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NEW YORK — The designer flagships on Fifth and Madison Avenues here are feeling the pain and joining the song of the season: “Sale!”
This story first appeared in the May 23, 2008 issue of WWD. Subscribe Today.
While monobrand boutiques used to jealously guard their prices, putting spring merchandise on sale only well after Memorial Day, the weak economy and record-high gas prices have sent them into markdown mode earlier than ever — partially in response to department stores, which have done the same. Walk into major designer stores here and prices are being slashed by 30 to 40 percent now — and retailers said discounts are likely to go up to 60 percent in the next few days. The stores themselves often resemble Loehmann’s and TJ Maxx more than chic lifestyle emporiums.
“The promotional atmosphere has picked up,” admitted Tom Murry, president and chief operating officer of Calvin Klein Inc. “Everyone is pretty much aware the retail climate in the U.S. is more difficult this spring versus last spring. A function of that is more markdowns and earlier markdowns. We came out of a very long extended [period of economic] expansion and are now working our way through a slowdown. Oil prices are certainly part of it.”
At the Calvin Klein boutique on Madison Avenue, the entire mezzanine was devoted to sale items, everything from ready-to-wear to innerwear, all at 40 percent off. There were suits in black, gray and ivory, a gaggle of LBDs, long black dresses, long chiffon fuchsia cardigans and gray sweaters. Even tourists are watching their money. “They buy small things like sweaters,” a sales associate said.
Designer boutiques have been put in the uncomfortable position of having to compete with department stores and luxury specialty chains with which they do business. Saks Fifth Avenue, for example, on Tuesday said that aggressive promotions dented profit margins. “Just Cavalli went on sale earlier as a consequence of department stores breaking sales earlier than usual,” said Enrico Di Muccio, chief executive officer of Cavalli parent IT Holding USA. “Currently only the pre-spring collection is on sale [at Just Cavalli]. The American consumer is more cautious for sure, but the European tourists who are so aware of the Just Cavalli brand are an incredible asset to the boutique right now.”
Di Muccio noted the Just Cavalli store has been open only since September. “The Europeans have been helping a lot by boosting the sales,” he said. “Revenue hasn’t been affected quite yet.”
“The impact of Saks’ Friends and Family sale so early in the season [it kicked off in late April] was pretty stunning stuff,” said Wendy Liebman, chairman of WSL Strategic Retail. “It’s an example of the caution on the part of luxury customers. Even though they have more disposable income, they’re increasingly cautious about what’s coming next. People shopping everywhere for anything. If I’m walking into Saks to buy Armani and I’ve got my 40 percent off and it’s [current] season, what’s the Armani boutique going to do? You throw down the gauntlet and have to respond.”
Liebman said that aggressive promotions are out of character for luxury designer stores who “have very loyal, affluent shoppers who were less impacted and therefore didn’t have to be as promotional.”
Designer boutiques have traditionally held private sales with discreet invitations sent to top customers. This season, however, private sales aren’t so private. Ralph Lauren ran an ad announcing its private sale, which was open to the public, in The New York Times.
On the third floor of the designer’s Rhinelander mansion on Madison Avenue last Friday small framed “sale” signs hung over every fixture in every room. Black Label spring styles were discounted by 40 percent as were items in the Purple Label room, including a long floral-print gown with large black flowers reduced to $1,399 from $2,298. A sales associate said Purple Label would go back to full price on Monday. However, a check of the store on Tuesday found everything in the room still on sale. Shoes and handbags were marked down 50 percent off.
“Spring Sale in Progress” read a sign in the window of MaxMara, where the entire third floor was devoted to MaxMara, SportMax and ‘S Max, handbags and accessories, at 30 percent off.
“Sale, sale, sale, sale” echoed a sign in the Escada window. An associate showed a customer to the upper level where a vast space divided into several rooms held racks and racks of chiffon dresses, long gowns, suits, sheer layered skirts, white shirts and even a short mink jacket priced at $12,500. Most of the offerings were 40 percent off on Monday. The associate said everything marked 40 percent off would be reduced to 60 percent off today and the pieces that weren’t on sale will be discounted 40 percent.
St. John’s sale on the lower level of the Fifth Avenue flagship featured about 30 racks of St. John Couture and the St. John Collection’s signature wool and rayon suits, discounted 40 percent. There were pink bouclé suits, pink leather croc embossed jackets, animal print knits, white and gold knits, black knits and Nancy Reagan red ones.
The cost of manufacturing in Europe, as many luxury brands do, is also a worry, given the weakness of the dollar against the euro, which has forced many designers to raise their prices. “Only our Collection is manufactured mostly in Italy,” said Murry. “It’s a very small business for us. We’ve absorbed most of the euro impact. Most of the rest of our products are made in Asia. We’re seeing at the higher end a lot of European shoppers taking advantage of the exchange rates. In our Collection business, we’re having a very good spring. We might be promoting a little bit earlier in our department store business in some categories. Probably sportswear, which is a big zone and it’s a zone that’s been sluggish for a while.”
Diane Levbarg, executive vice president of Missoni USA, said, “My Missoni real line is so expensive. Talk to me about how expensive things are. It’s because of the euro. I’m shipping early because I’m hoping if it gets in early and the weather holds cold, people will buy for Memorial Day weekend. I’m worried because everything I read is so grim, but my business is holding. I’m hoping the euro goes in the other direction.”
In harder times, value plays a larger role. “What’s different from last year, is more people are coming and putting things on hold and then coming back to buy,” said Yildiz Yuksek Blackstone, president of Luca Luca. “After their research they feel this is a value. Our price points are quite attractive for the quality and beauty we offer. Our clients are more value-conscious. Shopping at that moment is not happening. In the past they were more spontaneous.”
“The promotional nature of Macy’s, Saks and Bloomingdale’s is hurting these designer stores,” said Walter Loeb, president of Loeb Associates. “We’ve already seen swimsuit sales. There can’t be anything earlier that. The serious concern everybody has about how long is this downturn going to last. The weather has been unfavorable on many weekends lately. On top of that, there is concern over unemployment, which is very quietly happening in this city. A lot of people are being laid off.”