Designer Fall Outlook: Brighter Skies Ahead And More Deals, Too

NEW YORK — The big news for fall likely won’t be found in hemlines, but in the headlines.

Some three years into one of the most drawn-out downturns in the history of the apparel industry, in which sales of certain luxury collections have dropped substantially, even companies that have managed to hold their collective breaths in the depths of such a recessionary climate are starting to look a little green around the gills.

Brave faces are giving way to those of panic, reviving an old joke amongst the tailors of Seventh Avenue: drastic times call for drastic measurements.

Total women’s sportswear sales dropped 2 percent in 2002 to $38.8 billion, according to STS Market Research, with deflation and price cutting digging into many companies’ bottom lines. The NPD Group research firm reported that total women’s apparel sales dropped more than 6 percent in 2002 to $83.6 billion.

Thus, the industry has discovered itself in the unpleasantly ironic situation where designers are slicing off a good chunk of their workforce to save money, while simultaneously dreaming up schemes to extend their reach — floating new lines, labels and marketing concepts with the assumption that the economy is bound to turn around someday, preferably soon.

As companies look again to acquisitions as a means of survival, the pace of industry consolidation has hastened to the point that new power bases have been established within a matter of weeks and the race to dominate any potentially underbranded corner of apparel retailing has turned into a game of musical chairs set to the chaotic rhythm of Judas Priest.

As for the outlook for fall, there’s only more action to come.

On one front, deep-rooted alliances are being formed, like the broad new relationship between Phillips-Van Heusen and Kellwood Co. to build the Calvin Klein and Izod franchises into blockbuster brands for the lower markets — with sales projections of $500 million over several years for the Calvin Klein better sportswear line in development and $50 million for the first year for Izod women’s — or talks of other similar proposals for Marc Jacobs, Michael Kors and Oscar de la Renta. On another, there are divisive splits and the potential for more turf wars, such as the licensing, and now legal, dispute between Jones Apparel Group and Polo Ralph Lauren.

As for the acquisitions game, even on the heels of this week’s $585.6 million sale of Nautica Enterprises to VF Corp., there’s still plenty of news to come on the Kasper A.S.L. front and possibly Tommy Hilfiger, which remains on the hunt for purchases.

Any such development would further shift the futures of some of the most potent brands in American fashion. Then again, at this rate, there may not be many brands left to acquire, following the recent sales of Michael Kors LLC to the financial duo of Lawrence Stroll and Silas Chou in January, PVH’s buy of CKI in February, Oxford Industries’ acquisition of Tommy Bahama and Liz Claiborne’s deals for Juicy Couture and Ellen Tracy.

On the American front, that leaves few remaining independent brands — like Jill Stuart, Cynthia Rowley, Vivienne Tam or Catherine Malandrino — and one ultimately elusive trophy brand, Oscar de la Renta, who has refused to budge on the subject.

Despite what appears to be an industry wracked with sudden instability, fashion executives point to the expectation of calmer times in the outside world that will ultimately lead to a recovery for luxury apparel.

“In some cases, we see retail spending improving as negative headlines fade and travel increases, but people are spending in a different way than they once did,” said Tom Murry, president and chief operating officer of CKI. “They are buying special items and replacement pieces if they are great looking and feel new.”

At least there is a feeling that the market has hit its bottom and the machinations of so many deals are laying the groundwork for designer and bridge companies to make a comeback.

“After a downturn, there is always opportunity,” said Gordon Finkelstein, president of Tocca. “A stable global environment is going to be vital for us, as we’re starting to see an uptick for fall. We’re seeing improvements in international markets, and as people are traveling more, even domestically, the strength of foreign currencies is playing a greater role for us today.”

Despite industry-wide concerns that retailers are pushing price breaks to dangerously early points on the calendar, Calvin Klein’s Murry added that “stores that are doing well are not in a hurry to break price.”

“Everyone understands that the consumer is being encouraged to buy on sale if fall merchandise is on sale before the season really begins,” Murry said. “Having strong selling throughout the season makes a collection less likely to be included in any conversations about early break dates. Fall really shouldn’t be on sale before December.”

Michael Kors and Donna Karan are similarly building their plans under new management, both with the strategy of refining their product and distribution for a market that is increasingly competitive at all price points. Both companies have significantly added to their advertising budgets for fall.

“Deals that make sense at any given time are always worth exploring,” said Allison Ryba, interim president of Michael Kors. “As far as a bad retail environment, our business is showing strong signs of growth. We had a very successful trunk show on Madison Avenue, as well as at our retail partners across the country. All in all, we see a very strong market ahead for the collection.”

John Idol, chief executive officer of Kasper ASL, a company that is expected to be the subject of a heated auction next month in bankruptcy court, also expects the third and fourth quarters to show some improvement for the apparel industry in general. Kellwood opened the bidding for Kasper with a $163 million offer last month, while others acquisitive minding companies like Jones, Claiborne, or a combination of Kasper management with Stroll and Chou, could heat up the bidding.

“I think we have hit the bottom,” Idol said. “While it’s not going to be a robust third and fourth quarter, we should see positive gains in the apparel business. We’ve been in a very tough environment for the past three or four years, and the consumer recognizes there is eventually going to be a need for clothes.”