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DNR MARKET REPORT — Men’s apparel definitely outperformed women’s wear during the holiday season. Still, it wasn’t enough to counterbalance the rampant discounting and lackluster consumer spending that plagued retailers.

Accessories and outerwear were among the standout categories for men, but they didn’t have the appeal of the new, must-have electronic gadgets: Apple’s iPhone and iTouch or Nintendo’s Wii.

Men’s wear sales inched up 2.3 percent for the period between Black Friday and Dec. 24, according to MasterCard Advisors’ SpendingPulse, a macroeconomic report tracking retail sales nationally, but was pulled down by women’s, which fell 2.4 percent year-over-year. Overall, retail sales grew by a seasonally adjusted 3.6 percent over the same period in 2006, MasterCard reported. Excluding gasoline and automobile sales, the sales gain year-over-year was just 2.4 percent.

The soft showing, which was impacted by higher fuel costs, the subprime mortgage crisis and severe weather, could easily mark the worst holiday season in five years. However, retailers were deluged last week by a surge in business as consumers rushed to stores to spend their gift-card dollars—estimated by the National Retail Federation to hit $26.3 billion this year—for dramatically discounted merchandise. Some 29 percent of gift cards are expected to be redeemed the week after Christmas, according to the International Council of Shopping Centers.

“Overall, the holiday wasn’t as bad as we had been expecting, but apparel shot itself in the foot,” said Marshal Cohen, chief industry analyst for The NPD Group. “Electronics is close to taking the number-one spot [on the gift-giving list]. What’s new and exciting in apparel? Cashmere at $69.99 is not new news.”

He pointed to Apple, which created tremendous buzz for its red-hot iPhone, as an example of what traditional retailers need to do. “Apple knew that they risked trumping their own iPod business,” he said, but the risky move paid off. “If you get the consumer excited and brand your business, you’ll do fine,” Cohen said. “How come we don’t see that in the apparel business?”

Cohen said men’s was “a little insulated” from the holiday downturn, however, since in the designer, contemporary and streetwear categories the merchandise was more distinctive than that being offered in women’s.

But the growing importance of gift cards—NPD estimates 61 percent of consumers gave gift cards this year—has also hurt sales in all categories. “Wal-Mart actually set up a separate cash register just for gift-card purchases,” he said, “making it easier not to shop. We’re seeing less impulse, less self-purchases and less actual purchasing of products. Actual shopping has been cut down to a bare minimum.”

Looking ahead to 2008, Cohen believes the consumer is going to simply replenish merchandise that needs to be replaced and will wait for discounts before purchasing anything, leading to a tough retail outlook for next year.

Most stores in the Northeast concurred that 2008 should be challenging. Nevertheless, the more-upscale retailers did report that they were pleased with the performance of men’s wear over the holiday season and were expecting a significant sales boost through the beginning of January.
“This is a marathon, not a 100-yard dash,” said Michael Gould, CEO of Bloomingdale’s. “We’re not finished yet.”

Gould said the weekend before Christmas was “spectacular,” particularly in “businesses we thought would be drivers,” such as men’s dress furnishings and women’s fashion accessories. Women’s apparel was tough, he conceded. And for next year Gould is expecting the challenges to continue as the effects of larger economic issues impact consumer spending.

Cody Kondo, senior vice-president and GMM of men’s for Saks Fifth Avenue, was pleased with his business over the holidays and was expecting an additional uptick post-holiday. “So far, so good,” he said, noting that the influx of foreign tourists in New York City and elsewhere was expected to bump results up. New York, Florida and Texas were particularly strong regions, Kondo said, adding that at the flagship store in Manhattan “it was like shooting fish in a barrel.”

The big categories this year were accessories and shoes, as well as designer sportswear, which was boosted by transitional deliveries. Cashmere, sport shirts, outerwear and neckwear were the hot sellers, Kondo said.

“We feel gratified by the season and year,” he said, especially in light of all the negative reports swirling around retail. “We combatted the trend and gained market share.” For next year, he acknowledged that there “are storm clouds out there, but we’re foolishly optimistic—we’re retailers.”

Lou Amendola, chief merchandising officer for Brooks Brothers, said the weekend before Christmas was “very good” and that the store was expecting strong sales in the week between Christmas and New Years. “People don’t do their shopping weeks in advance anymore,” he said. “It’s more like Father’s Day—they shop the weekend before, and the period after Christmas is very strong. Based on what was being said, they knew retailers would have plenty of merchandise available after Christmas and that it would be on sale. Hopefully, that will make up for the first two weeks of December, which were challenging.” With the exception of New York City, where the company now operates four stores, the Mid-Atlantic and Northeast were softer than the South and West Coast.

For the season, Amendola said dress shirts “did extremely well, up double digits over last year,” along with ties. Men’s suits and sport coats were tough, however. In sportswear it was sweaters and sport shirts that were the standouts.

Amendola said he believes 2008 will be “very challenging. The consumer is only responding if there’s a deal associated with it, and that will continue next year. Apparel is not their number-one priority and I don’t see any newness or trend to drive the business. So the real focus will be on execution over the next 10 months.”

Tom Kalenderian, executive vice-president and GMM of men’s for Barneys New York, agreed. “We had a great holiday, but the economic reports are concerning. So, in the short term, we’re performing and will end the season on plan, but for spring we have a very cautious approach.”

At Barneys the week before Christmas was big, enabling the store to meet its “aggressive” double-digit plan. The “overarching theme for the season was casual, specifically Co-op,” he noted. This was in sharp contrast to the beginning of the fall season, when dressy looks were the star. Accessories, particularly at the Madison Avenue store, had “a stellar season,” he said, noting that the store’s recent renovation of this area helped boost sales of scarves, up 62 percent, leather goods, up 41 percent, and other items such as belts and cufflinks. “It was a very successful modification,” he said.

Other popular items included outerwear, particularly Moncler and other cloth pieces, and clothing, mainly contemporary, such as Etro, Richard James and Dolce & Gabbana.

The soft spot was dress shirts and ties, he said, blaming it on “issues with holiday deliveries. Shame on our vendor partners,” Kalenderian said.

MIDWEST

CHICAGO — The 2007 holiday selling season came to a close pretty much the way it opened, with a lot of optimism—and a lot of promotions. With the major department stores across the Midwest, including Sears, Kohl’s and Carson Pirie Scott, cutting prices up until the very last minute, it seemed like everyone felt the need to jump into the discount arena.

“It’s been a more promotional season than we would’ve wished, but that’s what we needed to do to keep up with the competition,” said Scott Baskin, co-president, Mark Shale. “It’s really been like Let’s Make a Deal out there.”

“We had promotions every week, including the annual after-Christmas sale,” said Jennifer McNamara, spokeswoman for Macy’s North. “That’s part of our strategy—to generate excitement in our stores.”

For the most part, all those promotions did translate into steady traffic and sales that kept pace with 2006. Sweaters were reportedly strong across the board, especially cashmere. Sport coats and suits were surprisingly good. And even outerwear rebounded from a rather sluggish start.

“Outerwear did come back. Not in a big way, but it was better than it looked at the beginning of the season,” said Baskin.

“We had an exceptionally strong outwear season—up double digits from last year,” said Tim Ryan, owner of Harleys in Milwaukee. “And it was a mixed bag. We sold a lot of leather, some shearling, even fabric coats.”

Harleys, like its many independent counterparts, didn’t opt for any special holiday sales, favoring enhanced customer service and outreach instead.

“We didn’t break any prices until after Christmas and it didn’t seem to hurt us. We had a big clothing season—lots of sport coats. Sweaters were strong too.”

Retailers were quick to point out that the selling season doesn’t necessarily end with the arrival of Christmas Day. Almost all surveyed were looking to post-holiday sales, especially from gift cards and certificates, to push them over their yearend forecasts.

“We should see traffic from those who received gift certificates,” said Ryan, “especially with our post-Christmas sale. You get more bang for your buck.”

“Gift cards have been growing each year, so we’re looking for a big close,” said Baskin. “But right now we’re about where we thought we were going to be.”

SOUTHWEST

DALLAS — After sale-ing through the month of December, many of the Southwest’s major retailers continued to power-promote into the new year. The after-Christmas ads and circulars touted everything from big bucks off at Dillard’s and Kohl’s to money-saving coupons at Macy’s and Belk.

At Plano, Texas–based J.C. Penney, procrastinating purchasers snapped up last-minute deals as the company sliced prices on St. John’s Bay and young men’s outerwear 50 to 60 percent the two days before Christmas. Stage Stores also offered last-minute promotions, including a two-day, extra 15 percent off everything shopping pass at its Bealls stores. The regional department store retailer has 685 stores in 35 states operating under the Bealls, Palais Royal and Stage names throughout the South Central states, and as Peebles throughout the Mid-Atlantic, Southeastern, Midwestern and New England states.

“This season didn’t come until the very end,” said Dennis Abramczyk, executive vice-president and COO for Peebles, and spokesperson for Stage Stores Inc. “It was a struggle early on and we tried not to get too crazy with the promotions in an effort to help preserve our margins in the best ways possible. The customer was looking for better prices and better value. In some cases they traded down in price points to preserve spending capacity.

Licensed products, particularly football-related, started strong post-Thanksgiving and continued through December. “We were blessed in our part of the country to have five teams going to college bowls, as well as strong NFL teams,” said Abramczyk. “Our licensed business was excellent.”

Must-have items did not, however, include men’s wear. “This was the year of the men’s gift item, not apparel,” added Abramczyk. ”We did an incredible gift business, with gadgets, electronic toys, items from Tandy. We planned for it and we exceeded our plan.”

Abramczyk cited a lack of excitement in the industry for the sluggish apparel sales. “Apparel is kind of boring right now. No one has reached out to the customer with any newness—no new brands, new designers, new fabrics, new treatments. It was just business as usual. The customer looked in their closet and asked, do I need new khakis, new jeans, new sweaters? And the answer was no.”

Last-minute shoppers also affected luxury stores. “They come later every year,” said David Smith, owner of Pockets, an upscale men’s specialty store in Dallas. “I guess the luxury buyer doesn’t need to shop early. They are not looking for a deal, they are not arriving at a store at 7 a.m. for a bargain. They shop when they want, and we think it was a full day or two later this year than last.”

When specialty shoppers arrived, however, they were armed with cash. “[Business] was strong,” said Smith, noting that customers bought in all categories—from clothing to robes. “We had a good outerwear business and better sport shirts flew off the shelves,” he said. “Sport shirts are the new ties and we had success in the $280 to $400 range. We couldn’t get enough of them. Knits and long sleeves, however, were not happening.”

SOUTHEAST

ATLANTA — Major Southeastern retailers ended the 2007 holiday season less than thrilled after starting off with a bang in men’s apparel.

Retailers were aggressive on price promotions and some extended their hours to draw in shoppers, but it didn’t seem to work. Conrad Szymanski, president of Bealls Florida in Bradenton, summed it up when he described December sales as “middling.”

Best sellers at stores included denim jeans, casual slacks, synthetic fleece tops, and sweaters, while outerwear proved a problem. Retailers said their price promotions were about the same as last year’s, and that inventories were okay.

Better men’s independent retail stores, as a whole, have fared well this season. For example, Keith Kinkade, co-owner of The Rogue & Good Co., Jackson, Miss., said sales rose 10 percent, and he expects to end the year with an increase in the high-single to low-double digits. He’s looking forward to more good business this spring.

Steve Pernotto, executive vice-president, Belk, based in Charlotte, N.C., said men’s sales were satisfactory. The company’s promotional activity was about what it had planned. Best sellers were in better collections, gift items and big & tall apparel. Pernotto also said Belk managed its inventories well. “We feel we will be in good shape at yearend,” he said.

Richard Dawahare, men’s manager at Dawahares, based in Lexington, Ky., said sales were close to plan, which was a slight increase for the season. The company did make margin improvements and inventories ended in better shape than a year ago. “But it’s been a tough season,” he said. “We thought it would be better after Thanksgiving weekend, which was a big increase for us, but the rest of the season was flat.”

Best sellers included collegiate hooded sweatshirts, wind shirts, warmup suits, caps and gift items. Other strong sellers included woven shirts, crewneck cotton sweaters and quarter-zip fleece from Chaps and Izod; technical fleece from Columbia Sportswear; and acrylic sweaters from Geoffrey Beene. Except for cashmere-blend topcoats, outerwear did not perform well.

Dawahare said that for spring the company worked to improve the quality offered in men’s apparel. It will offer more golf apparel, and new brands should help boost sportswear. “We feel pretty good about spring but don’t think there will be a great increase,” he said.

Sales at Bealls Florida were best among utilitarian categories, such as denim and casual slacks, said Szymanski. “Giftable” items, including sweaters and novelty gifts, were under plan. “Put them together and it was [slightly under plan],” he said. The lackluster giftable sales put pressure on margins, he added, because they will go on sale now. Otherwise, price promotions were the same and just as aggressive as last year.

Szymanski said sales in Bealls’ Sunbelt stores from Georgia to California performed better than the Florida stores, where the real estate bust has produced “a difficult economy.” However, Bealls has already had a positive reaction to new spring merchandise, Szymanski said, adding he hopes that is “a bellwether for the tourist season in Florida. The weak dollar attracts European and Canadian tourists.”

Best sellers at The Rogue & Good Co., which finished a remodeling project in November, included Peter Millar shirts, cashmere sweaters, a vicuna cashmere coat, and shirts and ties from Robert Talbott, Ike Behar and Tailorbyrd.

WEST COAST

LOS ANGELES — Hampered by strikes, wildfires and one of the nation’s more ominous real estate bubbles, many West Coast men’s wear retailers expressed relief that holiday sales were largely on par with last year’s numbers.

Foot traffic, though down throughout much of the season, surged during the final weekend at popular L.A. malls, such as the Westfield Century City and the Beverly Center.

David Witman, vice-president and GMM of men’s at Nordstrom, said the Seattle-based retailer also experienced an increase in foot traffic and a rush on cold-weather items, particularly North Face down jackets, gloves and scarves. As usual, Nordstrom did not break for sale until the day after Christmas, when it began its half-yearly sale for men that continues until Jan. 6.

“Our foot traffic was where we expected it to be, and quite frankly the customer was out there buying the products,” Witman said. “I think we were as busy as I’ve ever seen us. I think we’re well positioned for 2008.”

But independent retailers interviewed also said they feared a particularly difficult first quarter in the new year and have cut back on orders as a result.

“It was a little better than mediocre, at best,” said Danny Marsh, owner of Sy Devore in Studio City. “The numbers were okay, but we had about 30 percent less foot traffic.” Marsh said he has canceled about 40 percent of his spring order, in part because of a drop in customers in the entertainment industry affected by striking writers and a halt in production. Marsh predicted business would be flat or down 15 percent in the coming months.

Among the top-performing items in the store, however, were Prps denim and leather jackets by Maison Bibliotheque.

Marsh and other retailers said they had relied less on heavy holiday promotions and depended more on loyal, affluent shoppers relatively unaffected by the local economic downturn.

Foot traffic surged during the final weekend before Christmas at Garys in Newport Beach, said co-owner John Braeger. As unseasonably warm weather in early December gave way to chillier temps, the store also did well with outerwear from Zegna and a $1,695 Gimo’s raw-edge leather jacket. Braeger said the store will not break for after-holiday sales until Jan. 10. “We certainly argue about this all the time, but when it’s late winter we’re the only ones in the area that have any winter items left, while everyone else has moved onto spring.”

As for sales predictions in the first few months of 2008, Braeger said he was “nervous. With everything we hear in the press, I’d say we’ll be flat to down.”

But some expressed optimism for sales during the final week of 2007, including Don Zuidema, co-owner of L.A. Sporting Club, which reported a 10 percent increase in December sales over the year-ago period. “The week between Christmas and New Year’s has become without exception nearly as strong as the week prior to Christmas. I think L.A. has become a place for New Year’s celebrations, and sales reflect that.” The West Hollywood men’s store promoted in-store events for the weekend prior to New Year’s Eve and will begin its after-season sale on Jan. 3.

Zuidema credited the sales uptick in part to a surprisingly robust denim business. “Our premium denim at $200 to $300 has been soft, a much bigger decline than denim under $200, but business has picked up again in all price categories.” Wovens were also key drivers, with Bill Tornade and Drykorn the standout favorites among shoppers.