European Luxe: Men’s Wear Braces for 2009

Men’s wear companies that offer high-end investment pieces could be more resilient during the recession.

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WWD Pitti Preview issue 01/08/2009

MILAN — Since the economic meltdown, executives at European fashion houses have been sounding off about a return to basics, which many view as the best way to minimize a projected 3 to 7 percent contraction in fashion and luxury industry revenues this year.

This story first appeared in the January 8, 2009 issue of WWD.  Subscribe Today.

“During a crisis of this scope, the winners are always those who are able to offer the market a surplus of creativity and new products,” Patrizio Bertelli, Prada’s chairman and chief executive officer, told WWD. “This means that we need to focus even more on our brands’ most traditional values: innovation, originality and uncompromised quality.”

In men’s wear, however, the back-to-basics approach doesn’t represent such a dramatic change. Despite reports of male shoppers getting in touch with their feminine side in recent years, men still tend to be more practical than women when it comes to buying apparel and accessories, according to industry experts.

“Historically, men have always had a more rational approach to luxury goods, even if this was changing,” said Claudia D’Arpizio, a Milan-based partner specializing in luxury and fashion at consultancy Bain & Co.

Men’s wear companies that offer high-end investment pieces — like made-to-measure classics or iconic wardrobe items — should be more resilient in an economic downturn, while entry-level luxury and fashion players will be hit hard, D’Arpizio said.

Men’s executives predict consumers will be more selective this season, favoring quality and value over fleeting fashion. “This does not mean they will spend less, just that they will spend better,” Brioni co-chief executive officer Andrea Perrone said.

“There will be more value customers than branded customers,” agreed Maurizio Corneliani, sales and strategic marketing director at Corneliani.

Accordingly, many in the market said they would play it safer this season. “Men will look for self-assuring items, not too fashionable, with a high intrinsic value…no frills,” Isaia ceo Giovanni Mannucci said.

Men’s wear sales have grown steadily over the last five to six years, outpacing women’s wear, as men bought increasingly according to whim. D’Arpizio said she expected the last quarter of 2008 to be the worst for some time, and doesn’t expect sales of men’s wear in Europe to recover until the second half.

Paul Smith said comp sales in his directly operated stores were up from 2007 but had slowed “very considerably” in the last six weeks of 2008.

Bertelli also admitted Prada had experienced “a certain drop in volume.”

For the six months through September, Burberry experienced double-digit revenue growth in all product categories, including men’s wear. Burberry ceo Angela Ahrendts declined to forecast 2009 sales, citing volatility in the market. She noted, however, that Burberry had seen a “strong response” to its London collection — especially in outerwear and tailored clothing — as well as the men’s Prorsum line. Ahrendts also cited a return to core iconic products bearing the label’s signature exploded check.

“Men’s has been a key growth strategy, and we continue to gain market share in all regions and channels,” Ahrendts said. “We believe that our momentum will allow us to be less impacted if there is a downturn in men’s wear.”

Perrone said he expected Brioni to close 2008 “slightly up, which tells me that my company is sound and that the strategies we have had in place since 2007 are the right ones.” He did not disclose targets for 2009.

Isaia’s Mannucci said he expected buyers to have lower budgets for the fall season, following a drop in sales. “Our position is that the luxury market has limited the crisis impact, but we need to be cautious as no one is able to assess how [much] worse it can really get and how long it will last,” he said.

Shoes, shirts and accessories were performing acceptably, according to several executives. Patrick Thomas, ceo at Hermès — where men’s wear has seen annual gains of 10 to 15 percent and now accounts for 45 percent of sales in ready-to-wear — said belts and hats were also growing “very rapidly.” John Hooks, commercial and marketing director at Giorgio Armani, said the casual parts of Armani’s collections were performing best, while Bertelli said Prada’s jackets were suffering the most.

“However, over a long recession period, it will even out and categories will show similar performances,” Isaia’s Mannucci said. “It is of utmost importance to develop collections to meet current client expectations and market conditions.”

Although the financial crisis appears to be touching all corners of the world, D’Arpizio said a balanced geographical retail footprint — one that includes emerging markets like China, India, Russia and the Mideast — remained essential. She predicted small firms would have more difficult times if they were not global.

Brand leaders agreed. “Some brands are more vulnerable than others,” Hermès’ Thomas said. “If you are a strong brand with a well-balanced geography,” you are better placed.

“We expect emerging markets to be over 10 percent of sales in five years. Men’s wear will be a key driver of this,” Ahrendts said, noting Burberry had received “a great response” to its men’s wear collection in India, where there had been strong initial sell-through in the label’s new store in the DLF Emporio Mall.

“Prada’s distribution is also well balanced from a geographical point of view, and this will help us to maintain, almost unchanged, our plans for development, which will call for new openings in the Far East and Asia-Pacific,” Bertelli said.

Armani’s Hooks said the situation was “difficult” in Japan, the U.S. and in parts of Europe and Russia, where he forecast sales would be flat. But he still expected “slight growth” in Australia, the Mideast and Central Asia, “especially China and Hong Kong.”

“We feel quite confident about the future,” said Smith. “We anticipate France to still grow, but generally speaking [we] anticipate small decreases or level business around the world. So far the signs are very good and the sell-throughs are higher than most.”

Smith noted that China has been viewed as the big new market for many brands “but it has been a huge problem for most.” The designer added, “Our business in Hong Kong is very good, but we don’t see Mainland China as a growth area.”

With credit scarce, executives said they were maintaining strict control of inventories. Many said they also planned to cut their capital expenditures, although most said their retail expansion would continue this year.

Bertelli cited an opportunity to counter the slowdown in sales with a gain in market share. To that end, Prada will continue with its development plans for now, with openings slated in such cites as Mumbai and Delhi, India. But the company could still decide to rein in retail investment plans after the close of fiscal 2008. “Only in February will we understand if we need to slow down or not,” Bertelli said.

Although Burberry has reduced its capital expenditures by one third for this year, Ahrendts called retail growth a key driver. “We plan to spend roughly equal to depreciation in 2009-10, opening new spaces and holding back selectively on refurbishments,” Ahrendts said, without going into detail on locations.

Smith said his label’s “modest retail expansion” would continue this year, with openings in San Francisco and Las Vegas.

Perrone said Brioni’s approach is “one of prudence,” but the company doesn’t plan to cut spending. “Brioni’s general attitude for 2009 is to continue the mid- and long-term strategies we had in place in 2008, focusing attention on costs and reducing items that are not considered indispensable,” Perrone said, adding that openings of Brioni stores — in cities including Saint Petersburg, Russia; Istanbul, and Beirut, Lebanon, in 2009 and Atlanta in 2010 — will proceed as planned.

Corneliani said a drop in real estate prices could pave the way for the label’s first U.S. store, possibly in New York, and more units in Europe this year.

Hermès is slated to unveil a flagship on Madison Avenue in New York in October. “This is not in response to the crisis — we had already planned it — but it may help us,” Thomas said, adding the label was also considering opening new stores in Japan.

Hooks said Armani’s recent retail investments, such as the construction of new flagships in Beijing and February’s inauguration of the Armani Fifth Avenue megastore in New York, would help bolster the brand and “sustain its strong brand awareness on an international scale.”

Isaia will also open its first flagship store in Milan on Jan. 18 during men’s fashion week.

Despite the recent decline in magazine advertising, brands said they would not cut back on marketing and communication. “Communication will continue to be indispensable to [Prada’s] business,” Bertelli said. “During times like these, it becomes even more important to show, including and above all through communication and image, our ability to interpret and set new trends.”

“We have continued Brioni’s sponsorship of the 2009 Cartier Polo World Cup on snow,” Perrone said, adding Brioni would announce “other events that have been in the pipeline for some time.”

According to Isaia’s Mannucci, it would be highly risky to assume the crisis will end quickly and not focus on product development, collection structure and market expectations.

“The biggest opportunity is to improve operating efficiency and effectiveness,” he added.

D’Arpizio sees ample opportunity beyond that. “There is huge potential in the men’s core market for luxury groups going forward,” she said. “We see men underbuying, and there is still a gap to fill.” She identified “upper casual” apparel, accessories and made-to-measure as a medium-term prospects.

“However,” she added, “it is important to react.”

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