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RTW Firms Take Measures to Withstand Tough Economy

Companies are anxiously making moves in the hopes of offsetting what many expect to be trying months ahead.

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With the American economy in a continued downward spiral and foreign markets ailing, companies are anxiously making moves in the hopes of offsetting what many expect to be trying months ahead.

This story first appeared in the October 7, 2008 issue of WWD.  Subscribe Today.

President Bush warned Monday that “it’s going to take a while” for the financial bailout to take hold. Last week Warren Buffet pegged the economy’s turnaround time somewhere between six months and two years, with five years being the worst-case scenario if “we don’t do what we need to do.”

Rather than wait for the dust to settle, several ready-to-wear companies are trying to take the bull by the horns to stem any potential losses. A few like Bud Konheim, president and chief executive officer of Nicole Miller, anticipated the slide.

“We’ve been going from bubble to bigger bubble to even bigger bubble, and every time we’re in a bubble, we know it can’t last. And the bigger the bubble got, the more we were warned about it,” he said. “Listen, a 22-year-old guy just out of college should not be making a billion dollars in derivatives.”

In July 2007, when Nicole Miller’s sales started to slow — after business had tripled in two years — Konheim cut back inventory and, more recently, hasn’t tried to oversell things.

The launch of a daytime dress collection, which is more affordable although it is not marketed that way, has also helped sales. In addition, the company has gone after the special occasion business, since people will continue to celebrate the milestones in their lives. With gowns in the $1,000 to $1,500 retail price range, Nicole Miller is picking up shoppers who had been buying more expensive ones from other designers, Konheim said. “The show-off thing is a little bit over. It’s not a badge of honor to say you spent $5,000 on an evening dress any more,” he said.

Interestingly, the company has increased its advertising budget, and is focused on top-shelf magazines like Vogue, Elle, Interview and W, and has stopped buying ads in second-tier ones. Tough times make it easier for a designer’s advertising to stand out in a noticeably less crowded field, said Konheim, adding, “Normally, you can’t even make a dent.”

Derek Lam is trying to focus on international markets — something the company made a point of doing since it started, said chief executive officer Jan Schlottmann. He and the designer are just back from Paris where they presented 10 runway looks to some of the European press at Musée des Arts Décoratifs. The company has also cut extra samples for its European showroom, which currently caters to 140 points of sale. “We’re actually hoping for the best. It hasn’t had any affect on our sell-throughs,” said Schlottmann. “We’re hoping retailers will keep buying from designers with strong sell-throughs even if it is a smaller amount. It’s all about staying with the retailers we have.”

The Middle East is “on fire” and Russia “has also been helping us,” though it is facing its own stock market woes, Schlottmann said.

Derek Lam has also adjusted its budget for the next six months, by reworking pricing, adopting a hiring freeze and ramping up sales of shoes and bags in areas where rtw sales are not going as strong. “We’re trying to make better designs at a slightly less cost. Thank God the euro is helping us,” Schlottmann said.

Etro still plans to open stores in Manhattan’s SoHo neighborhood next summer and Atlanta’s Buckhead neighborhood next fall, but the company is tightening up on travel expenses, according to Marco Pievani, general merchandise manager of Etro North America. “We’re trying to take only the essential trips,” he said. “We’re always cost-conscious. We’re not ready to cut corners. Customer service is needed now more than ever.”

The firm has already bought the landmark building at 89 Greene Street in Manhattan, where the two-floor, 4,000-square-foot store will bow in August or September. The Atlanta location will be in the Streets of Buckhead shopping area and will be 2,600 square feet. The company has been eyeing other locations “for quite some time” in San Francisco and Chicago, and aims to open there in 2010, Pievani said. “We’re still going forward, but it might take a few months longer.”

Etro has found that in the cities where it has freestanding stores, like Miami and Las Vegas, the business at nearby accounts picks up. “It allows us to show the world of Etro and it helps our image. And other retailers benefit from that,” Pievani said.

Lela Rose said, “This is a scary time for our economy. You have to make sure you are smart about where you put your money.”

While there is no need to reduce her staff right now, Rose said she has decided to stretch out her existing bridal ad campaign for another six months instead of shooting a new one. She will also be buying more single-page ads in lieu of double-page spreads, and is considering taking some shipping in-house instead of outsourcing that business. In the process of reviewing the company’s budget, Rose said she is more inclined to resume doing anything that was recently farmed out. “If we’ve done it recently, then it’s not so painful to go back to the way it was,” she said.

While some have said the current retail climate is reminiscent of the post 9/11 one, Rose noted one significant difference — consumer spending was encouraged as part of the solution in 2001.

Volunteering for Democratic presidential nominee Barack Obama in Pennsylvania has opened her eyes to the fallout of the ailing U.S. economy. “I’m used to visiting different parts of the country to work with women who are able to buy new clothes each season,” said the designer. “I’ve been insulated to the joblessness that is out there. It’s embarrassing to realize how out of touch you really are. I’ve been going to parks where guys are having a beer at one in the afternoon because they don’t have jobs. I think you need to step outside your own area and look around.”

Thakoon has shifted gears to a more conservative financial plan, but the strategy remains to drive new revenue, said ceo Maria Borromeo. The company is focusing on nurturing its existing business, expanding business outside of the U.S. and on broadening the scope of the product offering. “As a start-up, we already operate on a very lean budget,” she said.

“We have had some accounts make adjustments to their orders anticipating the fallout of the financial crises at the retail level. However, all in all, business is strong on a global level and we are on track to achieve our originally projected sales for spring,” Borromeo said.

Rough as things are for many, Bill Blass president Craig Hoffman said, “This certainly presents a challenge for all of us in terms of production and retail. But to some degree the luxury [customer] is a little less affected than everyday people. Spending might slow down but not at the same level as it will with the middle tier.”

Hoffman noted evening gowns and couture are weathering the storm better than some $75 licensed products in department stores. Given that, Blass is working with stores to try to keep a tight lid on inventories. In terms of its designer collection, the company is looking at using fabrics that may be “one notch down from exquisite,” Hoffman said.

As for whether Peter Som will continue to be the creative director handling those or any other fabrics, Hoffman declined to comment. He did say the spring collection was “well-received,” with some specialty stores plowing ahead with orders and some decreasing orders. The company also is working more closely with retailers and vendors to ensure its existing partnerships.

He said, “One of the things we all have to deal with is the uncertainty and, to some degree, perception is the bigger question. That wasn’t the case a month or a month and a half ago.”

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