Industry Report

Soaring energy costs, a downturn in housing and rising fears of global recession all signal tougher times ahead for the economy as a whole. Yet as one expert says optimistically, “When the dollars get tight, the tight get accessories.” Moreover, the economy offers an increasing certainty that while unfavorable for U.S. consumers, the reduced American dollar value will continue to lure foreign shoppers to major cities. And manufacturers will likely see rising export sales as well.

Undoubtedly, the year ahead holds many challenges. For starters, the profitable luxury handbag sector is now overcrowded. And department store consolidations continue to demand the most astute retail strategies for both manufacturers and specialty stores. (“Fifteen years ago, you could survive if you were mediocre,” says one expert. “Not anymore.”) Yet our select panel of investment bankers, fashion trend forecasters and market researchers finds reasons for optimism in the accessories marketplace. They include: Eric M. Beder, senior vice president, Brean Murray, Carret & Co.; Howard Davidowitz, chairman, Davidowitz & Associates; Jillian Hertzman, trend analyst & research consultant, The Intelligence Group; Howard Feller, partner, MMG/Marketing Management Group; Marshal Cohen, chief industry analyst, The NPD Group; Pam Danziger, owner & founder, Unity Marketing; and Candace Corlett, partner, WSL Strategic Retail.

Just as last year was mostly positive for the accessories industry, the 2008 forecast also looks favorable, mainly because of a single driving force: “Fashion,” says the NPD Group’s Marshal Cohen.

“It’s now more important than ever to consumers—and accessories have become the focal point. Consumers have demonstrated a whole new dimension in their love of accessories, as well as a new willingness to ‘invest’ in pieces that update their wardrobes.” The most growth has occured at the upper and moderate tiers, say experts—with brands and stores clamoring to add better merchandise. The lower part of the market, however, was hit hardest as consumers traded gift money for gas money. A recent WSL Strategic Retail survey of nearly 1,500 consumers showed that 43 percent of female respondents would reduce personal spending; of that total, 73 percent said they’d cut back on fashion accessories specifically. Meanwhile, rising overseas production costs often resulted in less appealing, “cheap looking” merchandise at the lower tier.

Overall, our panelists agree on the continued momentum in luxury handbags. Davidowitz of Davidowitz & Associates, for one, is adamant: “The $1,000-and-over handbag business will keep growing—it’s a priority for affluent women, and price is no object. No one is talking about an explosion in the $100 handbag business.” MMG’s Feller, however, cautions that too much merchandise is crowding the highest price tier. And much of the time, he adds, those products simply don’t warrant sky-high prices.

Unity Marketing’s Pam Danziger thinks the real opportunity lies in “premium product” versions within the $200 to $500 range, and predicts diminished growth for the $1,000-and-over price tier. Probably inspired by high-priced handbags, Feller points out that watches have carved out a whole new “fashion luxury” subcategory unto themselves—such as Technomarine’s diamond bezels with plastic straps. Designer sunglass prices are also likely to escalate even further, he adds, with new luxury licenses. Case in point: Tiffany’s new venture into eyewear.

While private brands showed growth last year, our panelists have mixed opinions about their impact on licensed and/or designer product. “Consumers still crave designer brands,” says Davidowitz. “Look at Louis Vuitton—the explosive growth continues to be in status.” That said, however, brand appeal applies mainly to higher-end merchandise. At moderate price levels, private label still has the edge. “Consumers who cannot afford the most expensive handbags still want to look as if they can,” says Brean Murray Carret’s Beder. “They opt for private label, which offers reasonable likenesses at lower prices—and at a faster pace than ever before.” Beder also foresees continued growth in this sector, with stores either increasing or creating their own brands, or adding designer exclusives.

Designer exclusives for retailers—especially at mass retailers such as Target, or even mid-tier department stores such as Kohl’s—also showed growth last year. Feller points out that Vera Wang’s collection exclusively for Kohl’s now serves as a private label brand, adding that stores generally seek more private label merchandise when they’re chasing margins. Kohl’s Vera Wang program has largely succeeded, but if designer exclusives fail, stores quickly return to national brands to get sales stirring again.

Most Accessories’ panelists agree that private labels do not pose a serious threat to national brands. In fact, more private label brands on mainfloors means licensed and designer products simply “need greater sales concentration, almost like concentrated laundry detergent. The package may be smaller, but it’s just as powerful—with greater impact at the point-of-sale,” says Cohen. “The consumer needs to see familiar national brands in ‘their’ store to bring them in with specialization and select offerings from that brand. It’s up to these brands to find ways to maintain that connection with consumers.”