Designer Couture: The Devil May Wear Prada But Consumers Are Cutting Back

With retail sales suffering from the recession worldwide, design and manufacturing companies of high end apparel are changing -- and in one case expanding -- their market strategies. According to The Financial Times, "Prada made net profits of €99m last year, down 22 per cent on 2007." Not surprising considering that luxury clothing would be a logical place for consumers to cut back in these lean and uncertain times. What seems less intuitive is that "banks are understood to be willing to consider rescheduling ... €350m of [Prada's] debt to 2011 or 2012 ... [to] give Prada the space to ride out the global recession and use its cash to continue its store expansion programme." Si, you read that correctly -- "continue its store expansion". FT reports that "Prada spent €160m on 34 new stores and other corporate infrastructure in 2008 [and] Mr Bertelli, ... Miuccia Prada's husband who is the group's chief executive, ... said earlier this year that he would seek to position the group to emerge as a winner from the recession through continued expansion." The Prada-Bertelli’s, who between them own 100% of the holding company, seem to feel something quite different than consumers when it comes to spend.

Elsewhere in the realm of Italian design, "Gianni Versace, the favoured brand of celebrities such as Elton John and Jennifer Lopez, is pulling out of Japan after nearly 30 years -- highlighting the depth of the consumer slump in one of the world's largest luxury markets" according to a new Financial Times article that came out this morning. "The Italian fashion house has closed all four directly owned shops in Japan and is expected to shut its Tokyo business office at the end of the month. The column claims that "The company's retreat reflects Japan's diminishing role as a consumer of luxury goods such as diamond-studded watches and crocodile-skin handbags. A spokeswoman for Versace said of the store closures: 'Following the arrival of the new [chief executive] Giangiacomo Ferraris, the entire business strategy for Versace is under review. The Versace boutiques in Japan no longer represented the brand image and it was felt to be more advantageous for the company to close them and start with a clean slate in order to actively and aggressively pursue new locations and more suitable distribution channels.'" And Versace isn't the only design chain to abandon Japan -- "The sluggish outlook for Japan forced Louis Vuitton to cancel plans to open its largest store in the Ginza district of Tokyo next year. Marni closed a store in the Marunouchi area after nearly five years while Chanel closed a boutique in the southwestern prefecture of Kyushu."

Japanese consumers have been pinched by recession a bit longer than those in the West. This morning's FT concludes that "Amid a broad-based consumption slump that has led to persistent declines in department store and supermarket sales, sales of imported brands in Japan fell nearly 11 per cent last year to Y1,064bn, according to Yano Research, an independent market research group. Department stores in Japan, which house many of the brands' boutiques, have suffered a sales decline for 18 consecutive months."

It would seem that high end retailers can only hope that the rest of the world's consumers of luxury goods don't follow Japan's lead. But that just doesn't seem likely.

William Busch

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