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LONDON — With European economies barely treading water and only the most fragile signs of recovery bubbling up, business remains a challenge for fashion companies at all levels of the price ladder, from LVMH Moët Hennessy Louis Vuitton to the British men’s and denim label Mark Thomas Taylor.
The headwinds are many and powerful: A strong euro and pound that makes exports unattractive; austerity-scarred consumers who are reluctant to spend, and uneven patterns of demand in Asia, particularly China.
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Earlier this month, the European Central Bank cut its benchmark interest rate to a new record low of 0.5 percent to help jump-start lagging economies in a region marked by shrinking manufacturing, rising unemployment and consumer malaise. As a result, companies are rethinking how they manufacture, market and sell their goods in order to balance growth and preserve profit margins.
Howard Archer, IHS Global Insight’s chief European and U.K. economist, noted that euro zone consumer price inflation plunged to 1.2 percent in April, while the unemployment rate rose to a record 12.1 percent in March.
“The sharp drop in euro zone consumer price inflation to a 38-month low…and a further increase of 62,000 in the number of euro zone unemployed in March gives the ECB every reason to cut interest rates,” Archer said. “Lower inflation is providing some much-needed good news for hard-pressed consumers in many euro zone countries by easing the squeeze on their purchasing power. Less good news for consumers though is euro zone unemployment continuing to rise in March….This highlights the fact that the euro zone continues to face major growth headwinds and still has its work cut out to exit recession.”
Last month, LVMH and Burberry both said they were pursuing a strategy of pushing pricier goods — leather or exotic skin bags rather than less-expensive logo-covered ones in cotton or canvas.
“Leather megabrands are significantly increasing their entry price points and repositioning toward the higher end, while progressively withdrawing from lower price points,” said Luca Solca, managing director and sector head global luxury goods at Exane BNP Paribas.
Burberry’s outgoing chief financial officer Stacey Cartwright said footfall remains weak for the luxury industry as a whole, but added that Burberry was endeavoring to persuade shoppers to buy higher-priced items and “make the most” of the customers it was attracting.
LVMH has increased the price of its nonleather goods by about 10 percent in Europe and the U.S., as its founder, Bernard Arnault, warned that the strong euro would dent French exports this year.
Farther down the price ladder, trade show organizers and their exhibitors are looking for ways to cope with similar issues, such as rising costs, shrinking demand in developed markets and unpredictable demand in emerging markets such as the Far East.
“The fact that the economic crisis has been so protracted is the greatest challenge we’re all facing,” said Carole Hunter, director of marketing for LondonEdge Original, LondonEdge Fashion and The Ledge, which showcases the alternative and streetwear market. “Our exhibitors and buyers are small to medium businesses and the sheer length of time [the euro zone crisis] has been endured has inevitably drained resources. Our way of managing the impact within the show has been to look for new markets to introduce into the show while taking care of the core.”
Hunter said her organization is constantly looking into adding new market sectors that complement the core offering and is also looking to broaden its geographic reach.
“We are putting extra resources into reaching out to the stronger world economies, currently,” she said. “For instance, the U.S. is on the up, Scandinavia is a key group for us right now, also Germany and Australia.”
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Mark Taylor, founder of the men’s denim and casual label Mark Thomas Taylor, said among his biggest challenges right now is preserving his margins.
Taylor, who plans to show at Jacket Required, a men’s trade show in London that takes place at the end of July, produces his collection in Thailand — he grew up in Southeast Asia and speaks Thai — and said the recent appreciation of the Thai baht against the British pound is working against him, as is the price of cotton.
“It hits your margins,” he said, noting that the appreciation of the baht has shaved 10 percent off his margins over the past six months. “But I have to stay competitive, so I swallow the costs.”
Retail prices for the line, known for its bright plaid shirts and colorful striped scarves, slouchy T-shirts and distressed denim, range from 35 pounds, or $55, for T-shirts, to 65 pounds, or $100, for a pair of jeans.
In addition to taking part in trade shows, Taylor said he does a lot of footwork on his own, tracking down stores and buyers. One reason is that at the shows, buyers don’t behave like they used to.
“They don’t browse anymore,” he said. “They go with specific [exhibitors] and destinations in mind.”
He’s also expanding his geographic reach to markets such as Spain and Australia, and is mulling a move into China, but that won’t be a simple operation.
“Chinese buyers are very insular,” Taylor added. “They want everything packaged and digestible for the Chinese market. It’s the same reason why China has its own versions of Google, Twitter and Facebook. Sizing is an issue, too. My size small is too big for them.”
Michelle Noël, sales manager for Ally Capellino, which makes bags and accessories in leather, nylon and waxed cotton, also said that buyers’ shopping patterns have changed.
“Caution is the key word and will continue to be,” she said.
The brand is stocked at stores including Le Bon Marché and Merci in Paris, Fenwicks and Liberty in London and Aspesi in Milan.
“We make it clear to our clients that we do not compromise on fabrics or production, and they still buy, although it may be less in volume and value than in the past,” Noël noted.
She said buyers’ focus has increasingly been on classic investment pieces. Prices range from 160 pounds, or $250, for bike bags, to 700 pounds, or $1,092, for a leather bag. The company, which shows at Scoop International, also designs collections of backpacks and satchels for Apple and Tate galleries.
“You have to be sensible,” said Noel. “There is always a way to succeed, always a middle ground.” She added there has been a “surge” of interest from markets such as South Korea, Russia, Australia and New Zealand at Scoop.
STAT: 62,000 people in the euro zone were unemployed in March.