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Can Luxury Fashion Ever Regain Its Luster?

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Those shifts have prompted big questions about the business model of luxury fashion. Should fashion weeks be dismantled and rebuilt? Are cycles of new items every six months still the best approach, at a time when garment overproduction is under scrutiny, restricted lifestyles are commonplace and runway spectacles can feel out of step in a world with different priorities?

ImageThe new look: masks, Plexiglas and social distancing at Spring Studios in Manhattan as models prepare.
Credit…Jeenah Moon for The New York Times

The second quarter of 2020 was the luxury fashion industry’s worst. According to estimates by Boston Consulting Group, global luxury sales are set to contract by 25 percent to 45 percent this year, with industry growth unlikely to return to pre-pandemic levels until at least 2023 or 2024. At a time when many companies are battling for survival, many designers feel they cannot afford to skip an opportunity to show new wares.

So as the latest fashion week season began in New York last week, blockbuster catwalk shows and big crowds were out, replaced with a handful of small-scale or online-only presentations. In Italy and France, some brands have said they plan to host larger physical events, despite having only a handful of international guests, a number of high-profile designer absences and rising infection rates in Europe.

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“Showing is not essential. However, sometimes you do need to show what you’re actually creating,” Antoine Arnault, head of communications at LVMH Moët Hennessy Louis Vuitton, told The New York Times on Sept. 9. “There’s a whole economy around these shows. That should not be underestimated,” he added, alluding to the thousands of freelance makeup artists, seamstresses, drivers, security guards and photographers who rely on fashion weeks for a sizable part of their incomes.

Large groups like LVMH, which owns brands including Dior, Louis Vuitton and Fendi, and its rival conglomerate Kering, which operates the likes of Gucci, Saint Laurent and Balenciaga, have been more insulated from the bitter pandemic headwinds than most smaller stand-alone businesses. (LVMH, though, has entered a court battle in an effort to extricate itself from a $16 billion commitment to buy the jeweler Tiffany & Company.)

In its latest quarterly earnings report, LVMH said it had seen a strong uptick in sales in the summer from Asian countries like mainland China, Japan and South Korea, where recent virus rates have stayed low. But sales for its fashion and leather goods unit fell by 37 percent, as international tourism ground to a halt and footfall into global stores was slow to recover. The impact has been even worse for brands in turnaround efforts like Salvatore Ferragamo and Burberry, debt-ridden department stores like Neiman Marcus, and the cash-poor independent brands with large exposure to those types of retailers (many of whom scrambled to cancel and return orders.) Most companies are now struggling with a large glut of unsold inventory from the spring and summer collections this year.

“The luxury sector currently has more than double the amount of stock on its hands than it usually would at this time of year, much of which is now unlikely to be sold at full price,” said Stefano Todescan, managing director of Boston Consulting Group. Many brands have been using brick-and-mortar discount outlets or online marketplaces like the Dutch start-up Otrium to try to shift the designer clothes piling up in warehouses.

Mr. Todescan said the brands that fared better this year were generally those that relied on data to gain a granular understanding of where their stock was. This allowed them to move supply from the West to better performing regions like the Asian markets, where huge crowds unleashing pent-up demand for luxury goods inspired the phrase “revenge shopping.”

“The pandemic has further polarized luxury’s winners and losers and accelerated trends that were already underway before the crisis began,” Mr. Todescan added. “Brands like Hermes and Chanel, who never discount, are less trend-led and with product ranges that sell through multiple seasons, have emerged in particularly good shape.”

Credit…Landon Nordeman for The New York Times

China, which was already the fastest-growing luxury market before the pandemic, will become even more vital to brands’ success as North American and European markets remain unpredictable. And everywhere, offline retail has had to go online — and fast — as consumers turned rapidly to digital shopping.

Amazon, whose customers have ordered over one billion fashion items via its mobile app in the last 12 months, has long looked for a way to become partners with luxury names, which had in the past largely rebuffed its advances. Last week, Amazon launched its mobile-only Luxury Stores with one brand: Oscar de la Renta. It said that more labels would be announced in the weeks to come.

Farfetch, the digital marketplace that allows upmarket vendors to sell their goods online, reported last month that it had seen a 60 percent surge in traffic for the second quarter compared with the same period last year — and 500,000 new customers.

“E-commerce represented just 12 percent of luxury sales in 2019. Since then there has obviously been a complete paradigm shift,” José Neves, Farfetch’s chief executive, said. Luxury used to be heavily associated with an in-store experience, he added. But for many consumers in 2020, convenience and safety are now front of mind, prompting many brands to fast-track their digital strategies. “For those who aren’t able to do that, it is going to be a struggle,” Mr. Neves said.

As the industry starts to offer up new looks, TikTok is hosting its own online fashion month for a potential audience of roughly 800 million users, with shows by Saint Laurent and JW Anderson. Expect to see smaller collections with more timeless pieces that can have extended shelf lives if necessary. Demand for evening wear and suits has plummeted now that no one has a reason to dress up, though many brands say they expect people to start buying high-priced items that aren’t sweatpants, despite a severe recession and ongoing layoffs.

With no fixed timeline for a Covid-19 vaccine, it will be hard to predict what customers will want six months from now. But for luxury fashion, the shows must go on.

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The Trump campaign celebrated a growth record that Democrats downplayed.

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The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.

The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.

“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.

The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.

Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.

“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”

Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.

“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.

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Black and Hispanic workers, especially women, lag in the U.S. economic recovery.

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The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.

Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.

Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.

“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”

The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.

The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.

“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.

Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.

“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.

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Ant Challenged Beijing and Prospered. Now It Toes the Line.

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As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

ImageAnt Group’s headquarters in Hangzhou, China.
Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.

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