Fashion Notebook

Financial Desk: Have a Cigar, Mr. Frankfort, Coach Sales Rise 19% in Q3

It's good to be Lew Frankfort. 

The Coach CEO today announced that third quarter sales had risen 19%, to $744.5 million, and profits rose 8% to $162.4 million, despite an economic slowdown in the North American market that has shaken the retail industry, and been the scape goat for much recent poor financial performance.

"We were pleased with our performance, especially in light of the worsening retail climate in the U.S.," Frankfort said, in a conference call with analysts this morning. "Overall, Coach's quarterly performance reflected the strength of the Coach franchise and the continued out-performance of the U.S. handbag and accessory category as compared to overall retail sales."

And while the macroeconomic landscape is still too murky for Mr. Frankfort to crystal ball fiscal 2008 performance, he did reveal that he expects to post $3.18 billion in sales for fiscal 2007 (which closes in June—you know, screwy fashion financial calendar), a more than 20% increase that will lift earnings per share to an estimated $2.06.

But it wasn't all sunshine and rainbows. Frankfort also said that the strong quarter reflects also "the critical balance provided by our multi-channel and international business model," which, of course, means that overseas sales were a significant factor, particularly in the Asian market. More telling on the domestic front was the department store weakness, where sales grew only 5% for Coach, versus a total revenue increase of 15% across all channels.

Frankfort attributed the growth, first and foremost, to the company's product, bound together with the "brand proposition" of Coach (read: something of perceived quality, for a range of price points), as well as the company's "broad and loyal  consumer franchise." OK, whatevs Lew, basically you owe the success to having products people want at prices they can still afford, or think they can, for now.

Of course, we'll have to wait and see how this whole recession thing shakes out, but if we had to call it earlier, we'd say that Coach looks to be one of the brands that will weather the storm, and perhaps even make a little bit of money in the process.

There's also some speculation, per WWD, that Frankfort might be getting ready to launch into the women's ready-to-wear business, big time, after poaching a series of designers from the house o' Marc Jacobs. Stay tuned.

UPDATE: Target Prez Says Analysts "Over Representing" Significance of Isaac Mizrahi

We had a feeling the top dogs over at Target would have to  respond to designer Isaac Mizrahi's jumping ship to head design over at Liz Claiborne's women's division.

As we said in our previous post, Mizrahi reportedly brought in about $300 million in annual sales to the retailer, which reported annual sales of $61.5 billion yesterday.

Here was the statement regarding Le Mizrahi's defection, from Target President Gregg Steinhafel.

"As it relates to Isaac Mizrahi, we've enjoyed a terrific five-year relationship with Isaac, and I think you all are over representing what it means at Target," Steinhafel said, in an earnings conference call. "It's approximately 3% of our apparel and accessories business, and we really view his strength as a niche contemporary collection, and any efforts that we have had to move beyond that were unsuccessful at best. And so, when the contract became renewable, we had the opportunity to, he had the opportunity to broaden his involvement with an apparel company, and we took it as an opportunity to move beyond this partnership, because we did not want to pass on higher royalty rates to a small collection business within the stores."

OMG, this is like sooo totally high school, and Target's all, like, pissed, because they got dumped first. So then they fire back, like, well, whatever we didn't really like Isaac that much anyways. But wait, it gets better.

"We're focused on our Go International and our Emerging Designer strategy," added Steinhafel. "WE can very easily replace these four or five racks on our apparel floor in the small section that we had in accessories and footwear with these new emerging designers, which frankly have been very successful, and we've got a terrific portfolio of new emerging designers coming on-stream this year, which we'll share with you as the year progresses."

Oh snap! Burn!

Ok, so maybe we did overestimate Isaac's influence, and while $300 million sounds like a lot to our poor Brooklyn writer budgets, it pales in comparison to $61.5 billion.  But still, the guy added a great personality to the floor at Target, and that's not so easy to replace. Plus, we still firmly believe that consumers connected to Isaac in a way that they will have trouble connecting with designers who are in for one quarter and out the next. But hey, what do we know? We're not making $61.5 billion a year.

While you ponder your own thoughts, here's a video clip for you to enjoy, and remember the personality that once lived at Target. Clip is from The Isaac Mizrahi Show, in a segment featuring Rufus Wainwright, the über-gay singer/songwriting, and full-time Judy! Judy! Judy! fan, who is now starring in H&M's "Fashion Against AIDS" campaign. (Seriously, how can you not love this guy? Enjoy!)

Financial Desk: Target Treads Water With Q4 Sales, Earnings Fall 8%

Another retailer, another disappointing earnings release. Seriously
folks,  we might just have to turn off our stock ticker for the rest of the day.

Target reports flat sales for the quarter ended Feb. 2, at $19.34 billion, though year-end sales grew 6.2% to $61.5 billion. What?! No sales losses!? This is great news!!

Well, it would be if Target hadn't also posted earnings of $1.03 billion, pr $1.23 per share, down 8.2% from last year. For the full year, the brand only moved the needle 2.2%, growing income to $2.85 billion, or $3.33 a share.

Below, the most obvious conclusions from Target's top dog.

"Our  financial performance in 2007 fell short of our expectations as the pace of sales and earnings slowed considerably in the second half of the year," said Bob Ulrich, chairman and CEO, in a statement. "As we enter 2008, we remain keenly focused on the disciplined execution of our core strategy, positioning Target to deliver improved financial results, even in the face of continue challenges in the current economic environment."

Unfortunately, Bob doesn't elaborate (and we're still waiting for the conference call where, you know, he actually might give us more color on this bland statement) so we don't know what kinds of tricks he's got up his corporate sleeves.

The report also makes no mention of the loss of designer Isaac Mizrahi to Liz Claiborne. Of course, Les Mizrahi's goods will still be sold through the retailer until the end of 2008, but nonetheless, his defection to Liz Claiborne was a major hit.

The designer's namesake collection for the brand brought in a reported $300 million in annual sales, in addition to have a sales-halo effect on the other brands in the store. Given his name and popularity, we get the feeling that it's going to be rather hard to replace him, and certainly the one-offs for the Go International collections which have featured up-and-coming designers probably won't make up the sales loss. Moreover, the collection might not pull in as much this year, given that Target isn't likely to promote it since they won't have the goods after the holidays.

For more on the Mizrahi switcheroo, check out our previous post, here.

Financial Desk: On Q4 and FY07 Losses, Macy's To Investors: "Hey, We're Not Doing As Badly As The Others!"

It's not a good day for retailers, with many reporting sales
and earnings slumps.

In its report this morning, Macy's appears to be hoping that they might at least look better than the competition.

"While a weakened economic environment led our industry to softer financial results than initially expected, Macy's, Inc. did outperform most of our primary competitors in the fourth quarter," said Terry Lundgren, chairman, president and CEO, in a statement. "We also generated significant cash flow despite weaker-than-expected sales trends. Going  forward, we are aggressively pursuing our recently announced market localization initiative to drive future sales and earnings."

What's he talking about? Well, earlier this month, the brand announced that they would be consolidating their various Macy's regional divisions into three primary groups: Macy's East, Macy's West, and Macy's South. Within each of those divisions will be 20 "districts," each consisting of about 10 stores, governed by a new workforce of about 250 managers. The thought is that by having more management in more localized markets, the company will be able to make much more specific marketing appeals to its consumers, tailoring everything to their particularly tastes, whims, or geographic proclivities. Of course, that consolidation also includes the downsizing of some 2,550 jobs across the previous geo-divisions. More on that, here.

 

Oh, and also, Macy's announced that it will no longer be reporting same-store monthly sales figures, which, you know, are the clearest indicator of a retailer's performance inbetween earnings reports. Oh, and another thing, they're not going to be giving anymore estimates about sales and earnings for the future. That certainly sounds like an underwhelming vote of confidence in the company's ability to perform.

"In total, 2007 was a year of significant strategic progress," added Lundgren, in a statement. "We successfully launched exclusive new brands such as Martha Stewart Collection, invested for continued growth in the direct-to-consumer business, expanded Bloomingdale's, changed our corporate name, and launched a breakthrough new marketing approach under the umbrella of 'The Magic of Macy's'."

You probably remember that particular campaign from the holiday season, when you were besieged by a commercial with a melee of images of Donald Trump, Sean Combs, Martha Stewart (who almost seemed warm and whom we were also relieved to see unshackled from KMart), and mental eyesore Jessica Simpson hawking their products sold through the mega-retailer.

Lay your chips down, folks, we're betting on Martha as the sales driving leader in the full collection category this year. Hopefully, for Macy's she'll be "a good thing."

Financial Desk: Despite Q4 Weakness, Nordstrom Rolls on With Seven New Stores for 2008

Another sign that the luxury market might be buckling, Nordstrom reported declines across the balance sheet for the fourth quarter.

Net sales dropped 4.4% to $2.51 billion for the quarter ended Feb. 2, and net earnings declined 8.6% to $212 million, or 92 cents a share. For the full year, sales increased 3% to $8.83 billion, and earnings rose 5.5% to $715 million, or $2.88 per share.

The declines were caused, in part, by a "trailing effect" from the previous quarter, according to President Blake Nordstrom's statements in a conference call.

"[That trailing effect] coupled with the softer environment impacted our bottom line," he added, noting that the first half of the year had been, "in terms of sales," successful. "As we look ahead to 2008 and beyond, we are focused on executing our long-term strategy of increasing market share with our core customers by offering great service and the best merchandise the market has to offer. We are in a position of strength financially, which allows us to take advantage of opportunities that may come our way, as well as weather any current challenges that we may face."

Increasing market share with  core customers, boosting service and merchandise, eh? Seems that's exactly what Milton Pedraza, of The Luxury Institute told us was precisely the strategy the luxury market needed to combat the pending/current recession.

While the year-end increases do support Nordstrom's contention of his company's strong financial position, we have to think that moving ahead with the retailer's growth plan is unwise at this time. Nordstrom plans to open seven more stores this year—in Honolulu, Hawaii; Burlington, Mass.; Clinton Township, Mich.; Thousand Oaks, Calif.; Indianapolis, Ind.; Pittsburgh, Pa.; and Naples, Fla.—in addition to the 165,000 square foot store it opened Feb. 15 in Aventura, Fla.

No notes about changes to their marketing plan that we've seen yet, but those cartoonish inserts they've been running for a while now certainly haven't made us want to shop there.

UPDATED: The Freestyle World Tour and Reebok's Search for Female Consumers

UPDATE!: Reebok flacks reassure us that "Framed" is full speed ahead. And, what's more, it's now available on Yahoo!Sports and behind-the-scenes footage has been, er, Flickr'd. Congrats! Now, what about that whole "Your Move" campaign?

For those new readers who walked into this convo like a child wandering into the middle of a movie ("You're out of your element Donny!"), check the rhymes below. Note: There won't be any more Big Lebowski references from here on out, for better or for worse...

Been around the world and I, I, I... I can't find my
Reeboks?

Forgive the indulgence of a song we've had stuck in our heads this morning (sometimes shower song sessions can drag into the work world, even for business-minded journos like us!), but it kinda, sorta ties into Reebok's new Freestyle World Tour launch that kicks off Feb. 21. Once again, it's a puzzler. But first, the deets.

Again going after the women's market, Reebok is taking a Nylon-style tour de monde with a new collection of apparel and footwear that will incorporate the particular modes of fashion capitals including Tokyo, Paris, New Delhi (huh?), Madrid, London and New York. Starting tomorrow, the first style, a send up of Tokyo street style with inspiration taken from the city's subway map hits stores. Future releases for each city will roll out as follows:

March 2008—Freestyle Paris, which references the "Can Can" in red, pink and black
May 2008— Freestyle New Delhi, featuring embossed satin and Bollywood-style vibrant color patterns
July 2008—Freestyle Madrid, which references flamenco dancers
Setpember 2008—Freestyle London, featuring an embroidered raven on the heel
November 2008—Freestyle New York, which references our city's unmistakable taxi cabs

All shoes will retail for $85, and the apparel collections that accompany them, which include hoodies, tees, and track jackets, will retail for $28-$75.

The global ad campaign, for which spend was not revealed, will include print, in-store and digital efforts. Somehow "global" just doesn't ring right without the  "TV  spots" tag, but hey, we're traditionalists. Reebok spent $27.5 million on measured media advertising in 2006, and for the first 11 months of 2007, has spent $16.6 million. Below is a list of the pitch women the brand has signed  for the campaign. Full disclosure: We had to look them all up too, so feel free to click the names if you're unfamiliar!

Tokyo—Ai Yasuda                                Madrid—Bimba Bose
Paris—Yelle                                         London—Nikki Beatnik
New Delhi—Sagarika Ghatge                New York—Sheetal Sheth (above, in a spot for the NYC collection)
 
 Since none of the girls here are names that we've heard of—and we'd like to think we're pretty up on things—the campaign is a bit of a puzzler unless they're going for super underground authenticity appeal. But isn't that the kind of marketing that a big brand like Reebok should avoid? Shouldn't Reebok be looking for bigger sales, to grab a larger share of the market and turn around their banking books?

What happened to Scarlett Johannson? And what about that IFC film series, "Framed," that they launched not too long ago.  

And what about the "Your Move" campaign we heard about back in September, when CMO Uli Becker (a straight-talking Adidas alum), told us the following:

"We need our marketing to appreciate where the consumer comes from and make them king of the whole thing as well," Uli Becker, head of global marketing, explained of the brand's "Your Move"  campaign. "It brings the message into one campaign context. Whether we're talking about running or women, we're playing into one equity image of the brand with that single slogan."

For a brand that said it was going to focus on a single, streamlined marketing approach, it doesn't seem to be delivering. "Framed", the "Kool-Aid" collection and, now, the Freestyle World Tour seem diametrically opposed to Becker's statement about a unified message. In fact, it seems like the same kind of mixed messaging that he said, at the time, had been detrimental to Reebok in the past.

Speaking of "Your Move" campaign, why haven't we seen it anywhere yet? Has "Your Move" moved on? Trust that we're on the hunt to find some answers here.

 

Updated: Financial Desk: LVMH Closes Out 2007 with Multi-Category Growth and Teaser For New Vuitton Campaign

Another positive luxury earnings report, now with some
straight talk about how 2008 will shape up, comes across
our desk this morning from Paris-based juggernaut LVMH.

The company, which markets a wide range of luxury products, posted sales gains across every category in its portfolio. In sum, company-wide revenues increased 8% to $24.1 billion, with profits climbing 12% to $5.2 billion for 2007.

While those gains are certainly commendable, Chairman and CEO Bernard Arnault didn't shy away from addressing some of the problems facing the U.S. market, though he was bullish on the company's prospects, given its higher-end clientele.

"It is true that the year is starting in a rather worrisome situation in terms of the economy and the financial markets in particular...[and] our analysis of the situation is that in 2008 we're likely to experience a degree of recession more or less important in the U.S. economy," Arnault said, in a conference call, though he added that January sales were in line with year-end performance for the company and noted that he believes the recession should only last one or two quarters into 2008, with market recovery by 2009.

"I believe that [the recession's] consequences on LVMH will be limited, weak, or even non-existent," Renault said. "In fact, the clientele that we are dealing with is far less affected than the rest of the economy by these short-term economic swings.  They have high purchasing power, located in a number of countries where the economic climate will be bouyant, even if there's a minor recession in the U.S."

Returning back to the quarterly results, of particular interest to us were the following revenue boosts: sales of fashion and leather goods  grew 8% to $8.24 billion, at current exchange rates, in 2007; the perfumes and cosmetics business also grew 8%, with sales of roughly $4 billion; while the watches and jewelry group posted a 13% sales gain, at $1.2 billion.

The company, in a statement, attributed increased revenues in the fashion category to strong performance from its landmark Louis Vuitton brand, as well as "growing success" at Fendi, in addition to solid performances from Marc Jacobs, Givenchy and Loewe. The boost in perfumes and cosmetics came on the back of its popular Christian Dior fragrance line, particularly the J'Adore, Midnight Poison and Fahrenheit 32 scents. Strength in the watches and jewelry category was led by TAG Heuer, which the  company said showed strong progress across all of its markets (for more on TAG's marketing efforts, see previous article, here).

According to statements by Antonio Belloni, deputy managing director, in a conference call, the fragrance departments at Givenchy and Kenzo will be rolling out "aggressive programs," including a renewed advertising campaign for the female market, and a forthcoming men's launch for both brands. No further details were provided.

And Yves Carcelle, president of the fashion and leather goods division, alluded to an evolution of the brand's current campaign with Mikhail Gorbachev . In the call, Carcelle mentioned a "Life After Gorbachev" initiative that would be unveiled "in a few weeks' time."

"For the first time, indeed, in the history of the luxury industry, there will be an audio-visual film which will be used both on TV, in theaters and on the Internet," Carcelle said during the call, describing the spot as "90-seconds of pure emotion." Hmmm... We'll definitely be staying tuned on that one.

Anecdotally, it would appear that Gorbachev campaign (as well as the spots featuring French Actress Catherine Deneuve, both pictured, above) has been successful. I've heard a vast majority of positive reaction to those spots, and, given the pending recession, that campaign isn't a bad strategy for the U.S. market. After all, only the super-moneyed, who are likely the age contemporaries of Gorbachev and Deneuve, will be able to afford those never-marked-down handbags if the economy really gets bad.

Financial Desk: Under Armour Heralds Its Milestone Year in Q4 Earnings

It would seem as though that New Prototype shoe is 
the lynch pin upon which Under Armour's future
growth rests.

Even as the latest earnings reveal strong upswings for the brand—fourth quarter sales climbed 29% to $174.8 million, while income grew 42% to $16.9 million, or 34 cents a share, beating Wall Street estimates—the footwear category slumped by almost 27%, ticking in at $6.8 million in sales. Apparel, meanwhile, grew almost 30% to $152.7 million in sales, grabbing by far the lion's share of Under Armour's balance sheet.

The company reiterated that it will dedicate 12%-13% of 2008 revenues to marketing, shifting a substantial portion of that spend to the first half of the year, when it will roll out its New Prototype performance cross trainer shoe, kicking off with a 60-second ad during Fox's Super Bowl broadcast Feb. 3.

"2008 marks an important milestone in Under Armour's long-term strategy with the launch of our performance training footwear," said Kevin Plank, chairman and CEO, in a statement. "We are confident in delivering the proper mix of the right product positioning, a great campaign, great retail partners who are excited about the launch, and most importantly, great product that will deliver against the demands of today's new prototype athletes."

Given all the ad spend and marketing oomph they're putting behind this launch, not to mention the growth plans that rest on its success, it will be very interesting to watch what happens when Nike kicks their version out two months earlier. For more info on this, check out my recent story about the March-release of that Nike line (the name of which is still a mystery) here.

Check out previews of the upcoming Under Armour Super Bowl spot here.

Jimmy Choo Bucks Tradition, Taps AR New York as Ad Agency

Jimmy Choo is taking its advertising out of house this year.

The London-based luxury footwear brand, popularized in large part by the role it played (alongside Manolo Blahniks) in Sex and the City and owned by boldfacer Tamara Mellon (you may also remember her ex-husband, Matthew Mellon, whose name she kept) announced today that it has tapped AR, New York, as its agency of record.

"A key pillar of our strategy is to elevate our advertising, increase our media presence and synchronize all consumer touch points," said Choo CEO Joshua Schulman, in a statement. "We believe that AR will add great value to our communications efforts and help us to achieve these strategic goals."

The brand has managed to create quite a stir with its in-house campaigns (such as the one pictured, right, featuring Molly Simms and the seeming non-sequitur appearance of Quincy Jones) over the past several years, so it will be interesting to see the type of creative that ends up rolling out of this external operation.

"[AR] understands exactly my vision for Jimmy Choo," added Mellon, in a statement. "Working with an agency of this caliber is consistent with my goal to elevate our brand to one of the world's leading luxury houses."

AR currently handles advertising duties  for Brooks Brothers, Elie Tahari, Jones New York, and Valentino. They were also the agency responsible for repositioning the image of the Banana Republic brand, elevating it to the more upscale fashion label it has become in recent years.

Marketing Ethics in The Valley of the Stardolls

  Stardoll.com, a social-play Web site for 9 to 17 year-old girls, announced this week that it has inked a deal with supermodel/auf'er Heidi Klum to promote her latest jewelry collection.

Essentially, the deal shakes out in a Second Life kind of way. Heidi gets her own store, located in Stardoll's "Star Plaza" shopping center, where the girls can look through her collection, buy "virtual versions" of the product that they can use to bedeck their avatars, and talk shop about fashion. They can even look through Heidi's "closet" of favorite handbags, shoes, clothes and awards show outfits. Oh and she gets this avatar (see right) that doesn't really do graphic justice to Klum's on-screen beauty.

“I don’t just think about it as selling jewelry, [but] I try to make it about who I am,” Klum told me over the phone. “I think it’s great to be in connection with young girls who are interested in fashion . . . It allows [the girls] to interact with those celebrities they are fans of and get an insight into what that person’s favorite clothes are.”

Klum isn't the first to go this way with Stardoll. A partnership with LVMH in December landed DKNY (see store format below) and Sephora in the space, and before that young starlets like Hillary Duff, the Olsens, and Avril Lavigne had also set up shop on the site. And there are more to come! The site, which claims to have 12 million visitors, is seeking other high-end partnerships with brands including Stella McCartney, Vivienne Tam, Liz Claiborne and Henri Bendel.

No doubt, digi-deals like these are already popping up everywhere, but the fact that they're luxury players that are effectively marketing to kids—essentially recruiting future shoppers while their brand loyalties aren't yet set in stone, not to mention further glamorizing a materialist marketplace—seemed just a little bizarre to me.

So I rang up Susan Linn over at the Campaign for a Commercial-Free Childhood to  get her thoughts. Picking a fight, I know, but I thought she might be able to shed some light on this trend.

“The real purpose of social networking sites for young kids like Stardoll, BarbieGirl and even Webkinz and Club Penguin, is to train kids to shop,” she told me. “It’s a good thing for the corporations to make a lot of bucks, but it’s not a good thing for kids. What these companies want to do it get children in the habit of consumption . . . and instill the idea that they deserve luxury products."

But is that Stardoll's fault, really? If we're supposed to stop instilling kids with the idea that they deserve expensive things, why don't we just cancel any number of reality and "scripted reality" shows, not to mention MTV shows like "Cribs" or VH1's "The Fabulous Life Of" series? Certainly those shows glamorize opulent wealth and rampant consumerism.

To whit, Paul Kurnit, president of Kid Shop and a marketing professor at Pace University, told me that the children using sites like Stardoll are already exposed to hyper-consumer culture via television shows like those mentioned above.

“Luxury is aspiration and a lot of those brands and those celebrities are fashion and lifestyle brand badges that today's teen and tween girls want a piece of,” he said, adding that he feels Stardoll does a good job of delivering for both its users and brands.

So, dear reader, what's the verdict? Is Stardoll out of line, or is it merely keeping with the times?