Blacks Retail Report

Luxury Apparel
November 2005

Table of Contents

The Big Picture
Markdown Mayhem
Men's Trends
Women's Trends
Blacks Bottom Line
TrendLines Expert Data

The Big Picture

Although a leading indicator for U.S. growth - the Conference Board's composite index - fell for the third-straight month in September, economists have pinned much of the decline on the destruction wrought by hurricanes Katrina and Rita.

Despite these bumps and bruises the U.S. economy still continues apace and oil prices are starting to decline. That doesn't mean it won't be an expensive winter. In cold weather areas heating bills could give consumers an electric shock. Energy costs will continue to eat into disposable incomes but the luxury market is pretty well guarded from these relatively moderate increases.

Markdown Mayhem

With November upon us we are reaching peak season and although everything seems to be going on - Christmas preparations, early European men's shows, and markdown considerations - it's essential for retailers to pause and examine how the Fall merchandise is performing. At this point we are working toward planned sell-thru rates (65-70% before markdowns) and it's important to assess how far along stores are in reaching these goals. From there we can begin calculate the extent of early markdowns.

The big brands are about to announce their break dates and it won't be long before margins get squeezed. By projecting sell-thru now you are giving yourself a little bit of wiggle room to improve your performance. Use your in-season events to maximize first level markdowns. First markdowns can still be very profitable. With initial markup at 60 points a 30% markdown still delivers 48 points of margin. Use your in-season events to accelerate the first markdowns but don't just send out postcards and expect results. Sell the events and measure the results.

The European men's vendors are already starting to show for Fall '06, so Fall '05 should literally be in the bag.

As we've mentioned before, almost all retail cycles, which typically span anywhere from 18-24 months, end with a "trough" or downbeat period marked with erratic sales. The trough can last up to 9 months, and although sales are slowed they are not necessarily flat or down. The current trough is delivering an average 5% dip from last year's growth rate. So if a merchant was posting a 20% gain at the peak of Fall '04, during this trough they are only experiencing a 15% increase.

With so many unpredictable factors shaping the economy right now it's hard to say how long this trough will last, but by March we expect more predictable sales patterns. We want to reiterate, however, that we are currently in a positive retail cycle and nowhere near a psychological or real recession.

Men's Trends

Here at Blacks we anticipate that the current jacket frenzy will turn into a strong outerwear trend as the weather continues to cool. Most of the movement we see is in cloth outerwear as opposed to leather.

Women's Trends

In women's, spending is currently gearing toward new handbags, shoes and jewelry. Skirts and 'After 5' dresses are still strong but merchants worry that there aren't enough cocktail parties and black tie events to eat up all the available product.

In the contemporary market denim is still hot for going out, but luxury has moved away from that trend.

Look for more detailed fashion trend information in the In Fashion section.

Blacks Bottom Line

Although it's peak season and everything is going on, merchants must be diligent: Slow down, measure your performance and take action. Be In the Black.

TrendLines Expert Data - Menswear

All data represents 2005 year-over-year data
open in pdf format

Clothing	August Sales	90 Day Sales	90 Day Avg. Inventory	90 Day Avg. Markdown
Suits	5.6%	- 6.3%	26.3%	- 6.3%
Sportscoats	18.0%	2.4%	28.6%	2.4%
Blazers	19.9%	4.4%	- 26.3%	4.4%
Dress Pants	2.2%	1.1%	11.3%	1.1%
Custom Clothing	12.9%	25.3%	N/A	N/A

Furnishings	August Sales	90 Day Sales	90 Day Avg. Inventory	90 Day Avg. Markdown
Dress Shirts	- 5.1%	- 0.3 %	- 12.2%	- 0.3%
Neckwear	- 4.7 %	- 1.4 %	18.2%	- 1.4%

Sportswear	August Sales	90 Day Sales	90 Day Avg. Inventory	90 Day Avg. Markdown
Sportshirts	- 3.6%	4.2%	29.0%	4.2%
Knits	0.3%	- 3.0%	7.9%	- 3.0%
Sweaters	16.0%	- 1.2%	13.8%	- 1.2%
Casual Pants	- 13.8%	- 14.0%	- 3.7%	- 14.0%
Jeans	3.6%	- 3.1 %	64.8%	- 3.1%
Outerwear	- 5.7%	- 8.8%	- 1.3%	- 8.8%

Retail Report