Luxury store buyers cautious about spring orders

By: AP
By: AP
(AP)

(AP)

NEW YORK (AP) -- As hundreds of buyers gather in New York this week to see the spring designer fashions in beachy brights like marigold yellow and ocean blue parade down the runways, they're taking a hard look at what will excite their customers.

Luxury chains such as Saks Fifth Avenue and designer boutiques across the U.S. have seen sales slow in recent months as their well-heeled clientele have cut back on $4,000 jackets and other pricey purchases amid turbulent financial markets. Added to the economic volatility is uncertainty about the U.S. presidential election, with many taking a wait-and-see approach.

As a result, many high-end stores are delaying some of their spring ordering. Among the buyers who are placing orders, rather than playing it safe with classic items, they're looking for pieces that are bold and eye-catching without being too far out.

"You have a nervous consumer, a nervous buyer and a nervous market," said John Mincarelli, a professor at the Fashion Institute of Technology who is also a retail consultant for designer boutiques. "It's a precarious decision-making time."

In addition, he added, "you are buying for spring when you don't know if you will have a Republican or Democrat (in the White House). ... A lot of buyers are playing it close to the vest."

Mincarelli estimated that buyers planning their designer clothing orders for the spring season are spending anywhere from level with year before to as much as 10 percent down.

"People are still spending, but they are spending differently. We don't need a store full of basics," said Sara Albrecht, the owner of Ultimo, a designer clothing boutique in Chicago, which has seen a decline in store traffic since spring. "As long as it is something great, people will still buy it. You have to look harder."

Among Albrecht's favorites at the New York Fashion Week were jewel-toned embellished coats from Peter Som and party dresses from Isaac Mizrahi. But unlike in previous seasons, Albrecht is sticking to the more dramatic runway pieces and not ordering items being pushed at designers' showrooms, which tend to be a lot of basics.

The subdued spending by the wealthy marks the end of over-the-top splurging that helped luxury retailers once appear immune to the economic slowdown. Since late last year, stores such as Coach Inc. and Tiffany & Co. that also cater to aspirational "designer" customers started seeing a slowdown, but only in recent months have luxury boutiques felt pinched.

Faith Hope Consolo, chairman of real estate firm Prudential Douglas Elliman's retail leasing sales division, which works with top-name designer brands, noted that luxury customers are still buying - but not as much.

"Instead of buying five pairs of Jimmy Choo shoes, they're buying two or three pairs," she noted. What's also depressing demand is that prices for European designer items have soared from a year ago as the dollar grew weaker, she said.

Designer customers historically don't trade down to cheaper stores or labels, but Kathryn Deane, president and CEO of fashion consulting group Tobe Report, says they are now buying less-expensive contemporary brands to save money. High-income customers are also scouring for designer bargains at stores such as T.J. Maxx, fashion consultants say.

That's not good news for luxury retailers. Last month, Saks Inc., which operates Saks Fifth Avenue, reported a wider-than-expected loss for the second quarter and gave a downbeat sales forecast for the second half. Saks also told investors that it's now seeing its high-end designer consumer cut back, whereas previously only aspirational customers were retrenching.

Nordstrom Inc. reported a 21 percent drop in second-quarter profit last month and likewise cut its full-year forecast. "We are going to be conservative" in spring ordering, spokesman Michael Boyd said, noting, "it's all about aligning with the sales trends." Saks Fifth Avenue, Bergdorf Goodman and its parent company, privately held Neiman Marcus Group Inc., all declined to comment on their buying plans.

Robert Burke, a New York-based luxury retail consultant, said the pullback by the wealthy isn't just emotional - it also reflects financial realities. In contrast to the downturn in 2001, when consumers could point to specific reasons such as the dot-com bust and the fallout of the Sept. 11 attacks, "this is more looming. People just don't know how long it will last," he said.

Alan Johnson, managing director of executive compensation consulting group Johnson Associates, expects bonuses on Wall Street - the source of much of the money spent on luxury items - to fall as much as 40 percent this year. But more importantly, increasing layoffs in the financial sector could hurt spending even more. After the near-collapse of Bear Stearns Cos., analysts are now closely watching the struggles of Lehman Brothers, which is selling a majority stake in its investment management business and may put the entire company up for sale.

"You really have to be a blind optimist to be spending a lot now," Johnson added.

Mincarelli noted that the selling floors at luxury stores reflect the industry's cautious merchandise approach. For example, stores have recently been highlighting the new hemline - four inches below the knee - in their windows, but the look accounts for only a tiny percentage of the store's offerings. Similarly, Mincarelli expects that the marigold yellows on the runways will be mainly accents as most people don't look good in that color.

Even so, there's still lots of hope among apparel executives.

Howard Aubrey, president of New York-based The Isabella Co. Inc., a company that markets and distributes European brands to North America, said he's heartened that spring orders have been level with a year ago, though below the 10 percent increases in prior years. He added that buyers are looking for new ideas and designs, noting that German brand Marc Cain, a new entry to the U.S. market whose clothes are priced from $185 to $1,200, has met with good reception from buyers.

"When (overall) business is bad, there are still a lot of opportunities," Aubrey said.

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