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U.S. Designers Anxious as Retailers Cut Orders

An uncertain mood, if not outright panic, has taken hold of many showrooms in New York.

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NEW YORK — Just how bad will spring be for American designers?


With the economy cratering and consumer confidence sinking to new lows, it’s not surprising an uncertain mood, if not outright panic, has taken hold of many showrooms here. Vendors have reasons to be concerned — according to sources, retailers nationwide are cutting orders by at least 10 to 15 percent for spring, while the New York flagships are lowering their buys by 7 to 10 percent since they don’t anticipate they’ll take as hard a hit because of tourism. That’s amid an already disastrous fall selling season that is sure to put even bigger dents into open-to-buy budgets for fall 2009.

Neiman Marcus, for instance, said last month that it is keeping a tight rein on expenses, remaining highly liquid and is working hard to manage inventories.

“We’ve had a terrific run but now we are in our most difficult period since 9/11,” Burt Tansky, president and chief executive officer of Neiman Marcus Inc. said at the time. “We are anticipating the months ahead will be difficult. Our customers are heavily invested in the financial markets….I am concerned that fiscal year ’09 will again test our downside skills.”

“We are being conservative,” he added of spring orders.

Tansky’s comments came after difficult selling seasons for designer ready-to-wear last spring and in fall 2007. Retailers already had complained about the lack of sales oomph on the floor. “We’ve approached buying for fall ’08 and spring ’09 conservatively,” Ron Frasch, Saks Fifth Avenue’s president and chief merchandising officer, said in August. “We have challenged the merchant organization to make the hard decisions, to exit or reduce distribution in brands that aren’t working.”

Retailers’ growing caution — and gloom — is being felt in fashion companies throughout Manhattan.

Paula Sutter, president at Diane von Furstenberg, said the company is planning conservatively for spring and encourages its retail partners to do the same.

“We have been partnering with our retailers to come up with what we think are right plans and the right assortments for this economic time,” Sutter said. “We have had numerous meetings. We have triple- and quadruple-checked assortments, and we are not pushing. We are being very cautious, as are they. We don’t want them to buy anything they don’t think they can sell.”

Sutter said that while the U.S. business is currently “difficult,” there is still much opportunity, and the company continues to enjoy “extremely strong” successes in the Middle East, Eastern Europe and in China. But even those fast-growing economies now face challenges: key Eastern European countries like Hungary, the Ukraine and Poland are feeling the financial squeeze; Dubai’s debt load is causing worries, and economic growth in China, while still robust, is slowing, causing the government to take action to maintain the momentum.

“There are certain pockets where we feel there is opportunity, and then there are other pockets where we are saying, ‘cut back,’” she said. “Maybe in a department store situation, let’s get out of some of the smaller, weaker doors until we can regain our footing. The strategy varies based on country to country.”

Among the steps brands are taking are expanding their businesses overseas, including emerging markets; exploring sourcing alternatives; making earlier deliveries; improving their Web sites; managing their inventory better; spending more time in the stores, and fortifying relationships with retailers.

“We are super-inventory lean,” Sutter said. “We are running a superclean business. We are cutting very conservatively. There is no chasing of business this year, it’s just cutting to order. Because we ship 12 months a year, there is always fresh merchandise on the floor.”

Alex Bolen, chief executive officer of Oscar de la Renta, said, “We hold the view very strongly that in times of crisis there is opportunity to be had. We continue to proceed, albeit cautiously, to hire great people and to scout great locations to put our stores in.”

What is changing is the speed with which stores agree to the company’s proposed order. “Typically, we propose to stores what we think their orders should be — not style by style but based on the level of sell-throughs. That starts the discussion and the discussion is continuing much longer this year. They are not taking our proposals as readily as they have in the past.”

Recently, the company has added “a bunch of doors in emerging markets” such as the CIS (Commonwealth of Independent States) surrounding Russia, Bolen said. Building international sales through its wholesale business will remain a priority. Bolen is also reviewing the company’s position in terms of fabrics and inventory to see how improvements can be made, and de la Renta continues to open more freestanding stores, most recently in Madrid and Athens.

 

Tory Burch said her business remains strong, but admitted she isn’t immune to the weak economy.

“We are doing a lot to concentrate even more on customer service, to make sure we are keeping our customers happy,” she said. “I’m going be going into the stores more often, in a very low-key way, to talk with shoppers and gather feedback from them. Anything we can do to connect with her and make her shopping experience even better, the better off we will be in the long run.”

Burch is also working on a line of eveningwear.

“I think it would be really interesting to do $800 gowns, more affordable eveningwear,” she said.

“We are taking an overall look at the business and we are not spending what we can be saving. In times like this, it forces us to get even more creative in the way we run the business. It shouldn’t be about cutting back, but more about being more creative in the ways we enhance the brand,” said Burch.

The designer said she will soon relaunch toryburch.com to make it more user-friendly, and the company remains on track to open between six and eight more stores in the months ahead.

Others, such as Elie Tahari and Ralph Rucci, are taking preemptive action in terms of costs. Rucci has reduced his staff to 61 from 78, but no senior employees were included in the layoffs. He said, “Afterwards, I noticed a greater focus and concern throughout the company to work more as a family, with greater pride and dedication.”

He also tapped into the company’s “very large fabric inventory” for certain portions of the resort and spring collections. Outsourced embroidery has been cut back by 80 percent, but Rucci’s staff now handles that aspect of the business and has developed creative techniques that can be done in-house. One thing that isn’t changing is pricing.

“I am still making clothes in the same manner, thus prices are impossible to cut. Clients are purchasing fewer yet more significant styles,” Rucci said. “‘Need’ isn’t the point; rather, there is the desire to be seduced by a style which is much more significant.”

After years of tremendous growth at the company, Elie Tahari confirmed last week it had eliminated 35 positions throughout its New York and New Jersey offices.

“Like every company, Elie Tahari has been carefully observing the incredibly challenging retail environment that is affecting the U.S. and global economy,” Tahari said. “Although current sales remain within projections, it would be irresponsible of us not to prepare for an uncertain future so we have reduced our workforce by 35 people which will not affect the vitality, creativity and efficiency for which we are known.”

Having been in business for 31 years, Josie Natori, who launched her Natorious collection at Saks Fifth Avenue this fall, said, “We’ll all get through it. It’s a cycle.”

Now more than ever her company is “locking hands” with retailers to get a better handle on the market and to respond accordingly, she said. Natori’s salespeople are “flooding the stores” to talk to sales clerks, explaining the benefits of various styles and are giving them “every possible sales tool” to help them sell the collection. “The most important thing is to partner with stores to get through this together,” she said, adding that it could be an 18-month intensified effort.

Indisputably, this has not turned out to be the ideal time for a launch, but Natori said she is encouraged by consumers’ response to the collection, especially in New York, Chicago, Dallas, San Antonio and Sarasota, Fla. “I am happy with the sell-throughs,” she said. “We have to help the stores to make a product more salable. We have to work harder and create incentives.”

Like Bolen, Natori believes the financial crisis presents opportunities. “If you can do well in this kind of climate, you know you’ve got something,” she said.

Tahari said, “We have to do everything we’re doing even better — better shipping, better quality, the value has to be better.”

Adding to this challenge is the fact that prices are escalating all around the globe, especially in the Orient, he said.

Cynthia Rowley’s president, Peter Arnold, noted the company has been experiencing season-to-season growth and the brand’s four freestanding stores are performing well at each location. “While the current economic condition is certainly a challenge to continued growth at the rate we’ve been experiencing, we have not yet seen a diminution in orders for spring,” he said. He noted the firm will “absolutely” keep leaner inventories for spring.

“One of the advantages of our business model is that we are ‘diversified’ and able to absorb certain market challenges. We have our own retail stores domestically and abroad and are not overly dependent on key wholesale accounts. We have a big and growing business in Japan and Taiwan — our year-to-date numbers continue to exceed those of the year prior, despite the recent softening of the Japanese market,” Arnold said. “The most exciting current market for us is Hong Kong/Mainland China, where we will have opened four stores by year’s end. We currently plan to continue at the same pace in 2009.”

Keeping an emphasis on innovation, in terms of product, distribution, retail territories and business partnerships will continue to be important, he said. “Our program with global licensing partners such as Avon, for example, provides a relatively regular, stable stream of revenue,” Arnold said.

Maria Tomei Borromeo, chief executive officer of Thakoon, said, “We have begun to shift gears to a more conservative financial plan. However, as a start-up business, we already operate on a very lean budget; there is not much fat to trim. Our strategy remains to find new ways to drive revenue. We will focus on nurturing our existing business, expanding our business outside of the U.S. and on broadening the scope of our product offering.”

She added that some accounts have cut 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,” she noted.

“We are all concerned and anxious about the current economic situation and I don’t think we are going to really be able to see the extent of the impact it will have on our industry until a few months down the road,” said Elana Posner, Peter Som’s business partner. “I think I am not alone in saying that sales are competitive for everyone right now, and it is difficult to be optimistic in light of the past two weeks. Our focus is to continue to produce the best product we possibly can and to deliver as early as possible to maximize product time on the retail floor.”

Rodarte’s Kate and Laura Mulleavy said that they are increasing their number of accounts this spring, and continue to develop their accessories collaborations for jewelry and footwear. While they contend the economic climate affects everyone throughout the industry, the sisters believe there will be a continued interest in craftsmanship.

Douglas Hannant, meanwhile, was unflinching about his decision to launch a bridal collection on Oct. 19. “There will always be weddings, deaths and births. It’s also a good time to diversify when the stores are being so cautious with their buys,” he said. “I’ve noticed that stores are really scared to death.”

Retailers also don’t want to stock inventory, but are encouraging more designers to host trunk shows — provided they agree to a certain minimum of sell-throughs, Hannant said. “They are so frightened to invest in luxury goods. But a lot of my customers are still spending like they normally would. They saw it coming and moved their money around,” he contended.

Yigal Azrouël Inc. hasn’t felt any direct impact from the economic fallout at this point. Fall retail sales are “healthy” and spring bookings are “very close to expectations,” said director Donata Minelli Yirmiyahu. Nevertheless, the company is tightening things up, by analyzing the efficiency of its suppliers and fabric mills to ensure deliveries and small minimums can be met to keep inventories lean and to avoid any canceled orders, she said. In addition, the collection is being reduced by 10 percent prior to design. Lastly, there is a concerted effort to create signature designs that will resonate in a clear brand image with retailers and consumers, Yirmiyahu said.

Doo-Ri Chung admitted there is concern. “My salesperson tells me everyone is jittery and scared,” Chung said “Every day there is another piece of bad news. Now we are hearing that the European economy is being affected as well.”

In fact, Chung said this season is vastly different from the last. “Last season, we started to feel the pinch in America, but we always had the Middle Eastern and Russian stores, and felt they were solid. This season, we are concerned that even those stores are starting to feel the downturn of the economy,” she said.

To cope with the nervous consumer, Chung said stores have asked for lower price points.

“We have seen stores that have lowered their budgets,” Chung said. “It’s the reality. Everyone is playing it safe, and there is so much uncertainty that it’s a difficult time to take chances.”

To that end, Chung has started working with less embellishments to offer better prices. “We often work with embroideries, and while we still inject embroideries we have a balance now,” she said.

She added she is contemplating sourcing alternatives, from Los Angeles and China, though she conceded the Far East is more difficult because she doesn’t produce the volume many manufacturers there demand. “Some of our smaller stores are going through hard financial times and we have to work with them,” she said. “We want to be good partners and give them the product they are looking for while remaining true to my aesthetic.”

Chung remains optimistic. “In my mentality, it’s just about adapting,” she said. “This is not a circumstance I can change myself, but I can change the way we work to adapt to the situations. Certainly, I hope this goes away fast. I hope the new president comes in and can really change things.”

 

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