High-End Net Profit Performances

Amid anemic-consumer spending and sinking confidence about the U.S. economy, luxury goods retailers are on a surprising streak. The latest quarterly results from high-end retailers including Coach (NYSE:COH - News), Burberry, and LVMH Group (lvmuy.pk.PK), parent of Louis Vuitton, Christian Dior, and Veuve Cliquot, show sales exceeding expectations both at home and abroad. Gas prices are approaching $4 a gallon, but Burberry is rolling out a new handbag dubbed the Warrior. Its cost: $22,000. Even with these hopeful sales reports, Wall Street anticipates deep trouble for retailers, including luxury purveyors. Once thought to be immune to the ups and downs of ordinary shoppers, shares of the 13 biggest luxe stocks around the world have lost 29% since last June, according to Savigny Partners, a boutique investment bank focusing on high-end retailers. Shares have sagged most, analysts say, at companies that have reached for middle-class customers who aspire to ritzier goods but are being hit hard by the current slowdown. Merger-and-acquisition activity has helped share prices hold-up in past downturns, but little has materialized lately. LVMH Group Managing Director Antonio Belloni told Bloomberg News on Apr. 16 that his company is seeking acquisitions but offered no specifics. Valuations are certainly attractive, as major luxury stocks are trading at less than 10 times their 2008 earnings before interest, taxes, depreciation, and amortization, compared with a ratio of almost 14 times last June. However, tight credit markets have made it all but impossible to finance a buyout, and many private equity firms are stuck without backing. A leveraged buyout deal for German fashion house Escada crumbled in April, and Italian fashion house Roberto Cavalli has been seeking a buyer since last summer. "People are being very careful," says William Plane, director at Savigny Partners. The best bets for investors are retailers catering to the ultrarich, whether in the U.S., Europe, Asia, or the Mideast. This includes companies such as LVMH, Gucci owner Pinault-Printemps-Redoute, and Herms. "There's much more insulation for the ultraluxury brands whose consumers are relatively unaffected by all that's happening," says Fred Crawford, managing director of AlixPartners in New York. So-called aspirational brands such as Coach and Polo Ralph Lauren (NYSE:RL - News) face the biggest challenges and thus make the riskiest investments, analysts say. Customers who were once more than willing to stretch their budget to buy a hot pair of shoes or cashmere scarf are rethinking their priorities, Crawford says. The firm just completed a survey of thousands of consumers about their shopping habits. "Right now, people are trading down," he notes. Without rising real estate values to fuel consumer spending, some have declared the present era of affordable luxury dead and buried, but most retailing experts see the trend on hold until the economy improves.
(Sourced from The Associated Press.com)

Designing-Up in a Down-Economy?

Three major specialty-apparel chains—$2.4 billion Ann Taylor; $1.3 billion J. Crew Group; and $15.76 billion titan Gap Inc., which owns Banana Republic—are all pushing new, higher-priced upscale collections. Fast on the genteel heels of BR Monogram, the first J. Crew Collection store will open in Manhattan on Madison Avenue and 79th Street this summer. J. Crew is aiming highest of the three, offering limited-edition products—such as a $3,000 jacket with French sequins in various shades of tortoiseshell hand-sewn into silk chiffon—that are already available online. "It's about finding and using the best designers and craftsmen, fabrics, mills, and factories in the world to create the highest quality products possible," says Mickey Drexler, C.E.O. of J. Crew Group. "It is not about putting a label that just says 'Collection' on our clothing." For decades, midpriced specialty stores have done well churning out khakis, sweaters, jeans, and suits at lower prices than designer equivalents in department stores. But with the luxury tier of fashion performing better than midpriced merchants during the last few years, humbler fashion chains have been coveting that Italian hammered-brass ring. Catching hold can mean higher profits—getting consumers to step up one price point can improve the gross margin by 10 points, notes Michael Silverstein, a Chicago-based senior partner at the Boston Consulting Group and co-author of Trading Up. And, of course, as any consumer of luxury items knows, there's simply the snob appeal. "There's an ego thing about running a higher-end business," says Peter Schaeffer, retail and consumer products partner at Carl Marks Advisory Group, an investment banking consulting firm. "It sounds more glamorous to add an upper tier." But the risks are big. A company can alienate loyal customers—as Banana Republic did with Hunter and Regan—while failing to attract new ones. Shoppers seeking more expensive items made from better-quality materials already have plenty of choices at department stores, designer and contemporary boutiques, and online. "It's a very hard transition to make," says Michelle Tan, a specialty-apparel analyst at UBS Securities. "At premium price points, most of that business is dominated by department stores, [and for] retailers that tried to do that on the specialty side, it hasn't worked well." What's worse, the three chains are trying to trade up just as an economic slowdown hits consumers across the board. Monthly same-store sales results, a key measure of retail health, for March are the worst in 13 years. Some experts fear that the economic downturn will crimp shopping until late next year. Ann Taylor and Gap are also struggling to turn around their main businesses. Ann Taylor recently announced plans to close 117 stores, delay its new concept store until 2009, and cut jobs in a massive restructuring to improve earnings. Banana Republic has been healthier than Gap or Old Navy, but it-too stumbled in March, with same-store sales plummeting 8 percent.
(Sourced from Portfolio.com)

Search Online, Reserve, and Go to the Mall

NearbyNow helps them search anywhere in its 200 member malls. All the mall retailers are part of NearbyNow for at least basic searches — for brands of jeans, but not individual styles or products, for instance — and more than 70% offer full access to their inventories. And retailers are experimenting with a variety of text-message campaigns to see what best draws in the young crowds.NearbyNow was started two years ago after CEO-Scott Dunlap, becoming frustrated on a shopping trip with his wife, who was looking for a pair of Ferragamo boots she saw in a magazine. "I thought, 'It sure would be convenient if I could pull (inventory information) up on a mobile phone,' " he recalls. But the malls hardly have a live-and-let-live attitude toward the Web. To persuade malls to join on, NearbyNow had to promise them that it would not run any ads from retailers that only sell online. If someone searches for toys on NearbyNow, for example, he will not see an ad for eToys.com. “The big fear is ads from online retailers,” said Scott Dunlap, chief executive and president of NearbyNow. “We tell the mall: we’re only going to allow advertisements from advertisers that are inside the mall. That way we’re aligned in interests.” And NearbyNow, in return, doesn’t want any fraternizing between the malls and the search engines. In particular, it wants to promote its mobile shopping service, which lets shoppers find information about products on their mobile phones while they are in stores. Afraid that Google and Yahoo will extend their own shopping sites to mobile phones, NearbyNow made malls agree they will promote only NearbyNow within their malls as the mobile phone service to use to search for products and pricing. Yahoo and Google declined to comment on NearbyNow’s arrangement with the malls. About 1 million people are visiting NearbyNow mall sites per month now, Mr. Dunlap of NearbyNow said. About 55 percent of those customers come into a mall within 48 hours, he said, making them very attractive eyeballs for advertisers. Executives at the mall companies said they hoped NearbyNow would help them fight back against online retailing. “Instead of coming to the malls, people are shopping at home, and that’s pulling sales out of our malls,” said Lisa Moore, new business account manager at CBL Properties. “The beauty of this program is we’re trying to drive shoppers to the malls and to keep them from purchasing online.”
(Sourced from USAtoday.com, WallStreetJournal.com, Portfolio.com/mag)

Fashion Education Moving-Up in Business Importance

MBA course teaches design's importance: Hold onto your Jimmy Choos. A fashion class is making its debut next week at Northwestern University's Kellogg School of Management (a top-three graduate school in the nation.) The course, a first of its kind at the business school, will teach MBAs how to manage the fashion component necessary to launch and sustain a successful product, said Steven Fischer, the instructor who created the course. There will be no talk of seams and fabrics here. Rather, students will learn how fashion can become an integral part of such mundane products as cell phones and pens. "There's a fashion component to almost every product that we buy, and this drives consumer behavior," Fischer said. Not long ago, it was outlandish to consider making a pink computer or a cobalt blue washing machine. Not anymore. But for companies to compete at the fashion level, they have to introduce new products at twice the rate of their rivals, Fischer said. That leads to challenges on the management and the supply-chain side. Language [between project-managers and creatives] is another barrier. "Management operates in a linear world, and designers and fashion people operate in a non-linear world," said Fischer. "Their ways of decision-making and problem-solving are quite different." Nineteen MBAs will take part in the class called "Managing the Strategic Value of Fashion and Products." The course is part of the Segal Design Institute, which was created last year with funding from Crate & Barrel founders Gordon and Carole Segal. Experts ranging from General Motors Corp.'s head of design to a Pantone Inc. color expert are slated to speak in the class. When the Segal Design Institute was unveiled, visionary merchant and Kellogg MBA Gordon Segal said how much companies need graduates who have been exposed to principles of design. "Design is probably the biggest competitive advantage the United States has in a rapidly changing and highly competitive world," he said at the time. Fashion and luxury clubs are popping-up at business schools around the world, from Harvard to Columbia to London Business School. These are the latest signs that professional general managers are playing a more prominent role in the fashion and luxury industry. Before the emergence of major luxury groups, first LVMH, and then Gucci Group and Richemont, many fashion and luxury businesses were a family affair -- and this is still the case for many brands, most notably in Italy. But, with more and more luxury IPOs and the shift towards managing luxury brands within a portfolio, has also come the need for CEOs who are well versed in brand management, investor relations and supply chain optimization.
However, professional managers in fashion do need to be cut from a different cloth -- so to speak. They also need to be respectful of the creative process and understand the unique motivations of the creative talent which underpins the success of any fashion business. For example, it must be understood [by management] that if you suppress the designers-creativity, you are left with very little. A great supply chain, magnificent investor relations and a beautiful brand are not of much use in fashion if you don't have an equally compelling product.

American Apparel-Back to Court, Again

What do you get when you launch an advertising campaign featuring a celebrity without getting the proper authorization from the celebrity in question? Lots of publicity and a huge lawsuit, apparently. That is what American Apparel Inc., the clothing company, found out Monday. Veteran Hollywood filmmaker and actor Woody Allen has sued American Apparel for a mammoth $10 million for unauthorized advertising on billboards and online platforms featuring the star dressed as a rabbi. According to the lawsuit that Allen has filed in the U.S. District Court in Manhattan the apparel company and retailer based out of Los Angeles launched an advertising campaign that involved billboards carrying his image in New York and Hollywood, California, in May 2007, without his permission. The advertisements featured Allen dressed as a rabbi and also contained Yiddish text that translated to ‘the Holy Rebbe.’ The image was from one of Allen’s films, apparently. Allen is Jewish himself. The advertisements appeared not just on billboards in the two locations mentioned in the lawsuit, but also on the website of American Apparel Inc., as well as in sponsored ads appearing in other websites, the lawsuit noted. The lawsuit said, “Allen was unaware that AAI was going to utilize his image on its billboard and Web site. Allen was not contacted, nor did he in any way give his consent to the use of his image and likeness, and he was not in any way compensated for the same, either prior to the infringement or thereafter.” The lawsuit added that the launching of the advertisement campaign featuring Allen was particularly distasteful considering that he does not endorse products outside the United States of America. It further stated that American Apparel used Allen’s ‘image and identity in total disregard of his rights to privacy and publicity, his exclusive property rights and his personal rights.’ The lawsuit claims the apparel company was aware of the need to take Allen’s permission before using the image, and did not do so because they knew he would not give his consent. American Apparel, the manufacturer and retailer of cotton apparel with over 180 stores across the United States and Canada,has given no response [regarding the lawsuit.]
(Sourced from MoneyTimes.com)

Counterfeit Control - Through Higher Education

Corporations giving money to universities for research or chairs has a long tradition. Engineering schools get money from the likes of General Motors (nyse: GM - news - people ) and Ford, for instance. But here's a twist that has some academics unhappy: A group of apparel companies, including Coach (nyse: COH - news - people ) and Louis Vuitton, is paying colleges to run a course--and some schools are eagerly accepting. The International Anticounterfeiting Coalition gave from $5,000 to $10,000 to seven colleges to offer a course (created in part by a public relations firm) that expounded on the evil of fake goods. Such institutions of higher learning as Hunter College in New York, California State University, Sacramento and the University of Miami took the money, which covered materials. There was a catch, though. The students had to create a p.r. campaign by the end of the course or the colleges didn't get the money. In Hunter's case, Coach gave $10,000 last spring after an IACC course made it onto the for-credit offerings without the approval of the college's curriculum committee. Professors found out about the class, co-taught by an untenured public relations novice, after it was over. "At that point, a college or university is handing over governance issues to outside forces," says Stuart Ewen, a Hunter professor of media studies. Hunter says the experimental course did not require the regular approval process. Coach says it's happy that once students learned that counterfeiters use child labor and dangerous parts, they came out against the practice.
(Sourced from Forbes.com)

Shop, Text, Compare and Save with Amazon.com

Amazon.com Inc.'s brick-and-mortar competitors have yet another reason to fear the Web: a new service that lets shoppers compare prices and buy things with a few quick taps on their cell phones.
Amazon TextBuyIt, which launched late Tuesday, lets people text the name of a product, its description or its UPC or ISBN to 262966 (that's "Amazon" on the keypad) from anywhere their cell phones work — including from inside physical stores. If Amazon stocks matching items, the service returns two results at a time. Shoppers can immediately buy one of the first two the selections by texting back the number "1" or "2," or they can ask for more by texting the letter "M." New TextBuyIt customers will be prompted to enter the e-mail address associated with their existing Amazon account plus a shipping zip code. The service then calls them and walks through the checkout process using an automated voice system. Shoppers get confirmation by text message and e-mail. From there, the customers can check on order status on Amazon's Web site. Howard Gefen, director of Amazon mobile payments, would not directly answer when asked if the service is meant to extend Amazon's reach by poaching customers browsing at bookstores or big-box electronics retailers.
"We think this is a great experience. We think they'll use the product...wherever they happen to be," he said.
(Sourced from the Associated Press)