MARGIN PINCH COULD STUNT GROWTH

Byline: Alice Welsh

NEW YORK--While the contemporary market seems to be feeling good about second-half prospects, fabric price hikes and retail demands could pose major threats to its growth.
Firms reported that profit margins were being squeezed while they tried not to pass fabric price increases on to the customer.
While no one would publicly complain about retailers, privately manufacturers griped about stores' demands for special hangers, bar coding, special discounts and markdown money.
"Retailers are totally unrealistic. They are trying to get their profits from squeezing everyone they buy from. They have to learn how to share," said one manufacturer.
"The demands made by the majors upon manufacturers are getting heavier and heavier--it's endless. I don't know why they think we can afford it. It's so unfair. They expect us to pick up all the costs, but keep our prices down," added another executive.
The contemporary market has been on an upswing since the beginning of the year. Manufacturers said the market has become more and more item-driven, and they are adjusting their collections accordingly. They also said merchandising is becoming a major challenge, as competition from private label and other markets heats up.
Many contemporary firms are opening freestanding and in-store boutiques in the second half, feeling that is key to promoting their image and attracting overseas accounts.
"Our bookings for fall exceeded our expectations," said Ellen Greenberg, president of Magaschoni, which produces the MAG contemporary line. "It's important that the collection be item-driven in this environment. Each piece must stand on its own. [The customer must say] 'I need that bustier, I need that jacket,' etc.
"The contemporary market is buying items and creating ensembles," she said.
Greenberg also underscored the importance of merchandising the line.
"You have to be really aware today of what the competition is doing at a similar price point, and what private label is doing in order to maintain the integrity of your original thought," she said.
"The days of just opening a collection and sitting back to sell it are over. You have to be open to making changes after the line is in the showroom. You have to be willing to pull stuff off the line if you see it out there in a lower price point. It's a process of recycling information and listening to what retailers are saying."
Kenneth Zimmerman, president and chief executive officer of Kenar Enterprises, noted, "Our first half has been above our expectations. We've really focused on our lines and deliveries, and we never raised prices. Fall bookings are up, but fabric prices have eaten into our profit margins, so they still aren't what they should be."
In the second half, Kenar will kick off its advertising campaign with eight pages in the September Vogue. It is also looking for a retail store on Madison Avenue.
"We are looking to open a 2,000-to-3,000-square-foot showcase store--an image center --to show to the world how we merchandise our line. I think it will help generate more global sales. Buyers come from all over the world to shop SoHo and Madison Avenue," said Zimmerman.
Michael Axelrod, president of French Connection, said, "We are on plan for the year. Fabric prices are affecting our margins, but we don't want to put the customer into price shock."
Echoing other manufacturers, Axelrod said items were important in his business.
"Although we are a collection, I think every piece has to stand on its own," he said. "A collection is still very important to make a statement, but the business is becoming more item driven."
In the second half, Bloomingdale's will open three French Connection shops: one on the contemporary floor of the flagship here in August; another in the Old Orchard shopping center in Skokie, Ill., in September, and a third, in Roosevelt Field in Garden City, N.Y., by November.
"We are really recognized now as a contemporary resource, having moved out of the junior category," said Axelrod.
"For fall and holiday, bookings were definitely where we wanted them to be--the volume was there--but profit margins are a separate story," said Brian Hogan, vice president of Vivienne Tam. "Fabric price increases combined with freight, duty, quota and everything involved in pricing has affected our margins."
In the second half, the company will focus on Tam's retail shop in SoHo. It is slated to open in September.
"We want to use it as a laboratory to test products and take the response into the broader market," said Hogan.
Chantal Bacon, vice president and partner of Betsey Johnson, said, "For the first six months, we were about even with our plan. Our fall bookings are up, and we haven't opened holiday yet. We've added more groups, which I think will increase our business in the next six months.
"We are doing seven to eight groups a month, instead just four to six," she added. "There are more items and more variety.
"The whole business is moving toward items and variations of an item. It used to be if a print was strong then it was strong in several styles; now it's an item within that print that is strong," she said.
Plans this year include opening three mall locations, "because that's where the traffic is," said Bacon. One, in Atlanta's Lenox Square, will open by November. "We are in negotiations in two other cities and expect leases to be signed by the end of the year."
There are 21 Betsey Johnson boutiques around the country.
"We are also switching out of the junior department to the contemporary dress floor in Bloomingdale's, where our sportswear will be incorporated in the boutique," said Bacon. "We're in the contemporary department at Nordstrom, and I think with our price points, that's a better place to be."
Tapemeasure, which filed for Chapter 11 last October, has "met or exceeded its business plans each month," said Marsha Drogin, director of design and merchandising. The company expects to emerge from Chapter 11 in the second half.
Drogin said Tapemeasure has been expanding its private label and children's business and has been doing well on QVC, with the next segment airing Aug. 23.
"I think you have to look for new avenues of business in today's retail environment. Also, we have been expanding overseas, exporting to Harrods and Selfridges in London, Canada, Saudi Arabia and Japan," she said.
Susan Lizan, president of Against Gravitee, said the first half was in line with her projections, and she was expecting fall and holiday bookings to be up at least 15 percent.
She said the company's success at retail this spring was due largely to items such as the sweater set and long bias skirt.
"The business is absolutely more of an item business. We are noted for jumping on key items, and because we are domestic, we have a fast turn," she said.
Lizan thinks merchandising has become even more of a challenge. "You have to remain sensitive to the market, be as special as you can, and remain one step ahead. You have to work harder than ever."

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