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Amid the doom and gloom, bright spots still emerged. Discounters, mass marketers, e-commerce and off-price retailers saw modest single-digit increases last year, and should perform moderately well this year. And companies that focus on tightening their assortments with unique styles and cutting-edge designs, as well as sharpened price points and more innovative marketing, should survive the downturn.
On a positive note, cash-strapped consumers may be cutting back on apparel and luxury, but that creates an opportunity for affordable accessories to fill the fashion gap as consumers look for cheaper ways to spice up their wardrobes. Research has shown that accessories are becoming more important to teens—a coveted demographic that accessories brands and retailers are looking to woo going forward.
In acknowledging the many challenges that the industry will to face in 2009, our select panel of investment bankers, fashion trend forecasters and market researchers still see ample growth opportunities and the “light at the end of the tunnel” for the accessories marketplace this year.
VALUE WILL RULE IN 2009
Most of our panelists agree that luxury was the hardest-hit fashion sector in 2008, and things will worsen before they improve. They also note that department stores have taken a major hit because they have too many stores, too much product, too much overhead, too much debt and pricing that doesn’t offer enough value to the consumer. In fact, the panel agrees that the fashion and accessories retailers who survive and even thrive through the recession will be those that focus on delivering the most value for the money. This includes the Internet, catalogs and other direct sales businesses, plus mass merchants and off-price retailers. Yet all retailers need to tighten their inventory mixes this year and hone their pricing, notes Howard Davidowitz of Davidowitz & Associates. Davidowitz believes that the accessories industry is in a good position to deal with the economic crisis because it is one of the most profitable fashion businesses in terms of gross margin dollars per square foot of retail space.
“Retailers need to work on getting their prices down if they are going to survive,” Davidowitz says. “You need to reduce your assortments and be prepared to sacrifice some margin and product development, and work with cheaper materials. Accessories manufacturers also need to bring down their prices and learn to become more promotional.” According to Barbara McGraw of The Doneger Group, the renewed emphasis on value pricing presents a tremendous opportunity for accessories companies in the tough economic climate. Accessories allow customers to update their wardrobes with new looks for much less than investing in new apparel each season.
“Companies still need to introduce new product and new fashion,” McGraw says. “But balance is key. Retailers may be hesitant to experiment in this difficult environment, but you need more than basics. Best-sellers will be basics with a twist. Companies that offer the right product, with the right timing, and at the right value, will do well.”
THE FUTURE OF LUXURY
While “true” luxury fared relatively well in 2008, “aspirational” luxury struggled. Middle- and upper middle-income consumers in recent years have been the backbone of the growth in luxury as they have aspired to buy upscale fashion and other goods—and brands and retailers at the upper and middle tiers of the price spectrum moved down or up in price, respectively, to accommodate them. In 2008, these aspirational customers saw their spending power decimated by the dramatic drop in home values, skyrocketing gasoline, high credit card debt and tightened credit standards—and they aren’t expected to resume their spending levels any time soon. On the flip side, true affluent consumers still have money to spend, but they’ve changed their spending habits and thoughts on consumerism in fundamental ways. Luxury fashion and accessories retailers will be forced to adapt their marketing strategies.
“The exuberance that fueled the affluent consumers’ spending spree over the last few years has come to a screeching halt,” says Pam Danziger of Unity Marketing. “The luxury bubble has finally burst.” Affluent customers expect to save/invest more in the coming 12 months, so that extra cash is now out of the shopping paradigm. “They’ve cut discretionary spending and will only pay more for a premium product when the quality is there.”
What does this shift in the luxury mentality mean?
- Less consumer loyalty to brands in the middle-to-premium range, as luxury customers do more price- and value-comparison-shopping.
- An end to “conspicuous consumption” (i.e., less flaunting).
- More emphasis on high-value (and high-margin) private label brands.
- Pressure on luxury companies and brands to lower prices across the spectrum as well as introduce more affordable lines.
- More shopping by value-minded luxury consumers at middle- and low-priced venues as well as luxury venues.
- Less emphasis on volume; more on margins.
“Designers are scrambling now to create new tiers to offer product at lower prices to maintain their dollar volume of business,” observes Marshal Cohen of The NPD Group. “But they’d be better suited finding ways to lower their volume and raise their margins. Most started that way, but investor pressure creates the need for volume growth rather than margin growth. We believe 2009 will be the year it becomes less about how many stores/accounts you opened, but how much your profit grew.”
Irma Zandl of Zandl Group also expects to see more collaboration between high-end designers and mass retailers like Target and H&M. “People will still flaunt how much they paid for a particular designer item, but inversely,” Zandl says. “Now, it’s ‘I can’t believe you got that fabulous item at Target and paid so little!’ Frugal chic rules!” STREAMLINING THE MARKET
The oversaturated fashion industry has been rocked over the past year by a rash of negative announcements from major companies that include bankruptcy filings, buyouts, store closings, staff reductions and sizeable financial losses. Our panelists expect this shakeout to continue in true Darwinian fashion, with only the strongest retailers and brands surviving.
Eric Beder of Brean Murray Carret & Co. points to the handbag market as an example. Beder notes that handbags, traditionally the largest accessories category, took a huge hit in 2008, especially in the high end sector. He believes this trend will continue, forcing handbag manufacturers to rein in prices and stores to streamline their handbag offerings.
“Handbags are definitely the most oversaturated,” Beder says. “And we think overpriced ‘It’ bags have run their course in the short term. Spending multiple thousands of dollars on a handbag is no longer positive or even appealing; we think it will be a long time before the super-premium handbag market returns in any depth.”
With shoppers carefully scrutinizing every purchase, retailers will have to trim their inventories this year and make sure they offer a unique mix of trend-right merchandise at affordable prices, notes Candace Corlett of WSL Strategic Retail. “Retailers need to manage their inventory with unique items, not more of what shoppers already have,” she says. “Less on the shelves and more of the unique will win.”
Retailers closing underperforming stores in 2009 and cutting inventory in existing stores will impact existing retailer/vendor dynamics. Howard Feller of MMG notes that in the past, vendors were willing to bend over backward with favorable payments, delivery terms and other concessions to keep their retail partners happy. But many retailers will now find vendors unwilling or unable to support them financially in the same manner. This includes co-op advertising, returns and markdowns, and extended payment terms. This will contribute to an environment where retailers have less merchandise on the shelves than ever before—and they’ll order closer and closer to season to save money and avoid excess inventory. “Many retailers and vendors won’t survive this new environment,” Feller forecasts. “The landscape will become far different, with fewer vendors servicing fewer retailers. We believe we’re just approaching the halfway point of that cycle, and we expect these challenges to be with us well through 2010.”
GROWTH OPPORTUNITIES
Despite a difficult economic environment that most experts believe will last throughout 2009 (and possibly beyond), savvy accessories retailers should have plenty of growth opportunities—the Internet, for one. “With cost-cutting forcing a more streamlined assortment in the stores, bricks and mortar retailers can afford to offer a much wider diversity of product and pricepoints online, predicts Doneger’s Kathy Bradley-Riley. “We also expect to see a lot more innovation in terms of multi-channel marketing and direct marketing to the consumer.” One result of the increased emphasis on e-commerce from traditional stores will be greater evaluation of retail doors, adds Doneger’s Roseanne Cumella. “With an Internet ‘door’ on everyone’s desk, how many physical doors do you need?”
Other opportunities include:
- More hi-tech “viral” and social marketing to juniors.
- More focus on celebrity marketing.
- A chance for small independent boutiques and small regional chains to grab some market share from the big chains.
- Lower prices across the spectrum plus broader opening pricepoints.
- Continued emphasis on newer, fast-growing fashion categories such as year-round cold weather accessories.
- More brand exclusivity via assortments unique to particular retailers or different doors of a specific retailer.
And let’s not discount the ongoing “green” movement. “Consumers want to feel good aboutt heir purchases,” notes Jillian Hertzman of The Intelligence Group. “More then ever, they are highly aware of the products they purchase and they expect brands to give them better options.” She predicts that eco chic at a premium, however, will be a tougher sell. |
