EXPORTS: EUROPE’S BEST GROWTH OPPORTUNITY
AS EUROPEAN MANUFACTURERS STRUGGLE TO INCREASE SALES IN THEIR OWN ECONOMIES, MANY ARE BROADENING THEIR EXPORT PROGRAMS, THROUGH RETAIL OPERATIONS, JOINT VENTURES AND LICENSING. HERE, VIEWS FROM PARIS, MILAN AND LONDON.
Byline: Katherine Weisman / Samantha Conti / James Fallon
While the French economy is poised for stronger growth, French fashion companies know that they cannot rely on their home market for increasing sales.
According to official figures from the French Minister of Economy, France’s GDP is expected to grow 2.3 percent this year, and 2.8 percent in 1998. This compares with the relatively flat 1.3 percent gain registered last year. But even with growth, executives say that the domestic market in France, with a population of 58.5 million, “is too small,” said Ralph Toledano, president of Guy Laroche.
As economists and executives have observed here over the past few years, apparel, textiles and accessories purchasing has stagnated. French consumers are worried about unemployment. The country is plagued by frequent strikes from virtually all quarters, from airline attendants to bank workers. And who can forget the transportation strikes that paralyzed the country at the end of 1995? This uncertainty has resulted in a stagnant retail and textile economy since the Gulf War, explained Francois-Marie Grau, the director of economic affairs for the Union Francaise des Industries de l’Habillement (UFIH), an industry group.
“People have put their disposable income into savings. And if they buy consumer goods, it is more long-term purchases, like home appliances, rather than fashion apparel,” Grau noted.
“There has been no recovery,” added Philippe Adec, president and designer of the company bearing his name. “In France, we have no choice. Retailers are closing.”
Adec says this is due to the economy as well as old-fashioned shop owners not keeping up with the times. But Adec points to export not only as a means to get sales from healthier economies, but as an essential part of a company’s business, “given the globalization” of fashion. Last year, 25 percent of Adec’s volume was realized outside of France, with strong growth coming from the U.K. and Taiwan, he said.
“A brand with [name recognition] like Yves Saint Laurent has to be a prophet at home and abroad,” explained YSL licensing director Pierre Levy, who said exports are “balanced” among Europe, North America, Japan and the Far East.
But executives point out that to export effectively, a brand must first be well-established in its home market, and then expand.
“The U.S. market is already mature for Armani, so now, he’s looking at emerging markets,” observed Toledano. Since Guy Laroche is practically starting from scratch with its fall-winter collection under the new design direction of Alber Elbaz, the company is focusing exports on the U.K., Italy, Germany and the U.S.
“Of course, I am pleased if Koreans write an order, but I get twice the size order working with Neiman Marcus,” Toledano said.
Interestingly, the French apparel industry has suffered a foreign trade deficit since 1986, according to French customs figures compiled by the UFIH. Last year, French exports totaled $3.1 billion (17.7 billion francs), up 1 percent compared with 1995. The five key export markets were Belgium, Germany, Japan, Spain and the U.K., in that order.
This compares with textile imports into France, which last year totaled $5.1 billion (28.9 million francs), an increase of 10 percent over 1995. The primary supplying markets were Morocco, Tunisia, Italy, China and Portugal. Italy, however, remains the thorn in France’s side. Italian imports into France rose 9 percent last year to $473.7 million (2.7 billion francs), while French exports to Italy were flat at $175.4 million (1 billion francs).
“The Italians produce goods with the same high quality and creativity as the French, and even though the lira has experienced a few gains, it is still at a 10 percent differential to the franc compared to the 1992 level,” Grau said.
Since the start of the decade, Italy’s domestic market has been in the doldrums, and experts say it will be a long time before Italians start loosening their purse strings once again.
As a result, Italian designers and clothing manufacturers are focusing more than ever on foreign markets, expanding their businesses in the U.S. and Asia and seeking new opportunities in Eastern Europe and the Middle East.
Italy exports approximately 51 percent of the clothing it makes; its five largest markets are Germany, Japan, France, the U.S. and Switzerland. In the first seven months of 1996, the value of Italy’s clothing exports was about $6 billion, or 10 trillion lire, a 6.6 percent rise over 1995. The strong dollar is helping considerably.
“For Italian designers and manufacturers, exports have always been a significant part of the business. And they will continue to grow for two reasons: the domestic market will be slow for at least another two years, and there are still great opportunities for expansion in North America and Southeast Asia,” said Carlo Pambianco, a luxury goods consultant here.
The most dynamic markets for Italian fashion houses are the U.S. and Far East. Missoni, Dolce & Gabbana, Versace, Genny, Etro and a slew of others are expanding their businesses there. Many are focusing on a younger generation of consumers hungry for luxury goods.
In 1995, the wholesale value of Italian exports to the U.S. was $3.3 billion, according to a study by Pambianco. Sales of Italian apparel represent about 25 percent of all high-end clothing sales in the U.S., the study said.
“This is a particularly upbeat moment for our U.S. business,” said Vittorio Missoni, president of Missoni USA and the company’s export manager. “We’ve taken on a whole new, younger clientele who are buying like crazy. We’ve been around for a long time, but they’re just discovering us.”
In a bid to appeal more to the U.S. market, Genny chairman Donatella Girombelli chose American-based designer Richard Tyler to replace Keith Varty and Alan Cleaver for the Byblos collection.
“We wanted an American designer. Right now, the U.S. is a hotbed of innovation, especially for young people. There is so much energy coming from there,” Girombelli said. Her goal is to double Byblos’s U.S. and worldwide sales over the next three years.
Asia, too, is a growing market for Italian exporters. Japan is Italy’s second-largest export market, with 12.8 percent of total exports, and Hong Kong is ninth, with 3.5 percent.
Dolce & Gabbana is opening a string of boutiques across Japan in the next five years under an agreement with Misaki Shoji, an Osaka-based designer clothing distributor. The deal is expected to generate at least $128 million (200 billion lire) for the design house in five years.
The company, which announced the plan last year, will open 50 stores by 2001; half will be for Dolce & Gabbana’s signature collection, the other half will be D&G stores.
Krizia, which already does a booming business in the Far East, is aggressively pursuing business in China. It is among myriad Italian designers — including Valentino, Gianfranco Ferre, Laura Biagiotti and Gucci — that are opening shops in China.
Last year, Krizia staged its first fashion show in China, and this year, chairman Aldo Pinto has already received a delegation of buyers from the country who ordered the Krizia Poi line for a new shop in Beijing, near Tiananmen Square.
Pinto also said business was developing for the company’s Basic by Krizia line, which is made in China through a joint venture.
“It’s a line for men and women, consisting of a few pieces,” Pinto said, “but it could become a big business if we sell it in all of Southeast Asia, Japan and China.”
In a country of only 57 million people, where up to 60 percent of apparel sales are represented by retailers’ private labels, the only choice designers and other manufacturers have is to export.
Such retail chains as Marks & Spencer PLC, The Burton Group PLC, Bhs and Next PLC dominate Britain’s major shopping streets and sell almost exclusively their own labels.
So designers and branded manufacturers have been forced to look abroad if they expect any growth. For most of these companies, the prime target is the Far East, where there have long been consumers eager for British style. Paul Smith, for example, gets most of his $103 million in yearly sales in Japan, where he claims to be the largest-selling men’s wear designer — even bigger than Giorgio Armani.
Katharine Hamnett also has a strong business in Japan, as do such younger designers as Alexander McQueen, Clements Ribeiro, Copperwheat Blundell, Hussein Chalayan and Bella Freud.
Even manufacturers of traditional British brands target the Far East more than other markets. It has been the main market for Burberrys for years, while Aquascutum is even owned by a Japanese company, Renown. Its strategy for the last several years has been to focus almost all its expansion on the growing economies of the Far East rather than on Europe or the U.S.
But that doesn’t mean these labels are ignoring the U.S. Because of the continued popularity of London, American stores are increasing their orders from British designers and brands.
Such labels as Joseph, French Connection, Nicole Farhi, Favourbrook and Amanda Wakeley reported strong U.S. orders following the London runway shows at the end of February, and American buyers are increasing their trips to London to look for such categories as accessories, eveningwear and knitwear.