Is the Worst of it Over Yet?

Yesterday’s Emanuel Weintraub Associates seminar, was titled “The Perfect Storm—How to Get Through it,” and like the last two, the theme was dire. This time though, many of the speakers were hopeful.

“Economists believe the worst is over,” said Adam Rifkin, of Barclays Capital. Manny Weintraub reminded us all that “Ninety-one percent of Americans still have jobs and incomes.”

These are the gems of hope we’re looking for at such seminars—that and the wisdom of experience. Unfortunately, as both Rifkin and Financo’s Gilbert Harrison warned, the past can no longer be used as a guide to predict the future. What’s more, Harrison was painfully blunt about the state of commercial lending: “All the baloney about banks being ‘open for business’? We don’t see it.”

In addition to those nasty lessons, over the course of the morning, we learned that:

1. While the luxury sector is a comparatively small portion of the apparel trade, it tends to get a disproportionate share of attention.

2. That luxury sector probably isn’t coming back to the way it was at its peak.

3. In fact, we may never see years like 2005-2007 in our lifetimes again.

4. If we have another bad holiday season, we will see many more major bankruptcies.

5. There are too many stores out there, and too many brands. And lots of merchandise, particularly luxury goods, is overpriced.

Gilbert Harrison’s assessment of department and luxury stores was crisp and interesting. Barneys is in trouble, he said, a statement that surprised no one. “I don’t know how anybody can run a company like this without a CEO for a year, especially when there are so many worthy candidates around,” he said sternly. Barneys lost its CEO Howard Socol about a year ago when he resigned in disgust over owner Istithmar’s international expansion plans.

“Nordstrom is the strongest of all department stores,” Harrison said. “It seems to have survived the storm.” And while Saks doesn’t appear to be in great shape, Harrison said he has “a lot of faith in Steve Sadove.”

Harrison spoke about the luxury market, at times sounding like a populist. Like when he complained that a Chanel jacket that was $2,500 a few years ago was now priced double that. He praised Topshop, the British fast fashion chain that just arrived in New York (and one that I have complained sells cheap polyester blends at cotton prices), pointing out that H&M looks bland in comparison (it does; in fact it looks like a bad imitation of Topshop).

On the other hand, he gave credit to Christian Dior for their new category of handbags in the $1,200 range (as opposed to $2,000). I don’t know if that’s new for them, but it sounds to me like a standard bridge line. What’s important is that a company like Dior recognizes the new reality. Isn’t it better to be ready with slightly more modestly priced merchandise than to be forced to mark down the overstock of really expensive stuff?

This brings up a point that the group debated: Will the luxury customer trade down, or merely buy less of the good stuff. Opinions differed. Can’t it be both? Haven’t a lot of consumers relied on the high-low method for years? That is, blending a few exceptional pieces—a very expensive tie, shoes, and watch, for example—with some cheaper suits and shirts. Women probably do it more than men.

On that subject, Lord & Taylor’s new CEO Brendan Hoffman started his job the week that the stock market had some of its biggest drops last October. It was enough to make him rethink Lord & Taylor’s recent upmarket push. Before the 47-store chain made its shift to compete with Nordstrom and Bloomingdale’s, suits opened at $300. Now they were at $600, and Hoffman said it was time to get those lower pricepoints back in the store—at least in some of the doors.

Warnaco CEO Joe Gromek summed up the prevailing attitude about inventory: “On all new goods, we basically cut to order, and if we sell out of everything, God bless.” In other words, vendors are trying their best to make overstock a thing of the past; they have to.

“Selling goods is great. Getting paid for them is better,” Gromek said, prompting laughs from the audience. “Suddenly, I’m on a first name basis with many of our customers’ CFOs—these are people I never wanted to know!”

Warnaco, which has two of the most coveted Calvin Klein businesses—jeans and underwear—is much better positioned than many vendors out there. They also have Calvin Klein swimwear; Calvin Klein businesses generate three-quarters of all their revenue—$1.5 billion in 2008. Twenty-one percent of that business is done through owned retail, and only one Calvin Klein store exists in America (an underwear store in NYC’s SoHo). China, Gromek says, is the fastest growing market for them.

The best takeaway from HSN’s Mindy Grossman was for retailers to look at their business not just as a vehicle for commerce, but as marketing vehicles as well. That means forging pretty close partnerships with vendors.

These relationships will be more important than ever because as Manny Weintraub pointed out, “The value that consumers associate with luxury and status brands may erode. Companies in this category of merchandise now have the job of explaining to financially worried consumers why their product is worth a multiple more than its intrinsic value.”