Why luxury brands can’t ignore the threat of recession forever

A recession this fall is not a certainty – in the US at least – but some retailers seem to be battening down the hatches.

This week, PVH Corp., the US parent company of Tommy Hilfiger and Calvin Klein, announced plans to lay off 10% of its global workforce as it cut its full-year outlook. The company cited inflation, which it said was one of several challenges putting pressure on discretionary spending.

PVH is one of the first major traditional apparel companies to cut jobs in response to the bleak economic outlook (although many tech companies and direct-to-consumer fashion brands have done so). But it probably won’t be the last. Over the past few weeks, a slew of retailers have been issuing similar warnings about what’s to come this fall. Walmart, Nordstrom, Macy’s, Kohl’s, Gap, Adidas and Target all cut their outlook for the rest of 2022, fearing a deeper economic downturn and anticipating the need for bigger promotions and markdowns to get rid of excess inventory.

The reasons for the pessimism are well documented at this point: inflation is at its highest levels in decades. Russia’s invasion of Ukraine has sent energy costs skyrocketing in Europe, with UK utility bills set to soar by 80% this autumn. In China, the government remains committed to the country’s zero Covid strategy, which has hampered economic growth.

For consumer brands, this is all concerning. This catastrophic mentality has not yet spread to luxury, however. Major luxury brands continue to post record sales and profits. Zegna even raised its outlook after seeing its half-year revenue increase by more than 20%.

One reason for the optimism is that major luxury customers are less likely to cut back on purchases if their heating bills go up, after all; Nordstrom chief executive Erik Nordstrom said signs of weaker demand came mostly from lower-priced items at its main stores, as well as its off-price business, Nordstrom Rack.

“The easing trend was greater in customer segments with lower income profiles, while we saw greater resilience in higher income segments,” Nordstrom said. “Within our designer business, higher-priced luxury products have significantly outperformed lower-priced products.”

Luxury brands even benefit from some of the same forces that trigger these degraded outlooks. Currency fluctuations are fueling inflation fears in Europe and the UK. But it’s an ideal setup for high-end labels that pay Italian workers in euros and then collect dollars from their US-based clients.

It’s unclear how long these American consumers will continue to spend. It is true that gasoline prices have retreated from their summer peak. But in a speech in Jackson Hole, Wyoming last week, US Federal Reserve Chairman Jay Powell reiterated the central bank’s commitment to raising interest rates to keep inflation under control. This course increases the chances of a recession in the United States, which would likely be joined by contractions in Europe, the United Kingdom and elsewhere.

No one can guess how severe this downturn will be. This week, Steve Hanke, a professor of applied economics at Johns Hopkins University, predicted a “whopper” of a recession in 2023. Goldman Sachs released a forecast that the US housing market will also experience a further downturn this week. next year. (Not all predictions are so bleak: Randall Kroszner, a former member of the Federal Reserve Board of Governors, said that while he thinks a recession is coming, it won’t be “devastating.”) A consensus forms on the fact that the UK and major European economies such as Germany will slide into recession later this year, a slowdown accelerated by an expected spike in energy prices this winter as Russia limits the gas supply.

No corner of the fashion industry will be immune if this happens. In a note earlier this week, HSBC predicted luxury brands would profit a quarter more from its post-pandemic boom. But in October, the bank said, all bets are off.

NEWS IN BRIEF

FASHION, BUSINESS AND ECONOMY

Téthys joins General Atlantic to support the DTC Sézane brand. The Bettencourt-Meyers family office takes a minority stake in the Parisian fashion brand, whose sales have exploded in recent years.

PVH will cut jobs as demand declines. The owner of Calvin Klein announced he would cut 10% of his global workforce and cut his full-year outlook, saying high inflation was hurting spending on discretionary products.

Burberry, Zalando and the British Fashion Council are teaming up for a diversity initiative. Dubbed “The Outsiders Perspective,” the initiative will provide mentorship opportunities for people of color looking to break into the fashion industry in a variety of areas, such as sales, merchandising, operations, marketing and legal.

Selfridges wants to achieve almost half of its sales flyer by 2030. By the end of the decade, the retailer aims for 45% of transactions to come from products made from recycled materials or through services such as resale, repair or refills.

Harlem’s Fashion Row and LVMH unveil the Virgil Abloh award. The new accolade, which aims to “celebrate like-minded individuals who embody the spirit, brilliance and vision of Virgil, through invaluable contributions to culture, community and innovation,” was announced. said the organization, will be introduced by Abloh’s wife, Shannon Abloh, on Sept. 6.

Amid the US retail gloom, Uniqlo is shining on the Covid-triggered overhaul. Fast Retailing’s flagship brand said it was on course to deliver its first annual profit in North America – after 17 years of trying – helped by an overhaul to its logistics and pricing strategy, introduced during the pandemic , and essentially stopping discounts.

Revenues at the Ted Baker store are increasing thanks to the recovery in footfall and sales of formal wear. Ted Baker, which last month agreed to be acquired by Juicy Couture and Forever 21 owner Authentic Brands, said revenue for the 14 weeks to July 29 was up 3.4% from last month. year, but still down 28% from pre-pandemic levels. .

A UN report accuses China of “serious” rights violations in Xinjiang. The report by the UN High Commissioner for Human Rights, Michelle Bachelet, cited testimonies alleging “patterns of torture or other forms of cruel, inhuman or degrading treatment or punishment” in the context of a campaign that China says is aimed at suppressing extremism and terrorism, Bloomberg reported.

Lululemon is raising its full-year guidance on strong demand from affluent customers. Boosted by a strong second quarter, Lululemon raised its 2022 net revenue forecast to between $7.87 billion and $7.94 billion, from $7.61 billion to $7.71 billion, reported Reuters.

Athleta enters the underwear space. The Gap Inc.-owned sportswear brand will launch a lingerie collection called “Rituals” on September 20, available on its website. The brand previously sold underwear for a brief period in 2018.

Singapore’s FJ Benjamin returns to profit. The retailer recorded a net profit of S$3 million (US$2.14 million) in the year to June 30, a reversal of a net loss of $10.9 million in the year former. The result marked the company’s first significant profit in six business years.

THE BEAUTY BUSINESS

The end of a Balmain fashion show.

Estee Lauder Cos. close to a beauty deal with Balmain. The arrangement would be a licensing deal similar to the conglomerate’s venture with Tom Ford, where Estée Lauder would manufacture, market and distribute makeup and other products for the French fashion house.

Skincare brand Glow Recipe is putting Goldman Sachs up for sale. The brand, known for its fruit-based products, is considering a sale that could value it between $400 million and $500 million, according to people familiar with the matter, Bloomberg reports.

Amorepacific acquires American beauty brand Tata Harper. The South Korean beauty conglomerate said it acquired the brand’s parent company, Tata’s Natural Alchemy, as a springboard for its plan to accelerate its expansion in North America.

PEOPLE

Trish Donnelly, CEO of PVH Americas.

Trish Donnelly leaves Calvin Klein. The role of the former Managing Director of PVH Americas and Calvin Klein Global will be split into two: a regional role for PVH Americas and a global brand leadership role for Calvin Klein. Stefan Larsson, chief executive of PVH Corp., will fill the interim.

MEDIA AND TECHNOLOGY

Kim Kardashian graces the cover of Allure's August 2022 issue.

Seduce to close the printed edition. The last print issue of Condé Nast’s beauty-focused publication will be the December 2022 edition, editor-in-chief Jessica Cruel announced in a note this week to staffers.

Alibaba’s Lazada watches Europe push to take on Amazon and Zalando. Its specific plans will depend on macroeconomic and market conditions, Lazada Group chief executive James Dong told Bloomberg News.

Compiled by Darcey Sergison.

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