NEW YORK —?As business picks up, so does the action.

Retailers and designers are going into the holiday season with high hopes of an economic revival, which they believe will portend big business for designer fashion throughout 2004. Based on recent events, however, they’re also looking forward to more big news in the coming year, changes that will likely have seismic effects on the entire fashion world.

With the real Jil Sander back in action, Tom Ford and Domenico De Sole leaving Gucci, new chief executives at Saks Fifth Avenue and Donna Karan International, new ownership for Anne Klein and new better-priced launches from Calvin Klein, Tommy Hilfiger, Ralph Lauren and Michael Kors, there’s not likely to be a corner of fashion left unchanged.

Even Gap is giving its accessibly priced collection a new designer image, yet another indication that the apparel business is shifting quickly into two extremes — inexpensive clothes that are well designed and extremely pricy clothes that are even better designed.

What happens in between in the beleaguered bridge market is anybody’s guess. Fashion consultants peg the bridge and designer markets at around $12 billion in annual sales, representing as much as 16 percent of total women’s apparel. The overall women’s apparel market has been shrinking by 1 or 2 percent annually for the last couple of years, a trend they believe is reflected more sharply at the high end of the market, which has been plagued by consumers who are accustomed to buying on sale or in outlets.

“It’s the most challenging time in this industry that I’ve ever seen,” said Donna Karan, who’s facing her own challenges for 2004, as her company builds on a slow turnaround with a new ceo, Jeffry M. Aronsson, who moved to her company from Marc Jacobs last month.

Since it was acquired by LVMH, the company has been focusing on closing outlet stores and improving the quality of its distribution for collection and DKNY. According to stores that carry the line, the result has been dramatic, with fall merchandise currently experiencing full-price sell-throughs of 60 to 70 percent.

“There’s a pollution of product out there,” Karan said. “But from a designer’s point of view, that’s why I’m still here —?because it’s a challenge, and I love a challenge. What I believe is that you can’t put out just product right now. You have to put out product that makes a difference.”The industry’s biggest lesson from the past few years of market uncertainty, in which retailers have realized they have too many stores and that they all look too much alike, is that designers are facing a market where customers no longer really have a need for new clothes, but shop based on their desires.

As Karl Lagerfeld said at the WWD/DNR CEO Summit last month, “Today, nobody buys at this level a new raincoat because their old one is over. They buy a new raincoat because suddenly there is a new exciting raincoat that they want.”

So the focus of designer businesses for the coming year has been on creating products with a much more commercial mind-set, which is not to say they are designing dull basics, but rather more sophisticated fare that will appeal to a broader audience. This is a trend that is reflected in the distinctly feminine outlook of the spring collections, as well as in the decline of the avant-garde and in the rise of a crop of new designers in New York and Paris who avoided making brash statements on the runway and, instead, received attention for making clothes that customers could actually wear.

It is reflected at Michael Kors, where, after a seasonal detour for fall into black leather biker chic, the designer returned to his roots with a vibrant Capri-inspired collection for spring that has shown positive results through trunk shows and bookings. His striped shirts, knits, V-neck sweaters, an orange suede trench and jeans with color zip-tape seams have been early standouts, indicating a “really strong” 2004, a spokeswoman said.

On top of that, the company, which was acquired in January by Sportswear Holdings Ltd., is preparing a major launch for fall under the Michael label that is targeting the burgeoning department store market for lower-priced labels with distinct designer points of view.

At Marc Jacobs, among the pioneers of this approach with the 2000 launch of Marc by Marc Jacobs, there is also an air of optimism as the company continues to identify new markets for its own stores around the country. In July, it will open a Marc Jacobs collection store on Melrose Place and a Marc by Marc Jacobs store on Melrose Avenue in Los Angeles, with the prerequisite VIP departments and studio services. The Marc by Marc line has grown by 60 percent per year, according to recent estimates, which indicates the realm of Marc Jacobs projects is on the road to reaching the $1 billion mark within five years.“We’ve been having trunk shows at the Beverly Hills Hotel for the last two years and the response has been amazing,” said Robert Duffy, president of Marc Jacobs. “I know from advance bookings we’ve done through the first half of next year, that next year is going to be an incredible year for this company.”

After three difficult years for the designer industry, there are few executives who believe that a turnaround is not in sight, prefacing that belief with the financial boilerplate statement that anything can happen. The stock market keeps promising a rebound, too, but continued concerns about terrorism and the aftermath of the U.S. invasion of Iraq have thus far hampered any real gains.

“There is a sense of a better feeling out there that the consumer mood is beginning to pick up,” said Aronsson, of Donna Karan International. “But that is less relevant of a factor in our future than how we compete in the marketplace. You start with the quality of the brand and the product. I’m a strong believer that no matter what the market conditions are out there, we can still succeed. If there’s a down market, we can be contragravitational to that market.”

While a similarly upbeat attitude seems to pervade the designer end of the business now — many point to Gucci’s loss as an opportunity for other brands to move ahead as the kings of fashion — the attitude in the bridge market is entirely more cautious, as the range of launches in the better category — inexpensive clothes with a designer point of view — threatens to usurp the very meaning of what the bridge category once was.

Michael Kors is abandoning that category altogether and putting the $50 million Kors label on the shelf while Michael is in development. The company’s overall target is to also become a $1 billion brand. Meanwhile, the $3 billion-plus Calvin Klein Inc., after temporarily suspending the CK Calvin Klein collection, is reviewing its strategy for its global relaunch, with executives at its new owner Phillips-Van Heusen planing to build the new better-priced Calvin Klein into another $1 billion brand within five years, as well as making overall revenue projections of around 30 percent for 2004 in recent articles.Anne Klein is in the process of being absorbed by the mammoth Jones Apparel Group as part of its acquisition by Kasper A.S.L. Ellen Tracy, being bought by Liz Claiborne Inc. last year, is now facing a future without longtime designer Linda Allard, who retired with her husband, Herb Gallen, recently.

Monica Belag Forman, president of Magaschoni Apparel Group, which makes the MAG bridge label, said the category is far from over, as manufacturers have adapted to the changing market with an increased focus on design. From her perspective, bridge is no longer a series of collections that attempt to look like designer brands, but now stand on their own. MAG’s focus on cashmere is another reason it has been able to continue to thrive.

“Business is solid,” she said. “I expect to have a 30 to 40 percent increase. It’s definitely been a strong cashmere sweater year, and it helps that we have identified what the customer wants from us and what we do well.”

David Guez, president of Votre Nom, said, “There’s no doubt that bridge has to think outside the box and surprise the customer, which is something these other companies can’t do because they have to think too much in terms of volume. What’s more, bridge offers a discerning customer better quality in terms of fabric and fit.

“The fact is, none of these better collections can match the quality that bridge offers. I also think the customer gets better service and attention in the bridge area. It’s cleaner, less cluttered and generally has better visuals.”

Guez said there’s also a certain exclusivity that comes with the territory. He said Votre Nom’s limited distribution means “a woman won’t see herself coming and going.”

“When you’re spending money on something luxe, that’s important,” he added.

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