The downturn of the luxury fashion world could have been saved

All eyes in the fashion world will be focusing on New York next week. Starting February 13th the Mercedes Benz Fashion Week will sanction designers from around the world that pine after the white tents that encase their most prized masterpieces.

Now, why do I look upon next week with disdain? For one fact and one fact only - I was laid off by a prominent luxury apparel firm in Orange Country yesterday. 

The experience can be traced back to several economic reasons that resulted in my bad apple of a day. First, the euro had increased over the course of 2008. Vendors from Spain and Italy were privy to raise their costs to wholesalers, citing the rise of the euro and raw material costs. Subsequently, either retailers chose to price their items high enough to make their planned margin or priced them to sell.

The next chapter began with the mismanagement at US retailers.  Their failure to react swiftly and reduce inventories in the beginning of last year spurred the upsurge of merchandise. As a result, the size of discounts at companies like Nordstrom, Neiman Marcus and Saks Fifth Avenue spiked last fall at unseen levels.  Markdowns were taken to essentially shed these overpriced items as luxury clientele was shrinking, hiding and monitoring the demise of their financial portfolios. Ultimately, the retailers moves were all reactive and not proactive. What resulted were slim margins while maintaining the same operating costs, an unsustainable position in a declining market.

Had executives at these firms heeded early economic indicators (a perfect example here), they could have reacted in the beginning of 2008. Specifically, all the aforementioned companies employ finance professionals, analysts and forecasters that ought to have navigated a sound, strategic movement towards slicing store inventory at a faster pace. 

When a company does not maintain a healthy margin, it must cut costs in order to stay afloat. And, now we reach the present day to my final moments at the prominent luxury apparel firm.  Could my job have been saved by better management? Should I have spoken up earlier? Might I have been buying the latest trends while sitting at my prized office with a view? Perhaps, but, back to the future.

Fashion Week will manifest how designers are interpreting a global halt to the purchasing of luxury goods.  Pollsters at Harrison Group found that 80% of women said their purchases today are more carefully considered than ever before, according to its survey of 1,600 women conducted last September through November. In addition, according to WSJ, people tend to purchase safe, basic investment clothes and neutral colors during recessions. The smartest designers will avoid high fashion and focus on comfort and function. However, to venture too far from a core branding strategy could be deadly. There is a fine balance between the two extremes, and championing this will garner the best reactions on the runway and emplace sales at a preeminent position.

Comments

[Sherry Main]

Congratulations on your new blog! It's a very well written analysis of the industry and its mismanagement. Bummer to hear about your job, but hopefully this means an opportunity for something better. Write on... :)

[Bindi]

Excellent analysis! If only you had been employed as one of the aforementioned forecasters or finance professionals, you could've told helped these firms pull their heads out of their couture-covered behinds in time (excuse my French) ;)

Can't wait till the next entry!