, that something special you can’t find elsewhere.”
Retailers who hang in by finding leaner ways to operate, though, could find opportunity as others in the marketplace go under.
“People will have to find a number of smaller ways to make up for the losses,” Kyser said. “It will be an interesting time to see who survives and how.”
From overseeing America’s fastest-growing speciality retailers to codifying cool, WWD talked to the women who are leading the way for the future of beauty. Check out our Instagram Stories to see how these women built today and are creating tomorrow. (📸: @hannah_khymych) #wwdbeauty
For @laperlalingerie's spring 2018 show, the brand chose to host their event at @thevenetianmacao. With Chinese megastars @bingbing_fan and @hubing in attendance, La Perla debuted a rock ‘n’ roll-inspired collection. The show marked the start of Sands Macao Fashion Week, which runs from October 19 to 24 — the city’s first such event. Pictured here are models backstage with glimmering eyes. #wwdfashion (📷: Cheuk-Yin To)
Trending for spring 2018: top stitch design. Gone are the days of stitch just for seams — designers are using the once-minimal detail to create strong decorative elements. (📷: Paola Testa; Styled by @andrew_shang) #wwdfashion
@tradesy is turning the concept of a showroom upside down with its new space in Santa Monica. Here, the company plans to hold events, art exhibits and a showcase rare fashion pieces like this Louis Vuitton boxing set. Get all the details on Tradesy’s first showroom on WWD.com. #wwdnews
Spotted last night at the @erdem x @hm launch event: Kate Bosworth, Rashida Jones, Kirsten Dunst and Selma Blair. The party, which took place in LA, also marked the opening of their pop-up shop. “I was interested in creating a collection that wasn’t in any way disposable. It was about pieces you’d create and keep forever, things that have a permanence to it,” designer Erdem Moralioglu said. #wwdeye (📷: Katie Jones)
Renee Zellweger in yellow in 2001 and again in 2017. Chosen as one of the 12 @pantone Leading Spring Colors (and dubbed “Meadowlark”), it only makes sense that the bright hue stands the test of time and is making a resurgence this season, seen already on stars like @blakelively and @gigihadid. (📷: Donato Sardello & @rexfeatures) #wwdfashion #tbt
Dior’s 70th anniversary celebration continues with a new exhibition at the Royal Ontario Museum in Toronto. “Christian Dior,” which is scheduled to run through March 18, takes a look at the founders tenure from 1947 to 1057 and feature 40 designs. Pictured here is an evening gown from the Ailée, fall 1948-49 haute couture collection. #wwdfashion (📷: Brian Boyle)