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Cautious Note Struck at Altagamma

Retailers may be by their very nature optimistic, but most of those speaking at the Altagamma fashion and luxury goods conference here Tuesday had a somber...

MILAN — Retailers may be by their very nature optimistic, but most of those speaking at the Altagamma fashion and luxury goods conference here Tuesday had a somber outlook for the second half of 2008 and beyond.

This story first appeared in the June 11, 2008 issue of WWD.  Subscribe Today.

On prerecorded videos played at the event at the Milan Stock Exchange, U.S., European and Japanese executives said business had been bumpy so far this year and forecast at best flat- to midsingle-digit growth for the next six months.

They said some categories were holding up, like expensive watches and jewelry and the top end of the clothing and shoe business, but that more accessible luxury items — notably in ready-to-wear, women’s shoes and handbags — were suffering from the global economic downturn.

To wit, Italy’s Gruppo Coin, operator of the Coin and OVS department stores, and which was not at the conference, on Tuesday reported a 61 percent drop in first-quarter profits. Net earnings for the three months through April 30 fell to 1.1 million euros, or $1.69 million at average exchange, on sales of 260.6 million euros, or $399.6 million, down 2.9 percent.

After being caught out in the first part of the year and forced into aggressive markdowns, many retailers at Altagamma said they were taking a more risk-averse approach to their inventories for fall, getting more bang for their buck and, in some cases, reducing order quantities.

Some also called on brand owners to help them weather the storm, particularly in terms of pricing.

“Everybody’s got to take a bit out of their margins to make sure that we price the merchandise fairly in the U.S., given the situation of the dollar,” Neiman Marcus president and chief executive officer Karen Katz said.

Executives also urged brand owners to focus on the core products, which enabled them to create brand value in the first place.

“This difficult situation has brought out each brand’s competency and its core items….In other words, high-end core items enjoy strong customer loyalty and take advantage of the brand’s know-how, technology and history….Therefore, I believe we can get over such market conditions if [there are] strong collections based on [a brand’s] core items,” Isetan president and ceo Nobukazu Muto said.

While business may be booming in emerging markets, retailers from Russia and China cautioned that local partnerships were key to brand-building and luxury and fashion houses needed to invest in their retail operations to maximize returns.

Indeed, according to a study by Milan’s SDA Bocconi School of Management, Altagamma and Ernst & Young that was presented at the conference, the compound average growth rate of global luxury sales in 2007 was directly proportional to the annual growth rate of the number of new stores that year at around 10 percent.

Here is a summary of what retailers had to say:

Karen Katz, president and ceo, Neiman Marcus Stores: “We absolutely believe that our business will bounce back, it’s just hard to know exactly when….We think the fall is going to be a little more challenging. We’ll be playing it more conservatively, and we hope that by spring, things will open up after the elections….We’re holding up inventories very tight. We’re placing orders obviously with all of our Italian vendors and European vendors but, because of the value of the dollar, the units we place are definitely less than last year….We want customers to pay regular prices so that is something we are focusing on as we go into the fall.”

Ron Frasch, president and chief merchandising officer, Saks Inc.: “What we need are products that are sensitive to the lifestyle of our customers….[Also] when I talk to brands, too often they are not managing to an objective in terms of [pricing]….Our goal is to get our inventories aligned for August…. Our biggest challenge is that our dollars are buying [fewer] units. So it’s how to become intelligent in terms of how we realize those dollars. We expect [growth in] the fall to be in the low- to midsingle digits. We expect our New York store to continue to grow primarily because of the tourism factor.”

Debra Greenberg, ceo, Louis Boston: “I suspect that this flatness is going to stay around for a while….I suspect that 2009 will also remain very slow until certain policy changes [in particular regarding the war in Iraq] happen, if they are going to happen….So, consumer confidence has got to remain cautious at best in the U.S. for quite a while until the people can really feel any difference of what’s going on here. With that, I think the purchasing will still go on…but I think it’s very investment-oriented. I believe that people will be buying things that they feel will be useful to them for many years to come. I also believe that they are not so quick to buy flippant goods that represent some kind of quick wealth to them. Those years are gone here in the United States. Maybe not globally, but they are definitely gone here in the U.S.”

Luis Sans, ceo, Santa Eulalia, Barcelona: “Unfortunately, we don’t expect any improvement at the end of 2008, not even in 2009, and to be honest, we are planning even to decrease our buying in 2009 just in case. I mean, if afterward, just in case we have an increase, we will run to our vendors to ask for more merchandise. But we prefer to run than to merchandise stock in our warehouse.”

Patrice Wagner, managing director, KaDeWe, Berlin: “We are pretty positive….We have [experienced growth in terms of] leather goods [and] accessories and this will be the focus for this year. We [have done] much better than [expected]….For next year, we plan to have a focus much more on fashion.”

Mikhail Kusnirovich, chairman, Bosco di Ciliegi, Moscow: “We started [the year] very strongly….Our February and March were very good. Then April was a little bit slow. And then now in May, we’re very fast again. Unfortunately, we don’t have nice weather during this spring, but in any case it’s been very positive….We will not have such big budgets for [next] spring….2009 for us must be the year of quality, not quantity. We need to concentrate all our forces on the service to create very strong consumer fidelity in the long term. This is the plan.”

Balbina Wong, chairman, Imaginex, Hong Kong: “Growth is certainly impressive in China….All business in Hong Kong is over 30 percent up in all categories of our brands. I don’t see any reason why this should stop as the population becomes more affluent, more knowledgeable, more fashionable, more trendy….I would recommend [brand owners to] study the market, study what you have, invest. There is a cost of building a brand. Getting the right partner is the key to success….When you do business in China, you shouldn’t think of China as [a whole]. You have to be focused on one city and then on another city because they are different. It’s not like the U.S. You have to think of China as Europe….We have one language, but many different dialects. Also, there are differences in terms of taste when you talk about ready-to-wear and fashion.”

Nobukazu Muto, president and ceo, Isetan, Tokyo: “To be honest, the situation isn’t very good. The market appears to be on a downward trend since October 2007 and it’s getting worse this year. I thought consumer [confidence] would recover if the losses due to the subprime crisis were to stabilize. But the situation continues to be uncertain in the first half of this year. I feel that the market conditions will continue to decline….We have to deal with this unavoidable situation….The key point for the improvement in consumer confidence is to relieve consumer uneasiness by releasing the total losses due to the subprime crisis. I think consumers will start spending again once they have a clear picture of the situation. I hope things will become clearer in the course of this year, so business can pick up next year.”