Blacks Retail Report

Luxury Menswear
July/August 2005

Table of Contents

The Big Picture
Less Traffic & Increased Sales?
Current Trends
Spring Markets
Buyers Beware
Blacks Bottom Line
TrendLines Expert Data

The Big Picture

The U.S. economy continues to grow at a measured rate: GDP was up 3.8% for the first quarter of the year and is projected to grow by 3.6% for the remainder of 2005.

But even as the economy cruises along, consumers are being affected by the outstanding issues of rising energy costs and interest rate pressures, which eat into disposable incomes. Energy costs are not only seen visibly at the gas pump - where they make their presence known in the psyche as well as the wallet - they are also hidden in almost every purchase. Interest rate increases are also hidden within consumers’ daily lives and are easily tracked in adjustable mortgages.

Retailers should remain aware of disposable income pressures, and be prepared to face higher prices for European imports due to the energy and interest rate rises.

Less Traffic & Increased Sales?

Blacks's analysis of the men's market in general is that we will see more of the same over the remainder of the year. Well heeled consumers will continue to enjoy the fruits of this economy and Better to Luxury retailers will prosper as a result. But again there are issues for the Better retailers. The average unit price is increasing yet units sold are dropping. We continually hear "business is up but there are no customers." How long can even the most affluent retailers sustain growth by increasing prices? This dilemma can only be solved by fashion innovation.

Current Trends

Be prepared to experience unpredictable sales patterns throughout the Fall season. As we come out of the prolonged period of growth that began in April of 2003, we are now at the end of a retail cycle. At Blacks we expect a period of flat activity lasting six to nine months as a new cycle begins. It is common during these flat or "in between" periods to experience erratic sales patterns. Our Better stores have been experiencing these erratic month-to-month sales patterns for the past quarter.

We anticipate these monthly peaks and valleys will balance out over the course of the Fall season as we head into a new growth cycle.

Spring Markets

Merchants are out in the market, looking for new ideas for Spring 2006. Will new trends develop, or will it be 'the same old products with subtle variations'? At Blacks we're anticipating a new Tops trend. Over the Spring 2005 season, sport shirts started slowing and knit tops never surged. Retailers need fresh items that have the power to compel customers to buy in multiples. Tops are the driver and we need something more than stripes and island concepts to fuel this trend.

Early market reports from some retailers point to California influences such as denim and related items as must haves in traditional Better stores, with sixties-style belts as a key accessories item.

Another trend this Fall will be Loose Construction Jackets. Spring presentation of the loose jacket proved successful and for Fall the assortments will be more developed. Both retailers and vendors believe the jacket trend will move into Spring 2006. Blacks recommendation: look closely at price points as the New Jacket is fashioned and placed into Spring assortments. Fall assortments included luxury fabrications that are moving the price points up. For Spring Blacks believes that softer price points will be necessary to maintain the trend. The jacket could be the new top (worn over a T-shirt) and should be priced to lead to multiple sales.

Buyers Beware

Economic conditions and product innovation are leading us to anticipate a positive new retail cycle. Blacks believes in the value of understanding how retail cycles impact individual businesses. Understand where your store fits into the cycle. Trends are clear and the ability to profit hinges on riding the trend cycles up and down. The sport shirt trend is a good example: over the last 90 days sport shirt sales have trended up 3.7%, yet the average Higher End Men's operation is carrying 34.1% more inventory than last year. In addition, markdowns are running up 18.9% over last year. Ultimately, we're forcing the business (or "buying the business") rather than maximizing turnover.

Blacks Bottom Line

Increased turnover is the foremost accelerator of both GMROI and cash flow.

TrendLines Expert Data

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All data represents 2005 year-over-year data

Clothing	June Sales	90 Day Sales	90 Day Avg. Inventory	90 Day Avg. Markdown
Suits	0.7%	-1.8%	12.5%	-16.3%
Sportscoats	8.5%	8.4%	9.3%	22.6%
Blazers	25.4%	0.8%	18.2%	26.6%
Dress Pants	0.7%	-4.4%	7.5%	2.1%
Custom Clothing	9.9%	0.2%	N/A	N/A

Furnishings	June Sales	90 Day Sales	90 Day Avg. Inventory	90 Day Avg. Markdown
Dress Shirts	3.2%	2.7%	-16.3%	2.1%
Neckwear	5.8%	4.8%	14.4%	-7.6%

Sportswear	June Sales	90 Day Sales	90 Day Avg. Inventory	90 Day Avg. Markdown
Sportshirts	10.9%	3.7%	34.1%	18.8%
Knits	8.7%	0.2%	15.1%	28.9%
Sweaters	-18.8%	-12.5%	FLAT	56.2%
Casual Pants	-3.1%	-4.6%	11.7%	20.2%
Jeans	52.3%	17.9%	46.1%	-12.6%
Outerwear	-1.5%	-2.1%	-21.2%	-3.5%

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