A cloudy outlook for fashion

Masks are lifted in America, flights are full and the global economy is doomed.

It’s a helpful summary of this week’s news, if a little offhand. On April 19, a US federal judge struck down the Biden administration’s mask mandate for trains and planes, leading airlines to drop their requirements, sometimes mid-flight. Excited passengers tossing their masks into trash bags held by smiling flight attendants created one of the pandemic’s clearest “back to normal” moments (the images on social media of Coachella, maskless in view, could be a close second. )

Speaking of flights, airport counters and security lines were overwhelmed with travelers over the Easter weekend, signaling the start of what is expected to be a busy summer holiday season. American Airlines said this week it set a monthly sales record in March. The long-awaited rebound in tourism finally seems to have begun.

The exception – and it’s a big one – is China, where much of the country remains under lockdown. The measures taken by the government to contain its worst Covid-19 outbreak in two years have dominated discussions of the financial results of some of the biggest names in luxury, including LVMH and Prada. Kering this week reported disappointing sales from Gucci, which is more dependent on China than many of its rivals, sending its shares tumbling 4% on Friday.

Meanwhile, the International Monetary Fund (IMF) cut its global growth forecast to 3.6% from 4.4% in a previous outlook. The IMF cited the war in Ukraine for the sharp reduction, noting that Russia’s invasion had driven up the cost of oil, gas, wheat and other essentials. The World Bank said Covid-19 lockdowns in China posed another threat to the global economy and could drive up inflation, which has already hit a 40-year high in the United States.

Brands seem more focused on masks removed, full flight news this week than on the darkening economic picture. Earlier this week, Kering and Prada said surging sales in the United States and Europe outweighed concerns about the impact of shutdowns in China. Lululemon outlined its strategy to double sales by 2026. On Thursday, LVMH CEO Bernard Arnault summed it up most succinctly by assessing how 2022 is going: “So far so good. good”.

It’s not the rhetoric of companies that think they’re looking at an impending recession.

The sunny outlook is partly down to bravado: Stores are packed, profit margins are rising and sales are at record highs. Why is it raining on this parade?

At the same time, many companies – including some of those named above – are quietly preparing for the inevitable downturn, whether it happens next month, next year or later. Investors certainly are: despite strong selling, shares of virtually every fashion company are down from the highs they hit late last year, in many cases sharply.

These companies may also be reluctant to discuss the uncertain future because there are no easy answers. Preparing for economic turbulence is tricky, as recent industry experience shows. Many brands were overly cautious at the start of the pandemic and did not order enough inventory to meet high demand last year. In the wake of the IMF report and similar cautionary notes from the US Federal Reserve, they could make the opposite mistake, ordering too much to serve customers who aren’t sure they’ll show up. But if the economists are wrong, we will return to shortages and missed opportunities.

Many luxury brands are reacting to the uncertainty around China – which predates the last Covid outbreak – by investing more in America. This has proven to be a successful strategy so far, although, as Bernstein’s Luca Solca notes, “the situation in China is much worse compared to the summer 2021 shutdowns.” And the US economy is likely to slow as the Fed brings inflation down.

The best way to prepare, as BoF’s Cathaleen Chen reported earlier this week, is to tackle the most pressing issue of the moment: inflation. By switching to higher-margin materials, buying in bulk, and taking other steps to operate at maximum efficiency, companies will lessen the effects of rising costs and, therefore, ride into any future downturns with their balance sheets in the best possible form.

In a broader sense, brands have been preparing for the next recession since the start of 2020. This can be seen in Calvin Klein’s emphasis on differentiated and coveted products that it can sell at full price, Ralph Lauren’s brand elevation strategy or the smart new strategy of luxury brands. non-price channel approach.

All of these efforts are aimed at creating a strong brand that customers will consider an essential purchase even if their personal financial situation deteriorates, and having a strong brand is the best way to protect a business against recession.

NEWS IN BRIEF

FASHION, BUSINESS AND ECONOMY

Gucci’s sales missed estimates as lockdowns in China weigh. The Italian brand – the engine of Kering’s profits and sales – missed its first-quarter revenue targets as Parisian teammate Saint Laurent surged. Gucci’s sales rose about 13%, while analysts had predicted a gain of almost 19%.

Prada CEO says strong first four months despite Russia and China. Patrizio Bertelli said the Milan-based, Hong Kong-listed house has no plans to revise its targets, while it may consider a dual listing on the Milan Stock Exchange in the future, according to an interview with Corriere della Serathe weekly insert of The Economy.

China will sign treaties on forced labor as control of Xinjiang intensifies. The country is set to ratify two international treaties amid criticism over its treatment of the Uyghur ethnic minority, which has hampered trade relations with the United States and Europe.

China’s Q1 GDP beats expectations, March retail sales fall. China’s National Bureau of Statistics (NBS) said the country’s gross domestic product (GDP) rose 4.8%, beating analysts polled by Reuters, who had expected a 4.4% gain.

Lululemon aims to double its sales by 2026. The sportswear retailer has unveiled a new five-year plan with a goal of doubling sales to $12.5 billion. Lululemon aims to double the revenue it derives from men’s products and its digital channels, while quadrupling international sales from 2021 levels, the company said in a statement.

L Catterton is considering the sale of jeweler John Hardy. The buyout firm focused on consumer brands is seeking about $200 million for the business it bought in 2014, people familiar with the matter said. Bloomberg.

Reliance Brands takes majority stake in Abu Jani Sandeep Khosla. Reliance Brands Limited (RBL) will take a 51% stake in the 35-year-old designer brand, loved by Bollywood stars and billionaires, for an undisclosed sum.

Mango signs a green loan agreement. The street retailer refinanced its debt and secured a 200 million euro ($216 million) loan managed by CaixaBank, the cost of which will decrease if it meets sustainability milestones by 2025.

François Pinault is preparing to buy a music streaming platform. Billionaire Kering founder Francois Pinault and fellow founders of a blank check company are buying Deezer in a deal valued at more than $1 billion.

THE BEAUTY BUSINESS

Fenty Beauty campaign.

LVMH Beauty partners with a sustainable packaging company. The conglomerate’s beauty arm has formed a partnership with Origin Materials Inc., a California-based company that focuses on creating packaging and materials with a minimal carbon footprint.

L’Oréal’s first-quarter sales rise on demand for high-end beauty products. Cosmetics group L’Oreal beat first-quarter sales growth expectations on Tuesday, dismissing concerns about lockdowns in China and inflation.

Olivia Rodrigo signs with Glossier for her first celebrity contract. The teenage pop star has signed a long-term deal to collaborate with the struggling direct-to-consumer beauty brand.

The Korean personal care giant is acquiring The Crème Shop in a $120 million deal. LG Household and Health Care will take a 65% majority stake in the beauty company for about 148.5 billion won ($120 million) with an option to buy the remaining shares in five years.

PEOPLE

Actor Darren Barnet is the new face of Victoria's Secret's Pink label.

Victoria’s Secret’s Pink brand signs first male celebrity spokesperson. Darren Barnet, 30-year-old star of Netflix’s hit teen series ‘Never Have I Ever’, has signed on as the youth-focused line’s first-ever male ‘brand ambassador’.

Missguided founder Nitin Passi is stepping down as the company explores strategic options. The British fast fashion retailer also announced 63 job cuts as part of its restructuring efforts, tapping London-based consultancy Teneo to ‘find a strategic partner with infrastructure and platform’ to help turn the company around, he said.

MEDIA AND TECHNOLOGY

Hermès plans to use the metaverse for communications.

Hermès plans to use the metaverse for communications. At Wednesday’s annual shareholder meeting, executive chairman Axel Dumas said bag maker Birkin would remain focused on craftsmanship, but was “curious and interested” in the metaverse.

Shopify is in talks to buy tech startup Deliverr, according to Bloomberg. It’s a move that would help the Canadian e-commerce company expand into fulfillment services.

THG rejects ‘many’ approaches, warns of profiteering this year. The e-commerce company warned inflationary pressure would lead to broadly flat earnings this year, missing market forecasts by 22%.

Compiled by Joan Kennedy.

Comments are closed.