STEADY ON
DOOM-AND-GLOOM PREDICTIONS OF A SLOWDOWN MAY BE FLYING EVERY WHICH WAY, BUT LUXURY COMPANIES ARE COUNTING ON THE TRIED-AND-TRUE CUSTOMER TO SEE THEM THROUGH.

Byline: Jennifer Weitzman / Julee Greenberg

Judging by the frenzy of well-heeled attendees window-shopping at January’s New York National Boat Show, one could question the prevailing theory that the luxury sector’s recent sales woes are a sure sign that this segment is headed for a slowdown.
Industry insiders say that while sales were down for most luxury players during the holiday giving season, the bubble has not burst for the sector, and some even went out on the limb to say they expect it to show modest growth this year.
Their rationale: While the nouveau riche — who helped to fuel the luxury sector while the economy was red hot — may be cutting back, there are still plenty of wealthy consumers who won’t hold back from purchasing big-ticket additions to their wardrobe. In addition, they say, Alan Greenspan, the chairman of the Federal Reserve and the man who many credit as the maestro of the country’s longest-running stretch of economic good times, would not allow a backslide into recession.
It has been well reported that the luxury sector has enjoyed double-digit sales increases since 1998, benefiting from dizzying rises in the stock market and historic levels of consumer confidence. But that all came crashing to a halt in the latter part of 2000, when the stock market was brought back to earth and an inconclusive presidential election left many consumers more cautious with their pocketbooks.
So while the Dow Jones’s woes might leave many with tighter purse strings, and luxury retailers — from Tiffany to Neiman Marcus to Saks Fifth Avenue — may see a drop in sales, analysts and economists aren’t exactly forecasting doom and gloom for the higher-end markets. Instead, they said most luxury retailers can expect to scale back to a more rational level of sales.
“Nothing lasts forever,” said Arnold Aronson, managing director of retail strategies with Kurt Salmon Associates, adding that the slowdown was neither a good or bad thing, but rather, represented a move toward stabilization.
“The bubble is deflating, but not bursting,” Aronson said.
Dana Eisman Cohen with Banc of America Securities, said, “All luxury companies in the U.S. saw substantial deceleration starting in November, [as opposed to] their dramatic momentum in late 1998. But with Mr. Greenspan lowering rates, hopefully that will put a floor on the deceleration.”
Philip Bleser with J.P .Morgan Chase said because the Fed has room to ease interest rates and he expects the economy to still grow, he believed the luxury sector to be flat to last year. He advised clients to take a cautious approach by planning inventory carefully and by exercising caution on the production side.
Andrew Jassin, managing partner with Jassin O’Rourke Group, a fashion consulting group in New York, thinks that the market will see a slight shift to the negative.
“The biggest change for the luxury sector is its customer,” Jassin said. He explained that when times were good, there was a plenitude of the “aspirational luxury customer.” Now, he said, those customers can no longer afford to purchase as often in a downturn, due to the less hospitable economic environment.
Now, as the country has entered an economic slowdown, these “pretenders” have become only temporarily qualified to be luxury customers, Jassin said. Those longtime buyers of luxury goods will continue to do so because they like — and can consistently afford — the quality and superior designs.
To compensate for the loss of the “aspirational luxury customers” Jassin suggested that luxury retailers develop new extensions of their collections under diffusion brands with slightly lower price points — as would be the case with scarves, cosmetics, fragrances or eyewear.
In addition, he said as the population ages, consumers are spending money on nonapparel items like vacations and home renovations.
Allan Ellinger, managing director with MMG said it would only get tougher for the luxury sector. “We live in an industry where companies are typically undercapitalized and overinventoried.” In addition, Elinger said there are fewer customers to sell to and companies are distributing to fewer retailers.
Bud Konheim, president and chief executive officer at Nicole Miller, agrees with Elinger.
“Everyone’s talking about a recession,” he said. “But what people are not thinking about is that we [already] have been in a recession for more than six months.”
Konheim said that while prices in general have decreased over the months, it doesn’t seem to matter, since there are always too many clothes out there and not enough people to purchase them. He said that the important thing to remember in the apparel industry in order to stay afloat is to listen to the consumer and give them what they want.
“In every recession there are always people who thrive through the bad times,” he pointed out.
Designer Stephen DiGeronimo said he is concerned that the falling economy could damage the industry and has plans in the works to protect his business.
“I think that a scare like this always effects the industry,” he said. “Bad news always scares people and they start saving their money.”
Even though some believe that the falling economy has leveled off, DiGeronimo said that overall, he believes that people are insecure and not comfortable with what the new president has planned.
DiGeronimo plans to downsize his business and put it back where it used to be a few years ago.
“I feel very strongly about maintaining the collection as what I have always wanted it to be — specialized and higher-end,” he said. “And with the economy scare, I think this is the perfect time to downsize.”
Michael Pellegrino, president of Anna Sui, said that he really does not see the falling economy’s effect on business yet and is sure that it will be business as usual at the company.
“Most of the orders have come in and I am seeing no cutbacks at this point in time,” he said.
Pellegrino said that he believes business is good for a variety of reasons, but mainly because of Sui’s take on it.
“Anna’s philosophy has always been to provide fashion at affordable prices,” he said. “Instead of offering dresses for thousands of dollars, we offer $300 dresses. It’s cutting edge, fashion-forward merchandise at good price points.”
Besides offering apparel, Anna Sui’s collection offers accessories, which are also available at “approachable” prices, Pelligrino said.
“Also helping our business in tough times is the fact that a certain portion of it is done out of the country,” he said. “And these other parts of the world may not be affected by a falling economy.”
While Donata Minelli, director at Yigal-Azrouel, believes that the customer who buys luxury items now will continue to buy them no matter what happens to the economy, she did mention that retailers are closely watching their books.
“From what retailers are saying, consumers are more cautious about what they purchase,” she said. “That’s why now it’s more important than ever that the designer makes sure he has elements in the collection that the customer wants.”
Other designers, like Cynthia Steffe, have an optimistic outlook on the future and believes that even though we have to “wait and see,” business will continue to do well. She has even taken the opportunity to introduce a new “luxury label” to her existing collection for fall 2001.
“Sometimes a slight down turn in the economy is not bad for apparel,” she said. “Clothes are not huge purchases and the fashion customer always loves to shop.”
Michael Groveman, president and chief executive officer at Bill Blass, said that no matter what happens with the economy, the Bill Blass customer will stay in the same mindset.
“Customers who buy Bill Blass couture are the richest women in the world,”he said. “Whether the economy goes up or down, their lifestyles do not change.”

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