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From Red Carpet Roll-up To Economic Anxieties, Industry Braces for War

As the nation rolled toward war, retail and fashion executives waited to see what the impact might be of a conflict everyone hopes is a short one.

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Holding its breath. As the nation rolled toward war in Iraq, fashion and retail executives were waiting on Wednesday to see the impact of a conflict everyone hopes will be a short one.

The situation already has shaken one of the fashion industry’s biggest events: the Oscars. As reported, the Academy of Motion Pictures Arts and Sciences has canceled the traditional red-carpet parade of stars — which some consider the world’s most-watched fashion show — in favor of a low-key event focused on the awards rather than the dresses and diamonds. Party organizers, including Vanity Fair, also have revealed plans to tone down their celebrations on Sunday.

Elsewhere, companies were rearranging travel plans, reviewing advertising budgets and examining sourcing arrangements to cope with the conflict. The growing reluctance to travel is already wreaking havoc in untold ways, with designers like Hedi Slimane postponing his fall campaign shoot for Dior Homme by several weeks.

Longer term, executives wondered what impact the conflict might have on the still-struggling luxury goods market and on relations between America and the rest of the world. There continue to be rumblings of boycotts of French products in the U.S. and of American products by European and Middle Eastern consumers.

"I really believe that for business, uncertainty is the worst," said Gucci Group chief Domenico De Sole. "Any resolution would be preferable to the uncertainty."

No matter how long a war lasts, though, the effects on spending for the first few days could be brutal.

"You’ll see retail come to a standstill — at least for the first three or four days," projected C. Britt Beemer, chairman at America’s Research Group, a consumer marketing consultant based in Charleston, S.C. "More Americans will be staying home watching it on TV than during the Gulf War, because they believe more is at stake this time."

Indeed, 26.2 percent of adults polled by America’s Research Group last week said that, during a war with Iraq, they’d most likely stop shopping, or shop less; primarily stay at home, and focus on commodities when they do go shopping. By comparison, that posture was taken by 12 percent of Americans during the Gulf War.
Most Americans believe a war with Iraq would end in a month or less, ARG found, as 43 percent said they think it will end in a week, or less; 24 percent said it might last as long as a month, and 33 percent anticipate it would go on for three months or more.

Maury Harris, chief economist at UBS Warburg, noted in an economic advisory report on Monday: "In business surveys by the Philadelphia Fed and the Business Council, 40 percent of respondents indicated that ‘geopolitical uncertainties’ or ‘concerns about war/terrorism’ were affecting either ‘hiring and spending plans’ or ‘business plans.’"

Last week, Salomon Smith Barney hosted a conference call on mall security in light of the potential for terrorist attacks. While there is a belief that regional malls might pose as a "soft" target over apartment buildings and trains, there was concern that mall owners are reluctant to put higher security measures in place because they might scare consumers away.

"At this point, we’re taking it one day at a time, obviously, but it’s only reasonable that there will be some natural slowdown, or at least a shift in the spending," said Ed Burstell, vice president and general manager at Henri Bendel. "There will probably be more feel-good impulse buys with items like cosmetics and accessories, but at this point, it’s all wait-and-see."

"Confused" is how owner Nevena Borissova expressed the mood of her clients at West Hollywood, Calif., boutique Curve. "One day we have no sales and the next day we have an incredible day. No one knows how to deal with it."

Observers do not think all products would be hurt to the same degree, during a lengthy engagement, however. Fashion merchandise, for one thing, could do better than many other categories, they theorized, by providing an outlet to express one’s viewpoint on the war — much as it did during the Vietnam War in the Sixties. "Fashion with peace graphics is doing very well right now," noted Marc Gobe, president, ceo and creative director of brand image consultant desgrippes gobe, here. "About 30 percent of Americans are against the war, and I think they will be very motivated to make a statement; to differentiate themselves from the mainstream." Gobe also thinks a long-running conflict would spark the development of certain items and styles to express antiwar sentiment, a role played by jeans in the Sixties.
In addition, Gobe projected, "Beauty products will do well, even if the war goes on. They can change a person’s outlook for a moment, and are affordable."

As for the possibility of product boycotts, most executives said they hope it doesn’t happen — and have seen little evidence of it yet. But the pro-boycott movement is being fueled in the U.S. by tabloids like The New York Post, which on Tuesday ran a photo of a Chanel-wearing model with a weasel’s head grafted onto her body. It urged its readers to buy American, not French. Robert Duffy, president of Marc Jacobs International, which is owned by LVMH Moët Hennessy Louis Vuitton, labeled such talk as "ridiculous," saying, "I can’t get over how many of my American friends own stock in French businesses. They are our friends. Get over it."

Duffy said he was informed that sales of Louis Vuitton have been strong, or at least not materially affected by Americans rallying against French brands following France’s efforts to dissuade the U.S. from pursuing military action in Iraq.

But Judi Litkin, manager of Wally’s, a premier wine shop in West Los Angeles, supplying several of this week’s events and parties — some Oscar related — said customers have boycotted French wines. "I’ve even had waters boycotted," she said, declining to identify the parties. "No Perrier and no Evian. Clos du Bois is a California wine but because it sounds French, they don’t want it."

Any backlash against French products is likely to be short term, Gobe predicted. But there’s a flipside — the growing movement against the war could create an even greater backlash abroad against American products. "McDonald’s business is down 80 percent in the Middle East because of a boycott," Gobe said. "What the region’s 1.2 billion people don’t realize is that those are local franchises; they are hurting local citizens."

A spokeswoman for Research International, the international qualitative market research company that recently published a consumer survey into global perceptions of modern brands and the issues facing globalization, said it found that consumers generally separate out political actions from the brands they buy — and don’t care if their countries of origin behave badly. The research covered 41 countries, including Turkey, Malaysia and Indonesia, but not the Middle East. "Our research showed that consumers love American brands. As for French fashion brands, we found that they are as much about the founder — i.e., Coco Chanel — as they are about the country they come from."
But the fashion industry, which is global from sourcing to shop floor, was rushing Wednesday to develop backup plans. Duffy of Marc Jacobs returned to New York from Paris on Tuesday, the last of the company’s employees to return home. The company has told its employees to cancel any travel planned for the next few weeks and to work as much as possible by e-mail and fax, he said.

"We’re monitoring the business very closely in Japan, and everything seems to be all right in our stores. Everybody is just very nervous and I’m mostly concerned with my staff. We’re going to just sit tight for the time being. We’ve worked with our factories overseas for so long that we’ll probably find out we don’t need to be traveling so much anyway."

About two weeks ago, Donna Karan International, another LVMH firm, advised employees that any business travel was not mandatory, leaving the option open to them, but by Wednesday, a spokeswoman said, "Basically, there is no one traveling at this time and we have said there will be no traveling until we see how this situation plays out."

Andrew V. Jassin, managing director at Jassin-O’Rourke Group, said, "I’m hearing about how executives are concerned about plane travel. I was supposed to leave for London next week, and have put it off for another two weeks." Jassin said he’s waiting to see what happens before deciding whether the trip should be postponed again.

He noted that he’s been hearing more and more about how skeptical executives are becoming about getting on airplanes. "I was away two weeks ago in China with business colleagues and the people over there were very frightened."

Paul Charron, chairman and ceo of Liz Claiborne, Inc., said his company also was keeping both domestic and international travel to a minimum and only if it’s deemed "business critical." There is no travel to the Middle East.

"This reflects a generally increased level of awareness regarding both health and security situations and our need to be more conservative than usual in planning trips," he said. "We are keeping up with the very latest security and safety information and will modify our policies in accordance with current conditions."
Major ocean carriers serving the Middle East said they have contingency plans in place to reroute freight and try to continue to meet delivery dates in the event of a war in Iraq. However, major insurance companies began to warn early this week that they’d be dramatically hiking the cost of insuring cargo within 48 hours after the start of a war.

Some reports in the financial press have indicated that the cost of insuring cargo could be hiked by 100 percent or more. Shipping executives said they would likely have to pass those increased charges on to shippers.

"I don’t have any numbers, but I assume this will happen," said Brian Moore, director of apparel sales for Maersk Sealand, of Madison, N.J.

While the outright destruction of cargo is a big concern for shipping executives, more mundane problems have already begun to crop up. Shipping sources reported that the speed with which cargo travels through the region has slowed as a result of the heavy traffic of military and civilian vehicles around Iraq. For example, highways in southern Turkey, which borders Iraq, have become clogged as businesses and citizens prepare for war.

In the domestic textile industry, executives reported that they’ve seen a pickup in inquiries in recent days as importers prepare for possible delays on goods coming out of or through the Middle East. With the government advising Americans that the risk of terrorist attack is also heightened, there is some concern that a slowdown at the ports could also slow the arrival of imported fabric.

Overseas, the mood was just as anxious as it is in America, although executives in Paris, London, Milan and Tokyo said consumer activity so far is continuing as usual, even as businesses rein in travel and some sectors suffer from a lack of tourists.

In Paris, the situation has not had a major dampening effect on retail activity as of yet, with the Printemps and Galeries Lafayette department stores on Boulevard Haussmann teeming with shoppers on Wednesday afternoon. Many Japanese tourists were inspecting — and buying — luxury leather goods on the popular main floors.

The number of American tourists visiting Paris was off by 12.5 percent in 2002, and as much as 15 percent since January, according to the most recent statistics from city hall. Hotel vacancy rates are high and cancellations are abundant in resort destinations such as Monaco and in Paris.
François Delahaye, director of the Plaza Athénée hotel said since last Sunday, half of the Americans who had reservations canceled. American tourists account for about 28 percent of its business. "I think we’ll suffer until April and then business will pick up again in May and June," he said.

Jean Cassegrain, general director of Longchamps, the Paris-based accessories firm, acknowledged that war fears have reduced tourist flows, denting business in Paris as well as at duty-free concessions around the world. "But it’s not only the war that’s affecting the climate now," he added. "The economy has been sputtering for a while."

Executives were also loathe to blame the slowdown on any reticence about French brands.

Philippe Benacin, president of Inter Parfums SA, said that none of the fragrance brands his company produces, including Christian Lacroix, Celine and S.T. Dupont, have experienced a backlash from American consumers.

Likewise, American brands in Europe say they’ve not seen signs of consumer protest.

"Although there are reports of anti-American sentiment, we’ve seen no impact on sales nor have there been any boycotts anywhere in Europe," said a spokesman for Levi Strauss in Europe.

On the wholesale side, the picture is not as encouraging. "It’s definitely a very difficult season," Maxime Vibert, co-designer of the contemporary Madame a Paris line, said over the weekend at the Tranoi fair. "We haven’t seen any Americans." Vibert pointed out that even in the U.S., where the brand has a showroom, orders had been scarce. "Out of the 20 clients we have in the U.S., only three came to our showroom in New York," she said.

Japanese buyers were out in force at Premiere Classe, but making every yen count. "They’re watching price more than usual because of the war," said exhibitor Yannick Leleu Federici, commercial director for accessories at Martine Sitbon. "They’re very worried about [a possible war in Iraq] and of course the situation in North Korea."

Claire Kent, luxury goods analyst, Morgan Stanley in London, said the impact on fashion and luxury is hard to estimate at this stage and will depend on the length of any conflict. "We think that if it’s a short war — one month or less — there will be little impact on luxury goods sales, but if it’s longer — several months — there could be one. The sectors that are likely to suffer most if there is a long war are jewelry and watches, because those purchases are harder to justify morally during a time like this," she said.
"Tourism isn’t great, anyway. In the fourth quarter we saw a bit of a recovery in places like Hawaii, but overall, it’s still not back at 2000 levels. Japanese consumers do tend to spend more at home when they’re not traveling but it never totally offsets the loss of their spending abroad."

But executives in Japan insisted that, even in wartime, the nation’s consumers want their luxuries. "Fundamentals of the economic situation in Japan will not suffer damage in the war," said Kana Sasaki, analyst for UFJ Tsubasa Economic Research Center. "The Japanese market for luxury goods will stay strong. Major consumers for the brands, which are young women, are different from those who will sustain damage from the war."

After the terrorist attack on Sept. 11, 2001, local sales went up "because fewer people went abroad to avoid danger, and people did shopping domestically," said Sasaki.