Luxury merchants respond to a highly competitive market.
We spoke to seven of North America’s leading luxury merchants about the changing economy and the future of the luxury customer: Russ Patrick, Neiman Marcus; Tom Ott, Saks Fifth Avenue; Bob Mitchell, Mitchells Stores; Ken Gushner, Boyds; Greg Eveloff, The Clotherie; Jeff Farbstein, Harry Rosen; and David Witman, Nordstrom.
How’s current business? What are the hottest items or trends and what do you see going forward?
Russ Patrick, Neiman Marcus: Through end-October, we continued to see an upward trend in all four men’s divisions. It was encouraging to see sportswear, tailored, shoes and accessories growing simultaneously.
Tom Ott, Saks Fifth Avenue: Business is quite good: the pace continues and men’s is ahead of plan. We’ve had a nice run for two years now and we’re close to hitting ’07 levels. The bright spots are luxury, shoes, accessories, and denim/contemporary.
Bob Mitchell, Mitchells Stores: Coming off of two solid years of double-digit gains, the growth rate is slowing (except for San Francisco where we’re seeing huge growth in our second year). Business is not as good as it was a few months ago and since there’s no good news out there, it’s not likely to change.
We planned for more moderate increases and we’re achieving them. Pure luxury is still the best performing segment, brands like Loro Piana, Zegna, Cucinelli, Brioni and Kiton. Strong menswear categories include outerwear, dress shirts (Eton), custom suits and shirts, and footwear. (Our denim/contemporary is healthy and growing but it’s not enough volume to drive the total.)
Ken Gushner, Boyds: September was very good, the rest of the season just fair. It has a little to do with the stock market but more that there’s just a finite number of this level of customer, the serious shoppers with money who are somewhat above the fray. By mid-October, it was over!
What’s driving business is sophisticated quality fashion, things that are somewhat interesting but not over the edge. Obviously better has been doing best: I believe the opening price is over and mid-priced is also over; it’s now all about luxury—but not commodity. Basic cashmeres that we’ve been selling for four to five years now are no longer moving. The customer is overdosed on basics. Even tailored clothing, which is where we live and breathe, has too little newness. We’ve had growth at the high end, lines like Isaia, but there’s not much excitement going on.
Greg Eveloff, The Clotherie: Business is challenging: we need more bodies walking through the door! Bestsellers include sportswear, Eton (we put in a shop with their fixtures), tailored clothing (slimmer fits, off the rack), and luxury outerwear (despite temperatures in the 70s…). Cardigans are not moving, although we sold cardigan vests.
Jeff Farbstein, Harry Rosen: Business is okay: not great, not terrible. We’re running somewhere between last year and our budgeted numbers, but our inventories are in good shape.
Furnishings (with the exception of ties) are doing okay, and we’re selling a lot of drop-8 clothing from Zegna, Boss, Dolce & Gabbana, Lanvin, Polo Black Label.
Other strong categories: outerwear (Moncler, Canada Goose), bottoms (slim, clean), dress shirts, clean denim, designer leathers, footwear (suede and leather boots). Tough businesses include overly designed sport shirts, American classic looks, anything overly washed and faded. Our customer wants more sophisticated and subdued.
What are the biggest changes you’re implementing for 2012?
Patrick: We are aggressively pursuing collections that have exclusive and limited distribution. I’m also working very hard with our vendors on further enhancing their presentations in the stores. Our stores do a tremendous job merchandising the collections but I am giving them more tools to help wow the customer.
Ott: Although I’m excited about recent selling, we’re planning conservatively. It’s hard to be a hero with so much uncertainty. Our strategy is plan for the worst, hope for the best. The key is reacting to best-sellers; I’m aiming for more flexibility with our vendor partners.
Mitchell: We’re refocusing on our strongest brands, both from a customer point of view and a business perspective. We want to be more important to fewer people. At the same time, we continue to renovate: we’re creating specific spaces for specific vendors; we believe more men want to shop that way.
Eveloff: We’re growing our online business which is all plus sales, with surprisingly low return rates. Certain brands do well, even ones that I don’t carry in the store. Hot categories online are denim and wovens. It’s about 4 percent of my business now but I hope to build it to 10 percent. Of course we hired a full-time person to manage it.
Farbstein: We’re continuing to grow the better business. It’s not about driving units out the door: people are buying less but they want the best. Five years ago, if stores weren’t in the outlet business, they weren’t going to make it. Now, it’s all about luxury, and a multi-brand specialty store like ours can offer a better experience than the mono-brand stores.
We’re also focused on providing more product knowledge for our sellers and we’re investing in our physical plants: Eaton Center, First Canadian; Yorkdale is growing from 16,000 to 28,000 square feet. We plan to own the designer business, the sophisticated denim business and luxury accessories.
What are your long-term challenges and opportunities? As vendors increasingly go direct to consumers, how will your business model shift?
Patrick: The reality is that the menswear market is more competitive than ever. It is best to accept this as a challenge and a motivator to refresh the assortments and provide a wonderful shopping experience to those that we know well and to those that we are meeting for the first time.
Ott: There are two schools of thought among vendors: some are focused on direct sales and driving their own business while others hope to build their brand in every way possible. Time will tell which approach works best. I believe certain customers are loyal to stores, not brands and other customers become brand-loyal, even as they shop multi-channel.
But in light of vendors going direct, we’re growing our private brands. We feature three different labels representing international classic, modern and contemporary. Where we see white space in the market from a price/style situation, that’s where we do our own thing.
Mitchell: Vendors going direct is definitely a huge challenge but we believe most guys want to shop in a multi-brand environment. So we will continue to expand our key brands and work with vendors to make sure our assortments are special and different from both the big stores and the mono-brand stores. We have to buy better and more personalized, which we do. Our assortments are different for each location, e.g. more than half the mix in San Francisco is different than in Westport; we sell more $5,000 suits than $2,000 suits in San Francisco, visa versa in Westport. Our focus is on customizing the mix.
Gushner: As vendors go direct to consumers, specialty merchants need to view their stores as the brand. If you put too much trust in too few brands, you’re setting yourself up for problems. Of course we can’t just drop some of the high-profile brands, but we certainly can de-emphasize them by not giving them prime real estate. Why spend all your time and energy promoting brands that do not value your business?
Eveloff: Every day is a challenge, especially with the soft real estate market here in Phoenix. Vendors going direct to consumers is a fact of life; my goal is to win over the few guys who can afford our product with differentiated assortments, networking, referrals, events (although clothing trunk shows have not been pulling) and exceptional service.
David Witman, Nordstrom: We don’t view vendors selling directly to consumers as a problem for us. It builds brand awareness and inspires everyone to work harder for customers’ business. We’re focused on making it easy and convenient for customers to shop with us online. Some of the things we’re doing online to better serve customers are free shipping and returns and increasing speed of delivery.
How has your pricing/promotional strategy shifted in recent seasons?
Patrick: We offer a range of prices for the client seeking quality apparel and accessories. Prices continue to climb and it may hurt the performance of some brands. However, we continue to drive a full-price business by challenging ourselves to be more demanding of the market and to be better editors. End of season promotions are how we cycle through broken sizes and transition into the next season—it is not a strategic direction. Healthy volume growth comes from finding fabulous merchandise and having it in the right place at the right time (and in the right size!).
Ott: Our pricing strategy has remained consistent since 2009: we offer a nine-box grid that goes from opening price to super luxury. We realize not everyone spends $3,000 for a suit and we’re happy to sell suits for $795. We’ve had zero resistance to high prices in luxury but in general, price increases are a real challenge and this is not a great time for it. Our strategy is to offer the best value within the lines we carry, playing up quality details like linings, stitching, etc. Offering more value helps customers get over price increases.
Mitchell: We’re recommitting ourselves to the top tier. (During Christmas 2010, we missed some business in upper luxury since we’d traded down after the crisis.) Yes, prices are up, but if the product is special, there’s no resistance. With commodity product, we’re working with our vendors on pricing.
As for promotions, we’re trying to decrease their frequency. Of course we can’t ignore what the competition is doing but we’re focused on our value proposition (service, selection, tailoring) rather than price as the driver.
Gushner: We’re planned up 5 percent for spring 2012. Price increases are not really a problem since they’re already factored in.
Witman: Our strategy is a customer strategy, not a price-driven strategy. We try to listen to the customer and we work hard to bring in great product.
What do you need from the market that you’re not getting? In general, what’s needed for business to be better?
Patrick: I was pleased with the color that was offered for spring and I believe that it will spill over into fall. The customer will not want to see a muted and sad palette for fall after all the vibrant color that’s offered in spring. I was disappointed in the late shipping this fall and I hope that it’s corrected very soon.
Ott: Vendors need to sample bigger lines. We realize it’s hard to show fashion in a tough economy, but vendors need to push more buttons with newness and innovation. Yes, sample costs are high but it pays in the end: it’s a big country and the same looks don’t work across all regions. We sell in five distinct regions that are hugely different: there’s real growth potential for vendors who recognize this.
Mitchell: We’d love to see a few truly valid new brands that can actually compete with what we’ve got on the floor. That, or a vendor with a different point of view. Cucinelli did it when they came on the scene several years ago, so it is possible.
Gushner: What we need from the market is some fresh direction, which I realize is easier said than done. Not just different, but different and salable, something between the nice classic stuff and the overly trendy stuff. (A good analogy: something between the MRket show and Capsule…) Now that I’m also in the women’s market, I see how behind the times we are in menswear. I don’t buy the theory that American men don’t want fashion: I think there are plenty of young guys who would be highly receptive if we’d just offer the right stuff.
Eveloff: We need newness; it’s the only thing selling! Guys don’t need to replace their clothing; they buy if they see something fabulous. (Which is why we’re selling luxury outerwear in 70 degree temperatures…)
Farbstein: We need vendors to step up to the plate: they can’t keep living two lives. If image is all-important to them, they have to narrow their distribution. I’m going to be the tough guy: I can’t compete on price with flash sale sites and off-price venues and I don’t want to share my core vendors.
What are the most exciting new ideas/concepts that you’re seeing or implementing?
Patrick: There’s plenty of newness on the way but I will keep it under wraps for now!
Ott: We’re starting to invest in our men’s real estate, since men continue to be some of the best shoppers in the store. We’re also focusing on our social media campaigns including our new SaksPOV blog: research confirms that the best way to communicate with male consumers is digitally. We’re working hard to give customers a consistent shopping experience in all channels and we’re getting more personally involved with our top customers, the ones who can really move the needle.
Mitchell: We’re hoping Samuelsohn can become a good entry level pricepoint for us. And Cucinelli getting into tailored clothing could bring new business from a younger-thinking customer looking for a new fit. In general, differentiation of product is key and there’s unfortunately not enough of it.
Gushner: We’ve been de-emphasizing low to mid-priced apparel but we’re now considering growing it again, perhaps on a totally separate floor for fall 2012. We’ve moved men’s and women’s shoes to the front of the store, which has generated great business and has created a warmer atmosphere than the jewelry cases we had before. The biggest change is our emphasis on higher-priced suits and furnishings. Also, we’re back to TV and radio advertising with a great commercial featuring some of our top customers. Within the next year, we hope to take the plunge to become transactional online.
Farbstein: We’re re-launching our website, striving to provide the same experience online as in-store. It will be highly interactive: once we make customers aware of who we are and what we have, then the volume will come. At the moment, we offer 2,500 SKUs online and we use our own in-house photography.
The other exciting change involves our sellers. We’re winning younger customers, partly because we’ve hired younger sales associates! We’re also catering to new ethnic markets in many of our stores: Chinese and East Indian doctors and lawyers who are very upscale sophisticated consumers. It helps to have sellers who are part of that culture.