Designer stores fight to survive
Shopping: As the chic retailers of Bond St feel the pinch, more people are turning to the Net
Saturday 21 November 1998
To walk along Bond Street is to see a temple to designer clothing. Exclusive, discreet and very rich, it is a haven of perfectly folded garments and dramatically displayed jewellery. Thousands of pounds of clothing lie within the doors guarded by burly assistants. The only thing in short supply is customers.
Take the flagship Donna Karan store, which could be mistaken for a museum. All the clothes are black or grey, but they fade into the background alongside the flamboyant lily displays, leather benches and earthenware. Assistants fold and refold garments and arrange them artistically. It is sepulchral and dark - and very empty.
Two years ago the excitement in Bond Street was palpable and the big designers fought for a prime site in the capital. A report by investment research company Hillier Parker revealed that there had been 35 designer store openings in London since 1990 and the capital had more designer floorspace than Paris, Milan or Los Angeles.
In the heady days of 1997 Ralph Lauren agreed to pay an annual lease of pounds 2.5m while spending pounds 10m on refurbishing the site. Prada was believed to have paid pounds 650,000 to Jil Sander to obtain a lease. Rents in Old Bond Street rose by more than a third every year.
But not any more. Analysts say the market has peaked and are questioning the value of the megastores. Rather than a vehicle for making money they are increasingly seen as "vanity retailing" - a way of promoting the company rather than recouping the vast amounts of money spent on them.
"In 1997/8 rents were going through the roof," said James Roberts, of Hillier Parker. "Landlords encouraged fashion designers to move in. There's very much the element of prestige with Bond St. I would doubt if these stores are profit-driven.
"Bond St and Sloane St are an enigma as far as the level of expenditure which has gone on them compared with the incredibly little inventory that is sold in them," said Julie Ramshaw, retail analyst with Morgan Stanley.
"Flagships are a luxury. It's symbolic of a bull-market mentality but how successful they are in the long term is extremely variable."
Rather than being there to sell garments, she sees the stores "as a massive advertising hoarding on a permanent basis. You have to see it from that financial perspective".
Potential customers agreed."I like looking at the shops because they are beautiful," said Emma Krais, outside Ralph Lauren yesterday. "It's just an experience to go there rather than places to spend money."
"The clothes are so expensive compared to the United States," said Jonathan Dijon, an academic coming out of the Nicole Farhi store. "It is just a form of advertising. They are only all here because the rest are."
George Wallace, chief executive of Management Horizons, a specialist retail consulting firm, says it is a logical step for any designer trying to break into the European market. "Take someone like Tommy Hilfiger, who was a very hot property in the US. But the man in the street might not have heard of him in London.
"So you do three things to raise your profile - get media advertising, develop a fragrance and launch a flagship."
But the problem for these highly expensive stores is that when the economic downturn comes they can be an expensive luxury.
This is what market watchers fear has started to happen and rumours have already started that some stores may come on to the market.
"All luxury goods retailers are seeing far fewer overseas visitors," said Clive Vaughan, of the retail analysts Verdict. "That is where an important part of the spending comes from. Added to that there are so many now. The first couple were new and exciting but when lots of them are around, the spend is only coming from a narrow group of people and it is having to be cut more ways."
Mr Wallace added: "They are going to feel the chill. And some of these brands do not have good longevity. Donna Karan came pretty close to the brink 12-18 months ago and cut back hugely on promotional spending and fashion shows.
"I wouldn't like to say who is going to fall out of the balloon out of Gucci, Prada, Calvin Klein and DKNY but I do not expect them all to thrive and prosper over the next two to five years."
Mr Vaughan warned. "You have to remember these companies aren't that big to sustain such losses.
"It is not like Levi's, who can afford to write off losses as marketing. You may be a well-known designer internationally but in terms of pound notes you can still be very small. Then it gets volatile."
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