THE ECONOMY IN FREEFALL
Byline: Arnold J. Karr
The infamous “R” word got spelled out just a little earlier in the apparel business.
The National Bureau of Economic Research made it official late last month that the American economy was in a recession and had been in one since March, putting an end to the longest economic expansion in the nation’s history.
For the average consumer, the information had all the impact of a two-week-old weather forecast. For the apparel industry, it had even less. Fashion industry types had spent even the latter part of 2000 wrestling with the reality of lower demand for apparel, price resistance and an amalgam of concerns stemming from a less-than-merry holiday season.
Chief among these was the inert performance of retail sales as last year drew to a close. For all but a few publicly held retailers, most notably Gap Inc., comparable-store sales grew at a healthy clip last year, but that growth was interrupted just when it was most needed. In December 2000, Goldman Sachs Comparable-Store Sales Index advanced a mere 0.2 percent, as stores were unable to significantly beat their December 1999 performances. A WWD tally of 50 major retailers, both specialty and broadline, showed 25 companies comping positively with 24 declining and one flat. By contrast, a year earlier, 43 had gains, six had declines and one, Wet Seal, didn’t report. Gap’s December 2000 comps came in at 6 percent below prior-year levels, considered an anomaly at the time, but eventually viewed as just a preview of worse to come.
Even before December comp-store results were calculated, there was distressing news of another sort as both Montgomery Ward and Bradlees shut down, with no plans to reemerge, in the week following Christmas. In a statement that would prove prophetic, Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates, said: “We’re into a retail retraction. The first half or three quarters of year 2001 are going to be a continuation of what we saw in the fourth quarter. At best, they’re looking at a very low, single-digit increase, if not flat, even if fuel prices go down and the weather gets warmer,” to stimulate sales of spring goods.
“Now that companies are being valued at rational earnings ratios, the stock market is not about to come bounding back,” Aronson continued. On top of that, there are fears of business downsizing and layoffs.”
Comp-store sales would travel an uncertain route throughout 2001, never fully getting their footing before Sept. 11 and never quite recovering whatever momentum they did have afterward. Goldman Sachs’s composite comp results through last month were: up 3.5 percent in January; up 1.7 percent in February; up 0.7 percent in March; up 3 percent in April; up 0.7 percent in May; up 2.1 percent in June; up 2.4 percent in July; up 2.6 percent in August; flat in September; up 0.9 percent in October, and up 2 percent in November. Specialty stores were the strongest performers as the year began but as the economy and consumer confidence deteriorated throughout the year, mass merchants and value-oriented department stores like Kohl’s would lay claim to that title. In November, Goldman Sachs penciled in a 9.2 percent comp decline for specialty stores, with Gap’s 25 percent drop and Eddie Bauer’s 21 percent slip the most dramatic.
Of course, the Sept. 11 tragedy would turn the likelihood of a difficult Christmas into a certainty, but it operated in other ways as well. Luxury goods, which had been growing at a double-digit pace as the rest of the economy grew at a healthy single-digit clip, initially were expected to weather a recession fairly well, as affluent consumers refused to consider trading down and “aspirational” middle-class types continued to view luxury apparel and accessories as a well-deserved indulgence.
But the attacks on the World Trade Center and the Pentagon changed that immediately, not so much because of a change in anyone’s disposable income as much as limitations in their mobility. Tourism came to a standstill in the months following the attacks, and haven’t resumed at anywhere near preattack levels since. Travel to and from the world’s fashion capitals has fallen markedly, with many of the stores that sell luxury goods under their own names or the names of others weathering severe cuts in traffic, transactions and sales. Even if a luxury slowdown was inevitable, the tragedy accelerated and deepened it, putting venerable vendors such as LVMH Moet Hennessy Louis Vuitton, Gucci, Richemont and Prada at risk of failing to meet sales and earnings estimates. In a sobering show of market solidarity, luxury firms were warning of lower-than-expected earnings, along with department, specialty and even some discount stores.
Still, the year wasn’t without its positive performances. Wal-Mart stayed on track. Kohl’s, Chico’s FAS and Talbots continued to grow well ahead of market averages. J.C. Penney Co. showed signs of becoming Allen Questrom’s latest turnaround. But for a wide array of retailers — Saks, Dillard’s, Nordstrom, Federated, May Co., Charming Shoppes, Ann Taylor and TJX — sales, margins and profits would be under pressure all year, as would stock prices, before a mild recovery that was extending into December. And as markdown pressures mounted for retailers, chargeback pressures on their suppliers escalated to new heights, or depths. Early in the year, Saks would postpone the spinoff of its Saks Fifth Avenue division. After Sept. 11, SFA’s dependence on New York for retail dollars would combine with problems in its department store group to produce large year-to-date losses and sales declines.
The difficulty facing retailers was reflected in the Conference Board’s monthly reports on Consumer Confidence which, somewhat predictably, softened throughout the year and took a nosedive in September, from which it has to recover.
However, hopeful signs could be seen in an increase in the Expectations Index in November. As Christmas approached, the cost of fuel began to fall, freeing up money for holiday spending, and the Federal Reserve lowered interest rates to 2 percent, the 10th rate reduction of the year.
Michael Faircloth is a charming Texan who’s been designing Laura Bush’s clothes for years, so it made perfect sense that she chose him to create her inaugural gown. The dress he dreamed up for the new First Lady was right on the mark: a fire-engine red lace number that stood out on the dance floor. Riding on the wave of his recent press, Faircloth intended to show his first ready-to-wear collection in New York for spring, but his plans were foiled by the terrorist attacks.
The Young Edwardian
Marc Jacobs knows what girls want. The Edwardian-style denim jacket from his fall Marc by Marc Jacobs collection flew out of the stores. Since then, the style and fin de siecle theme have been knocked off all over the denim world, just like his permanently creased jeans the season before.
Although they met 26 years ago, Barry Diller and Diane Von Furstenberg didn’t tie the knot until this February. “We fell madly in love. From day one, he totally trusted me, totally opened himself to me,” DVF said of her longtime companion. The wedding was held at City Hall, and the bride wore one of her own creations, a dress stitched up just a day before the big event. She insists, however, that marriage won’t alter the relationship. “Barry is my family forever. That will never change.”
For both fall and spring, the pioneer girl was queen of the runways. It all started in March, when Davy Crockett coonskin hats and tails cropped up in Milan, most notably at Prada and Dolce & Gabbana. In September and October, a sweeter prairie look emerged with calico dresses worthy of Laura Ingalls herself.