AS WALL ST. REBOUNDS, SO DOES CONFIDENCE OF FASHION EXECUTIVES
NEW YORK — Wall Street’s wild ride took a sharp upturn Tuesday, and retailers and apparel executives were feeling a little more relaxed, but they were hardly loosening their seat belts.
The stock market reversed Monday’s record-breaking loss of 554 points on Dow Jones Industrials with another record-breaker Tuesday, but this time with a 337-point jump to close at 7,498.32.
Retail and apparel shares, which were whipped down Monday, generally joined in the rally Tuesday, and some made up much of Monday’s losses. Globally, the financial markets were still roiling, falling in Paris, Milan and throughout Asia. Nevertheless, the confidence level of fashion executives rose along with the Dow in New York.
“I would have been much more hesitant or concerned on Monday, and if yesterday had been a continuation of Monday,” said Dan Nordstrom, co-president of Nordstrom.
“To the extent that it does seem to be a correction, I think it actually increases people’s confidence,” he noted.
“We can move forward with the business,” he said. “People needed to know whether the market was a realistic situation or not, and now that we do know, we’re good to go for the holiday season. If this had happened on Nov. 17, that would have been more frightening. I’d rather have this happen than have fewer selling days, quite frankly.”
“We won’t change our strategies and plans,” Nordstrom added.
The strong comeback of the stock market was “a reflection of the basic soundness of the economy and the state of the consumer’s mind,” said William Chaney, chairman of Tiffany & Co.
“At Tiffany, we don’t intend to change our strategy, which has been highly successful,” he added. “Business is strong.”
The gyrations of the stock market were described by a spokeswoman for Federated Department Stores as “this year’s monkey wrench” in the holiday outlook.
“But at this point, it’s a blip on a radar screen and certainly no reason for a change in strategies or directions,” she continued.
“It’s extremely short-term, and there’s no way to determine the need to do anything differently at this point. There is no undue concern that we sense at this point. Based on today’s closing, there’s no reason for it.”
Yet another view came from Robert Burton, director of investor relations at Kmart Corp. While he agreed with others that there was no way to atell how the stock market would perform, even in the near term, Burton pointed out.
“It isn’t the Kmart customer who has benefited so much from the boom on Wall Street,” he said. “As the U.S. economy slows down,” Burton added, “discounters start to look better to more consumers.”
Meanwhile, among key stocks, Gucci Group made up only 1 5/16 after losing 6 9/16, closing Tuesday at 34 1/8; Polo Ralph Lauren, which dropped 2 3/8 Monday, picked up a point Tuesday to close at 25 1/2; Tommy Hilfiger made up 1 1/4 of Monday’s 2 3/8 loss to close at 43 15/16.
Donna Karan picked up 13/16 to close at 14 11/16 after dropping 1 3/8; Nautica lost 1 13/16 Monday, but recovered only 1/8 Tuesday to 28 1/4.
Warnaco, which is acquiring Designer Holdings in exchange for Warnaco stock, dropped 13/16 to 27 15/16 Tuesday. The exchange rate for the deal has been fixed, however, and Warnaco earlier this month acquired majority control.
On the other hand, Dayton Hudson ran up 7 3/4 to 60 1/8, more than making up for the 7 1/2-point drop during Monday’s collapse, and Wal-Mart Stores ran up 2 3/8 to 34 9/16, easily wiping out Monday’s 1 7/8-point loss.
Other retailers also made brisk recoveries.
Dillard’s was up 2 5/8 to 36 3/4; Federated, 7/16 to 41 5/16; The Limited, 13/16 to 22 3/16; May Department Stores, 1 15/16 to 53 3/4; Nordstrom, 2 13/16 to 57 1/16; Ross Stores, 1 1/16 to 35 13/16; Sears, Roebuck, 1 3/8 to 41 1/4, and TJX Cos., 1 13/16 to 28 3/4.
Volume on the New York Stock Exchange topped 1 billion shares for the first time; a turnover of 1.19 billion shares easily eclipsed Tuesday’s record trading volume of 685.5 million shares.
Most Asian markets, which were thought to have started the worldwide market slump in the first place, closed before the turnaround on Wall Street and were down sharply.
The Tokyo market closed at its lowest level in 27 months with the Nikkei average dropping 4.26 percent. The Hong Kong market also had another bad day, losing about 15 percent through midday.
It was the same story all across Asia: Taipei was near a 39-week low, Manila was at a four-year low, Bangkok was down 6 percent and Wellington New Zealand finished down 12 percent. In Bombay, the stock index plunged 7.8 percent.
But not only Asian markets were hit by Monday’s Wall Street slump.
On the Tel Aviv Stock Exchange, prices dropped nearly 10 percent. The Frankfort market in Germany was down 5.8 percent.
In Johannesburg, South Africa, the stock market suffered its worst day ever, falling 11.2 percent.
Even Russia felt the sting of Wall Street’s slump, and Russian stock prices slumped 19 percent.
But even as U.S. executives expressed relief, it was not without some angst.
“It is a little scary,” admitted Paul R. Charron, chairman and chief executive officer at Liz Claiborne Inc. “But given the currency challenges in Southeast Asia and the global nature of the financial markets, we cannot be flabbergasted. I am not saying that I was totally prepared for it.
“I don’t think we will see it having a negative effect on Christmas, unless it [the stock market plunge] continues,” he added.
“The stock market has had a hell of a run, and I still don’t think it is over.”
Charron said, given the devaluation of several Asian currencies, he has been carefully watching his business in Asia. “We are working more closely with our Asian manufacturers and retail partners,” he said. “We just had a meeting with some of our Asian retailers to talk about the situation, and how we could work more closely.”
“I had a pretty positive outlook on Christmas — until this,” said John J. Pomerantz, chairman and ceo of The Leslie Fay Cos.
“I just don’t know how this will affect the season,” he said.
In contrast, though, Linda J. Wachner, president, chairman and ceo of The Warnaco Group, stated, “The market has rebounded swiftly and strongly, and that’s a testimony to what a truly great country America is.”
As for consumer spending, Wachner noted, “There’s been some correction in the [stock] market here because of the overseas markets. That was inevitable. For Warnaco, though, I think this will be a great Christmas at retail.”
Commenting on how future capital spending may be affected, a spokesman for Neiman Marcus said, “We can’t make investment decisions based on the stock market. In the current fiscal year, we have about $100 million in our capital budget and not one penny of that investment will be determined by what the stock market does this day, this week or this month. When you’re investing in new stores, you’re investing for 30 years down the road. Our investments are long-term decisions.
“As for Christmas, that’s hard to tell,” the spokesman continued.
“Consumer confidence fell in September, before this market action, but our business has been good through the early part of the fall season and we anticipate it will continue to be good through the holidays.
“This won’t affect what our clients do,” he added. “If a market trend were to continue for a few months, that might have an impact. We’ve had a bull market for five years. One day of correction is nothing to worry about.”
Ira Silver, chief economist at J.C. Penney Co., also took a sanguine view. “I don’t see any appreciable negative impact on the apparel business emerging as a result of what has happened over the past two days,” he said.
“When people’s perceived wealth takes a hit, it tends to affect purchases of high-ticket items like cars, projection TVs or computers. It might even stimulate sales of less expensive items such as apparel,” he noted.
Wall Street analysts joined in the sigh of relief.
“Had it continued, it might have had an adverse effect on Christmas, and would have knocked down consumer confidence. Nearly everybody is involved in the market today, as opposed to a decade ago,” said Jay Meltzer of LJR/Redbook.
Meltzer said Monday’s steep decline prompted some legitimate fears that the market is overvalued, and these concerns remain. Yet strong underlying economic indicators remain, such as low unemployment, which gives credence to what Meltzer called the “don’t-panic speeches” of Monday and Tuesday.
He said the big issue is “what’s a fair price for a stock that’s growing at x percent in this market.”
As for the recovery, Meltzer said investors decided to take advantage of discounts. “People said, ‘Wait a minute. Things are still pretty good. I was interested in such and such earlier, and now it’s 10 percent cheaper, I’ll buy it today.”‘
Thomas Tashjian of Montgomery Securities agreed several more days of a downturn probably would have undermined consumer confidence. But he said that rather than the stock market, Halloween might give a better read on what’s happening at retail.
“It’s the second-largest commercial selling event of the year, and it’s pure, emotional, impulse-oriented selling,” he said.
“If that goes well, it could be a good indicator about Christmas.”
In his weekly report on retail sales, Meltzer’s Redbook Research reported sales in the third week of October edged up from the previous week; it was the second October week of strengthening retail sales. Same-store sales for the week were up 4.4 percent compared with 4.3 percent the previous week.
All in all, Redbook Research noted that if the fourth week of October produces gains comparable to those of the past two weeks, which is “entirely conceivable,” retailers would finish the month ahead of plan.
In Europe, though, brows were still furrowed. The CAC 40, the Paris Bourse’s leading stocks indicator, was down 10.6 percent at midday, but improved in the afternoon as the Dow kept climbing in New York. When the Bourse finally closed, it was down 4.27 percent.
L’Oreal turned in the best performance of the major French luxury goods stocks. Despite a dip earlier in the day, it closed unchanged from Monday at $338 (1,992 francs). LVMH Moet Hennessy Louis Vuitton closed down 5.75 percent to $161 (950 francs), despite nine-month sales gains announced Tuesday.
Hermes was down 6.1 percent to $60 (353 francs).
At Clarins, where Asian sales contribute 15 percent to turnover, executive vice president Serge Rosinoer said the company has been aggressively opening subsidiaries in Asia, in Taiwan and Indonesia, and had no plans to pull back on its investments there.
“Clarins has always prided itself on a long-term approach,” he said.
“There may indeed be a financial bubble, but Asians are incredibly hardworking and there are many reasons to believe that there is a strong future for our company in the region.”
Clarins stock also was off for the day, finishing at $66 (390 francs).
LVMH executives would not comment on the downward spiral of their stock price, which has nosedived 43 percent from a high of $273.30 (1,640 francs) July 3. A spokeswoman for the company noted a “phenomenon on the Paris Bourse is one thing,” but it was too early to say how the sell-off of luxury stocks ultimately would affect the purchasing power or motivation of traditional luxury consumers.
“What is happening? The stock markets are telling us that Asia is gone, wiped out, nuked. But is that possible? No,” said Merrill Lynch analyst Edouard de Boisgelin in London.
“This is panic selling as it reflects the perception of Asian business,” he said.
“The market is assuming that there will be no more sales from Asia, but that is not possible. The Japanese will continue to travel, but they may travel less, and they will still buy luxury goods.”
De Boisgelin said Japanese consumers make 40 to 50 percent of all luxury goods purchases since they buy many of their high-end goods outside Japan.
Even if some luxury firms boast that their exposure to Asia in sales hovers around 30 percent, these companies are not disclosing what Asian consumers are buying in their stores in Europe or the U.S. Even so, de Boisgelin said he feels they will continue to buy unless there is a disaster in the local Japanese economy.
“If the yen goes to 145, there will be no place to hide in the sector,” de Boisgelin said, adding that he is not predicting a downturn.
Like other analysts, de Boisgelin said the dropping prices of luxury stocks do not properly reflect the performance of many luxury goods firms in the Asian markets.
“Look at LVMH, which announced today that sales for Louis Vuitton goods were up over 20 percent across all markets,” he stated.
But one analyst, who asked not to be identified, said some luxury stocks whose prices have fallen more than 40 percent in the last three months were overvalued, and the sell-off reflects a corrected price based on the companies’ true fundamentals.
Gucci is down some 50 percent since its high this year; Hermes is down nearly 40 percent and L’Oreal is down 30 percent from its 1997 high.
“Some stocks are down 30 percent for no reason, but LVMH — anything that corrects itself by 40 percent over three months, you have to ask yourself what that business is really worth,” the analyst observed.
In Milan, the stock market opened under heavy selling pressure with prices slumping as much as 10 percent. The upturn on Wall Street gave investors a flicker of hope and the MIB 30 index recouped late in the day, softening the loss to 6.2 percent.
“It was dramatic,” said Francesca Rulli, a textile-apparel analyst with Milla Sim stock brokerage.
“I’ve never seen anything quite like it. Stocks in Milan lost, on average, from 5 to 9 percent,” Rulli said.
Rulli pointed out that trading was negative on all the major European bourses.
In the luxury goods sector, Bulgari fell 7 percent to $5.58 (9,614 lire), while Gucci plunged 14.86 percent to $31.50 (63 guilders) in Amsterdam.
“Gucci can’t do too much at this point,” said IMI-Sigeco’s Paul Gordon. “They have to continue making beautiful products, protecting their brand image and focusing on turning a profit.”
Gordon added that as a result of the crisis, the worst that could happen was that Gucci might have to slow down its Far Eastern expansion a bit.
In the textile and apparel sector, Benetton fell 9.6 percent to $13.98 (24,050 lire), Marzotto dropped 8.8 percent to $10.80 (18,580 lire), Stefanel (which has a limited float) lost 7.65 percent to $1.87 (3,223 lire) and Simint dropped 6.96 percent to $6.93 (11,933 lire).
“The decline in the textile and apparel stocks was primarily due to the general nervousness in the market,” Milla Sim’s Rulli said. “These companies don’t have a high exposure in the Far East. The impact for them is limited to increased competition on the production side because of the devaluation in the regional currencies and the general slump in consumer demand as a result of the crisis.”
“Cheaper currencies mean lower costs and an edge over Benetton, in particular, which manufactures in Italy, but sells all over the world,” said Gordon.
Stefanel also could feel a pinch because of its agreement to market Calvin Klein’s CK collection in the Far East, Rulli added.
Some analysts said Marzotto was likely to suffer less than others.
“Marzotto is not going to be affected as much because their product is much more mainstream, although I suppose there is potential for Hugo Boss to grow in Asia, and investors are worried that may not happen,” said Gordon.
Looking ahead, Gordon added, “We’re reasonably sanguine as far as Italian companies are concerned.
“If plans for a European monetary union remain on track, interest rates here should continue to come down. There are no big political problems in sight, and right now, economic growth in Europe is accelerating.
“There is a slight worry that something nasty might come out of the whole Asian crisis — that it might reduce demand from Asia as a whole — but it’s not a big fear.
“Japan is still the main economic force in Southeast Asia and there is no crisis in Japan, so we’re not that worried about any long-term effects,” Gordon said.