WSJ: Why a Posh Store Is Selling on eBay

WALL STREET JOURNAL | RAY A. SMITH

Dallas's Stanley Korshak clothing store has long been known for its high-end merchandise, wealthy clientele and personalized customer service. But as owner Crawford Brock watched the recession take hold, a new idea clicked.

Mr. Brock decided to sell some of his excess merchandise, which included $5,700 Kiton sport coats and $900 Christian Louboutin heels, in a decidedly more downscale venue: eBay.

Since late last year, the retailer has been quietly unloading unsold clothing and accessories on the online auction site under the screen name takeitawayluxury.

Stanley Korshak's eBay experiment is an example of how one of the worst retail environments in decades is spurring stores to innovative -- and somewhat controversial -- ways of coping. Members of Threadwize, a trade group of 10 U.S. specialty stores, are considering selling on eBay, too, says President George Bass; last fall, his New Orleans men's store became the first of the group to sell on eBay.

I found out about Stanley Korshak's eBay gambit when a friend who's a bit of a clotheshorse was on eBay searching for Ralph Lauren Purple Label clothing. He clicked on a Purple Label tuxedo that caught his eye and was directed to takeitawayluxury. A link at the bottom told him it was Stanley Korshak. The auction site's bargain-basement image seemed at odds with the carefully guarded brand of a luxury retailer.

Old-line, high-end independent clothing stores have long been holdouts when it comes to new technology. It's only in the past 18 months or so that specialty stores have sent customers mass emails, which in the past would have seemed less than genteel. Many specialty stores still are resistant to online sales, feeling high-end clothing needs to be touched and tried on. For years, Stanley Korshak's sales associates have been known to travel to customers' homes for wardrobe consultations and closet evaluations.

But the downturn has put pressure on all stores to go online or go extinct. In recent months, Stanley Korshak has generated a database of 70,000 customer emails, which it uses to advertise as well as send alerts for special events, sales or new merchandise. It set up a Facebook page for a women's satellite store branch called The Shak. It launched its official e-commerce site in October. For the time being, the site sells only accessories that aren't sized, such as handbags and jewelry. Mr. Brock says visits to the site now total about 700,000 a month.

Stanley Korshak's eBay effort has a relatively low sell-through rate -- the percentage of goods posted that are sold -- of 16.5%, according to Advanced Economic Research Systems Inc.'s Terapeak, a company that tracks sales on eBay. It has captured $37,239 in sales, the firm says, and sold just 151 items out of 915 listed for the 90-day period between Jan. 20 and April 19.

In recent days, a Loro Piana sweater vest that the retailer says was originally priced at $975 sold for $195 on eBay, and a pair of Bottega Veneta sandals originally priced at $920 sold for $242.50.

People who buy Stanley Korshak goods on eBay find some of its personalized touches. When merchandise arrives, it's tissued and neatly packaged in one of the retailer's signature gift boxes.

Mr. Brock says he is pleased with sales on eBay so far. Still, the store remains ambivalent about how openly to reveal itself on eBay. At first, Stanley Korshak identified itself with a line that read: "Please check out our regular priced merchandise at:www.stanleykorshak.com."

But recently, Mr. Brock removed that link and ID tag. "We've been thinking it through, and we're not so sure we want people to know necessarily that this is Stanley Korshak," he says. "We may turn it back on, but right now it's off."

One risk of his strategy: upsetting fashion designers who don't want their goods sold on eBay. Labels have come, however reluctantly, to expect some discounting in stores, as well as resales to T.J. Maxx and the like. But eBay makes them uneasy, in part because their stuff is being auctioned off, allowing customers to determine the final price. "In the retail world, that is just a no-no," says Robert Burke, a former fashion director at Bergdorf Goodman who owns a luxury-goods consultancy.

Pier Luigi Guerci, chief executive of Loro Piana USA, says, "Loro Piana disapproves and does not authorize resale by any of its wholesale accounts." Bottega Veneta and Polo Ralph Lauren declined to comment, while Christian Louboutin and Kiton didn't respond to comment requests. Also, eBay declined to comment.

Mr. Brock says he didn't consult with the brands he has sold on eBay and hasn't gotten any feedback. He's aware the brands might disapprove, but he argues that eBay isn't really that different from the outlet stores that high-end department stores use to get rid of unsold goods. He notes that many individuals try to turn a profit by buying luxury goods at stores on sale and reselling them on eBay.

The other risk that Stanley Korshak and the brands face is becoming associated with bargain shopping. Mr. Burke notes: "Because [eBay is] such a big and vast selling site, the product would not be presented in a high-end and luxury manner acceptable to the brands that have worked so hard to create their image."

Indeed, one man who bought a Bamford & Sons dress shirt from takeitawayluxury for $80 declined to give his name for this article. He says he didn't want acquaintances and colleagues to know he was shopping on eBay. "There's a little bit of a stigma," he told me. "I'm not ready to start taking the ribbing."

—Geoffrey A. Fowler contributed to this article.

WSJ: Can Jeweler's Celebrity Chic Entice Investors?

WALL STREET JOURNAL | CHRISTINA BINKLEY

BlackBerry Bold in one hand and chicken satay in the other, Loree Rodkin is juggling her schedule and her business over lunch at Mr. Chow in Los Angeles: Elton expects her in Vegas the next week, and Cher wants her to come to an upcoming Caesars Palace show. "I'm like, I've seen your show four times -- I could sing it," she says.

Well-connected in Hollywood and rocker circles, Ms. Rodkin has jetted to widespread fame as a jewelry designer since becoming Michelle Obama's go-to jeweler. Her medieval-looking pendants and signet rings are pitch-perfect for baby boomers who have fond memories of their peace-love-and-rock'n'roll days but have grown into diamonds and gold.

Now, Ms. Rodkin is ready to cash in. She has been telling friends that she would be willing to sell her company.

Recession or no, the dream of selling one's brand lives on in the luxury business. Investors can offer designers the joys of creativity without the headaches of operations and can bankroll global expansions. Louis Vuitton made luggage and ran his company until his death in 1892, when he passed it on to his son George. But these days, who wants to labor as an artisan into old age?

After last fall, it looked like the unstable economy might have killed those dreams. Yet there are signs that some investors are already regaining their stomachs for risk, says Robert Burke, founder of Robert Burke Associates, a luxury and fashion investment consulting firm. Indeed, he says he is forming a joint venture to invest in fashion brands. Mr. Burke declined to identify his partner and says he doesn't know enough about Ms. Rodkin's business to say whether it's of interest.

Ms. Rodkin owns her company wholly, has a lucrative licensing deal in Japan, and says she has little or no debt. With revenue of roughly $12 million a year, her business is small -- but big enough to grow into the $100 million range that investors often want.

If she finds a buyer, Ms. Rodkin says she'd like to stick around after selling her company, and be hired to do the pure designing. She talked about wanting more stores, including some in Europe and Asia, but not wanting to have to own and operate them herself.

What can't be known is how much of Ms. Rodkin's edgy style DNA would remain in a corporate version of her company. Such marriages are notoriously risky; often, designers' visions for the products that bear their name differ from the plans of people writing the checks. Designer Narciso Rodriguez recently split with investor Liz Claiborne Inc. after only 18 months, with both sides citing irreconcilable differences.

"Smaller companies growing and becoming corporate can culturally be challenging," says Mr. Burke. Indeed, his new venture is banking on his expectation that brands have become more needy, or at least more humble -- and thus more willing to accept strategic direction from outsiders.

For designers, making a successful deal can depend on finding a buyer who is like-minded about the company's future. Mr. Burke cites as successful the case of Ippolita, another jewelry designer whose company sold a stake in 2007 to private equity fund Castanea Partners. Ippolita has since expanded into new materials, such as a rose-gold line.

Ms. Rodkin, like J. Crew, is an atypical choice for a first lady. The designer is known for her expensive Goth bondage rings and macabre skull motifs, intricately carved and generally studded with diamonds, that put a subversive twist on high jewelry. Prices run between $5,000 and $400,000.

"It's beautiful, but it's not too pretty," says Shelley Aarons, a longtime customer and art collector from New York. She can be seen wearing a necklace and earrings by Ms. Rodkin in a portrait by Italian artist Francesco Clemente.

Ms. Rodkin, whose droll conversation is peppered with expletives, likes to say she's just a "crazy artist." "I have no idea how much money I make," she announces, an oversized Chanel logo bag thrown over her shoulder as she hikes up Brighton Way to her Beverly Hills office.

But she is, in fact, a canny businesswoman -- a former Hollywood talent manager who got her former boyfriend, the late ballet dancer Alexander Godunov, his role in the movie "Witness." Jewelry started as a hobby. Soon she was selling medieval diamond crosses and daggers to stores on both sides of the Atlantic.

"She makes things that cross barriers," says April Kramer, former wife of Aerosmith drummer Joey Kramer. She has been wearing Loree Rodkin for years. "The pieces are feminine yet strong."

Mrs. Obama, who tends to pick Ms. Rodkin's least edgy pieces, chose a pair of 61-carat earrings, a 13-carat signet ring, and 13 white-gold-and-diamond bangles to wear for the inauguration balls.

While Ms. Rodkin was asked to donate the inaugural-ball items to the Smithsonian, other items are loaners -- the same system that designers use to persuade starlets to wear their creations.

That system has its risks. Ms. Rodkin loaned one pricey ring to singer Rihanna, who happened to be wearing it on the night she was allegedly beaten by her boyfriend. The ring was taken by the Los Angeles Police Department and held as evidence.

WSJ: Bucked by Designer, Versace CEO Eyes Exit

WALL STREET JOURNAL | STACY MEICHTRY

ROME -- Gianni Versace SpA Chief Executive Giancarlo Di Risio is expected to resign, a person familiar with the matter said, after months of clashes with lead designer Donatella Versace over how to cut costs at the Italian fashion house.

Mr. Di Risio plans to tender his resignation in coming days, this person said. It was unclear how the Versace family, which owns 100% of the fashion house, would react.

A spokeswoman for the company declined to comment and said Ms. Versace wasn't available for an interview.

The Versace family issued a statement Thursday saying that "the professional relationship between Versace and its CEO" hasn't been terminated. Versace is focusing on "measures it should adopt to confront the effects of the economic downturn on the luxury sector," the statement said.

Ms. Versace owns a 20% stake in the company, which was founded by her brother, the late Gianni Versace. Her brother Santo Versace owns 30%. Ms. Versace's 22-year-old daughter, Allegra Versace Beck, owns 50%. Ms. Beck has backed her mother in the designer's clashes with Mr. Di Risio, the person familiar with the matter said.

A resignation by Mr. Di Risio, which would come as Versace's profit is suffering, would highlight the pressure faced by Europe's many family-owned fashion houses. Such companies are suffering more than their larger, financially sturdier peers amid the global economic slump.

Many of these family businesses in recent years have brought in professional executives to restructure their operations and help them grow.

Yet the belt-tightening has proven too painful for some. Brian Blake in April stepped down as chief operating officer and commercial director of Prada SpA, which is owned by the designer Miuccia Prada and her husband, Patrizio Bertelli. Mr. Blake had been tapped in 2007 to prepare Prada for a stock-exchange listing that never came to pass.

Mr. Di Risio and Ms. Versace, both 53 years old, have been at odds for months over how to reduce costs for such items as promotional events and parties, according to the person familiar with the matter.

Even in good times, the question of how much to spend on public events and advertising campaigns is a source of tension between executives who want to control costs and designers eager to generate buzz. With the global downturn crimping profits, CEOs are under even more pressure.

"It's going to be a fine balance for CEOs to balance budgets while maintaining the public face of the company and the exposure that it costs," said Robert Burke, a luxury-industry consultant.

Ms. Versace and her brother Santo took over the fashion house in 1997 after Gianni Versace was gunned down outside his Miami villa. Mr. Versace's death sent the fashion house into a financial spiral as customers loyal to the late designer's styles began to look elsewhere.

When Mr. Di Risio was brought in to run Versace in 2004, the company was saddled with more than $146 million in debt and posted a net loss of $124 million. Ms. Versace, backed by her daughter, gave the executive a free hand to restructure the company.

Mr. Di Risio began by untangling the company's assets from the family's personal holdings, which included a Manhattan town house that the family sold in 2005 for $35 million.

Mr. Di Risio closed unprofitable lines, such as lingerie and children's wear, and focused on overhauling Versace flagship stores in fashion capitals including New York, London and Milan. He also opened new stores in fast-growing luxury markets, such as China.

Under Mr. Di Risio, Versace also formed joint ventures that extended the Versace brand to Lamborghini sports cars and AugustaWestland helicopters.

Ms. Versace, known for her bleach-blond hair and sexy dresses, embraced Mr. Di Risio's commercial focus, reining in the brand's flashy designs for more restrained styles that have longer shelf life. She also began to concentrate on designing accessories, such as handbags and shoes, which generate greater profit margins.

At times, however, relations between Mr. Di Risio and Ms. Versace, who is vice president of the board, became strained. Initially, for example, Ms. Versace tried to persuade Mr. Di Risio to revive the house's tradition of mounting high-profile, but costly, fashion shows for the designer's haute couture collection. Mr. Di Risio talked her out of the idea, persuading Ms. Versace to present her collections to clients in private appointments.

By 2006, Mr. Di Risio's strategy had returned the fashion house to profitability, posting earnings of €19.1 million ($26.3 million). Versace's profit has slipped since, however. The fashion house last year reported sales of €336 million and scratched out a net profit of €9 million, down from €13 million a year earlier.

As profit fell, tensions rose. In January, Mr. Di Risio began to push Ms. Versace to simplify her designs so that the label could lower its prices, the person familiar with the matter said.

WSJ: Do You Want Clothes to Go With That Perfume?

WALL STREET JOURNAL | CHRISTINA BINKLEY

During the Paris fashion shows last week, a number of store buyers and style editors veered from the hubbub of the runways to the Yvon Lambert Gallery in the bohemian Marais district.

The draw: a new line of exquisitely detailed womenswear by the house of Rochas, a historic brand that for nearly three years had existed only as a lineof fragrances.

When owner Procter & GamblePG -0.58% shuttered the brand's fashion line in 2006, it seemed to be the end of Rochas. But as it turns out, those P&G fragrances kept the brand alive until a new manufacturer emerged.

Fashion and fragrance: It's one of the ready-to-wear industry's most stable marriages. Many, if not most, successful colognes are offshoots of luxury clothing brands. Gucci, Dior, Dolce & Gabbana, Thierry Mugler, Stella McCartney, Juicy Couture -- you can pick your favorite designer and smell like them. A number of once-celebrated fashion houses have been reduced to fragrances for years until a designer came along to air them out. Chanel was famously revived after years in a bottle. More recently, Vanessa Seward has been designing collections for Azzaro, known more for cologne than for clothes.

The benefits of fragrance for fashion are clear-cut. It costs more to manufacture clothes, which come in all those pesky styles and sizes, than scents. With their high margins, fragrances often contribute the lion's share of profits to a brand and can support it through boom and recession. At Puig Beauty & Fashion Group SL, the Spanish fashion company that owns Nina Ricci and Carolina Herrera, 80% of its net revenue came from fragrances in 2007, the most recent year reported.

Fashion these days is more about branding than clothes, and every brand needs a family of profitable products such as shoes, belts, bags and jewelry. "A brand is like a friend," said Robert Polet, chief executive of Gucci Group, whose Yves St. Laurent brand just turned profitable after years of losses. The path to profitability, he noted, involved marketing fragrances and dropping products that didn't draw fashion-minded consumers. "That's why there are no more YSL watches," he said.

But even as fragrances enrich fashion brands, it's a truth less acknowledged that fashion helps fragrances as well. Every good eau needs clothes.

When a brand is left with only a fragrance, as in the case of Rochas, it runs the risk of losing its relevance. "Fragrances have only a certain shelf life," says Robert Burke, an investment consultant and former Bergdorf Goodman executive. "Fragrances are generally successful when they're connected to a living person." The buzz created by celebrated designers and runway shows can update and revivify an old perfume.

So it was the fragrance of Rochas that lured Italian fashion manufacturer Gibò Co. SpA to re-open the house. After a licensing deal with P&G last fall, Gibò President Franco Penè hired Italian designer Marco Zanini. Mr. Penè asked for a collection with the elegant understatement of brands like Hermes and Gucci Group's Bottega Veneta, hoping to draw a contrast with flashy, heavily logoed lines. "The logo business was killing the luxury business," explains Mr. Penè.

This is hardly an ideal moment to introduce a new luxury-clothing line. After a six-year boom, luxury sales are expected to fall by at least 15% this year. Retailers like Saks and Neiman Marcus, facing tremendous losses, are cutting the size of their designer orders by between 20% and 30%. "It will be a difficult season," says Mr. Penè. I spent an hour at Gibò's Paris showroom last week and saw only one buyer looking over Rochas.

What's more, even the scent business couldn't prevent Rochas from losing money on clothes a few years ago. The house was founded in 1925 by Marcel Rochas, who has been credited with designing the first 2/3-length coats and skirts with pockets. By the time designer Olivier Theyskens was hired in 2002, Rochas was known more for cologne than clothes. But Mr. Theyskens's collections were critically acclaimed and turned that image around. He won the Council of Fashion Designers of America's International Award in 2006 -- akin to winning an Oscar.

Some of those gowns, though, were priced well over $30,000 -- reaching a thinly populated stratum that didn't make the line profitable. Procter & Gamble discontinued the clothes line within weeks of its designer's award.

It's worth noting that Mr. Theyskens two weeks ago left his job at Nina Ricci under similar circumstances -- critically acclaimed, highly expensive, detailed clothes that failed to meet profit goals.

Still, Mr. Zanini's Rochas is another world entirely. It's reasonably priced, as luxury clothing goes, with dresses costing between $950 and $1,400 at retail, and jackets priced between $850 and $1,300. Since that still isn't cheap, Mr. Zanini, a veteran of Halston and Versace whose deep sideburns give him a slightly wacky Victorian look, has endeavored to include for the brand's luxury clients the sort of interior details that have largely disappeared from modern clothing. Women's cardigans and jackets have generous interior pockets. Feather-light cashmere sweaters are lined in silk.

Everything is manufactured in Italy, and much of the work is done by hand. The result is understated and highly feminine. One knitted lace dress could be a workhorse, packable and, like the blazers, presentable at corporate meetings. Other elements of the collection, such as light silk blouses, are more fragile.

Rather than a logo, a signature Rochas ribbon runs through inside seams -- visible only to the woman who wears the clothes. In a knitted dress, the ribbon motif is subtly repeated in the knit pattern

"A garment is as important on the inside as on the outside," says Mr. Zanini. "For me, luxury is also the experience of wearing -- to discover the secrets of the pockets and the silk ribbon."

WWD: Poleci Appoints New President

WWD | JULEE KAPLAN

Poleci is stepping it up a notch.

On Friday, the company said it has named Jean Claude Huon as president of the 15-year-old contemporary firm. Huon joins the brand from Bill Blass Holding Co. Inc., where he was vice president of couture and licensees. Prior to Blass, he was general manager for fashion titles Jalouse and L’Officiel, where he worked to launch the U.S. editions. He has also worked at Pierre Cardin, where he oversaw the brand’s licensing business for 10 years.

In other company news, Poleci plans to show for the first time during New York Fashion Week. The presentation will be held at the brand’s flagship store at 32 Gansevoort St. on Feb. 14 from 6 p.m. to 8 p.m.

In addition, the firm has tapped Robert Burke Associates to serve as a strategic adviser in the development and expansion of the business. Burke will consult on all retail aspects, including merchandising, brand positioning and distribution strategies.

In his new role at Poleci, Huon will work alongside Diane Levin, chief executive officer, and Janice Levin-Krok, creative director, to lead the expansion of the brand both in the U.S. and internationally.

Huon reports to Poleci owner Haresh Tharani, who took ownership of the firm in 2006. Tharani runs Tharanco Group, which also owns Joseph A. and, along with Michael Groveman, sold the Bill Blass ready-to-wear business to NexCen Brands Inc. for $54.6 million in cash and stock. Tharanco was said to be interested at one point in repurchasing the Blass business from NexCen, but the business subsequently was liquidated.

NEW YORK TIMES: Youth Market Gets Suited Up

NEW YORK TIMES | KATE WEISMAN

NEW YORK — Moms of the world, rejoice! The men's suit is on a roll. While your 20-something son might be giving up his disheveled look, he will likely need to be bankrolled because it is this younger consumer, 25 to 40 years old, who is driving the designer and luxury suit market, fashion executives say.

At the Dior Homme flagship boutique on Avenue Montaigne in Paris, teenagers sometimes swing by with their fathers. Buying a €1,300, or $2,000, suit for a special occasion is not uncommon, notes Sidney Toledano, Dior's president.

The teens that Toledano refers to make up a minority of luxury suit sales. But they are part of the new and young male suit customer who arrived on the scene about five years ago, at the same time that the new suit styles did.

These consumers had never been obliged to, or felt the need to, wear suits. Either they were still pursuing their studies or perhaps they worked in creative professions like advertising, architecture, design or dot-coms, which, until recently, favored casual dressing. Now, they are looking for a fashion statement and enjoying dressing up.

"It's that post-'metrosexual' generation. They read Men's Vogue or Details, and it's not considered 'gay' to be interested in fashion," said Michael Macko, vice president and men's fashion director at Saks Fifth Avenue. "Going shopping with a girlfriend is an activity like going to the movies."

Executives say this group's interest in suits is due largely to the media's focus on fashion. With fashion everywhere from newspapers to YouTube, young men are exposed at a younger age and more frequently to fashion information.

But they are not interested in the suits that their fathers wear. They know about and want the suits with the shorter, more tightly fitting jackets; narrower lapels and skinnier pants without pleats, a style pioneered by the New York designer Thom Browne, who shocked the fashion world in 2004 with a ready-to-wear collection featuring shrunken men's jackets and high-waisted nonpleat pants that fell to the ankle.

They also know about Dior Homme's lean, slim suit silhouette introduced by its former creative director, Hedi Slimane. The new consumer sees male starts like Brad Pitt, Jude Law or Justin Timberlake sporting these fine-tuned threads on the red carpet.

This new interest in fashion, and in suits in particular, translates to more action on the sales floor.

"We will see a increase in suit sales, as younger men with expendable income are beginning to appreciate the elegance of a suit," said Ben Curry, an assistant buyer in men's tailoring at Harrod's in London.

While there still remain endless racks of grey suits in stores, there have also been new, exciting entrants into the men's suit market. Tom Ford introduced his signature collection this past spring, created in partnership with Zegna. Hickey Freeman launched a younger, snazzier collection of suits and sportswear, Hickey, two years ago. At Dior Homme, the new creative director, Kris Van Assche, will show his first full collection on Sunday in Paris. And Brooks Brothers signed Browne for a capsule collection of men's and women's wear, Black Fleece, which debuted last fall.

These new brands and styles are revving up a fashion category that has been slow to change, notes Gildo Zegna, chairman of the Ermenegildo Zegna Group. Zegna and other suit vendors are actively catering to this young, savvy male with style but also with great price points.

Zegna introduced the younger Z Zegna brand for spring-summer 2004 and suits retail for about €900, or $1,330. Zegna, a privately held family company, has not released 2007 figures yet but, in 2006, profits rose 20.3 percent, to €63.3 million, on sales of €779.4 million, which was up 9.4 percent from 2005. The company does not break out figures for Z Zegna, but Gildo Zegna said the collection's sales had "exceeded expectations."

Z Zegna's price points reflect a trend in demand for the "under $1,000" or "under €1,000" suits, executives say.

About three years ago Brooks Brothers introduced the 1818 Collection of suits, which retail for less than $1,000. The range has three styles, two of which are more fashion-forward - the Regent, with its more European-inspired fit, and the Fitzgerald, which recalls the suits that John F. Kennedy bought when he was a client of Brooks Brothers.

1818 is now the fastest growing collection of suits for Brooks Brothers, representing 60 percent of the company's suit business, up from 25 percent from three years ago, says Louis Amendola, the brand's chief merchandising officer.

Six months ago, Brooks Brothers introduced "Suiting Essentials," a semi-custom-made suit range whose prices start at $580. Amendola said that this collection also is aimed at the new, young suit customer "who never thought he could afford a custom suit."

Brooks Brothers is privately held and does not disclose financial figures but, based on press reports, 2007 sales may have reached $875 million.

The uncertainty of the American economy makes vendors and retailers cautious about sales for the overall suit sector in coming months.

Yet Toledano believes that the Dior Homme business can grow in the United States, even in a potential downturn, by taking market share from traditional suit brands.

Last year, sales for Dior Homme achieved "very strong double-digit growth," said Toledano, without disclosing specific figures. Dior plans to open 10 more wholly owned stores this year, for a total of about 40 shops worldwide. Dior Homme is part of Christian Dior Couture, whose sales for the first half of 2007 grew 16 percent, to €368 million, and whose operating profits more than tripled to €28 million, compared with the first half of 2006.

And other fast-growing markets like Asia or Eastern Europe can help offset a downturn in the United States, executives say. Moreover, many say that the designer or luxury suit market will be relatively immune to jitters.

"At the high-end level, there continues to be a consumer who will spend significant amounts of money on clothes," said Robert Burke, a luxury-goods consultant and founder of Robert Burke Associates in New York. If this consumer does change his habits, he will still spend money, just on fewer items, Burke said.

WSJ: Retailers Brace for Major Change

WALL STREET JOURNAL | RACHEL DODES, ANNA ZIMMERMAN & JEFFREY MCCRACKEN

The good news for retailers reeling from the holiday sales season is that 2008 is almost over. The bad news: The fallout in 2009 could be worse.

This year's retailing slide -- when stores were forced to cut prices to convince wary consumers to spend -- promises to have a lasting impact on the way the retail industry operates. Many retailers are rethinking how they do business, as others prepared for a large number of bankruptcies and store closures.

The first retail casualty of the weak holiday season could be Goody's Family Clothing Inc., a Southeast apparel retailer. The 287-store chain emerged from bankruptcy court in October but its holiday sales were below plan and financing it was counting on didn't materialize, according to a person familiar with the situation. The retailer is negotiating with lenders to avoid potential liquidation, say two people familiar with the matter.

A representative for Goody's was unavailable to comment. But in October, Chief Executive Paul White was upbeat about its prospects, saying "we are energized by the opportunity in front of us and are focused on continuing to fulfill the Goody's mission."

Other retailers are saying they will trim inventory and reduce the number of suppliers. That, in turn, will cause a ripple effect, prompting a number of weaker manufacturers, small brands and underfunded fashion labels to fail. New retail formats and concepts stores are likely to be curtailed in the coming year. And luxury-goods makers already are working to cut the long lead times between orders and store delivery as a way to reduce risk.

"We will have a lot fewer stores by the middle of 2009," says Nancy Koehn, professor of business administration at Harvard Business School. "It's happening very, very quickly because of the financial crisis and the recession."

During the holiday season, when retailers typically generate as much as 40% of their annual sales, Americans cut their spending. Total retail sales, excluding gasoline and autos, were down between 2.5% and 4% this holiday season, compared with the same period in 2007, according to MasterCard Inc.'s SpendingPulse unit. That makes it among the worst holiday seasons of all time, says Michael McNamara, a vice president.

There were exceptions. Amazon.com Inc. AMZN -3.13% said Friday its holiday sales exceeded all prior years. Still, industry analysts say that online retail as a whole is down slightly from the year-ago holiday season.

Retailers and their suppliers, who are hoping for a burst of sales this weekend and next week, are assessing the fallout to their industry. They and other retail watchers are forecasting big changes ahead:

More Bankruptcies: Corporate-turnaround experts and bankruptcy lawyers are predicting a wave of retailer bankruptcies early next year, after being contacted by big and small retailers either preparing to file for Chapter 11 bankruptcy protection or scrambling to avoid that fate.

Analysts estimate that from about 10% to 26% of all retailers are in financial distress and in danger of filing for Chapter 11. AlixPartners LLP, a Michigan-based turnaround consulting firm, estimates that 25.8% of 182 large retailers it tracks are at significant risk of filing for bankruptcy or facing financial distress in 2009 or 2010. In the previous two years, the firm had estimated 4% to 7% of retailers then tracked were at a high risk for filing. Retailers are particularly vulnerable to a recession because of their high fixed costs.

The most vulnerable retailers are those with debt coming due, says AlixPartners Chief Executive Fred Crawford. "There are companies in virtually every retail sector in distress, whether it's a jeweler or a high-end luxury store. But if they have a lot of debt and it's coming due soon, that's probably a better predictor that they may need to file," said Mr. Crawford.

Several turnaround experts said retail lenders including General Electric Co.'s GE -1.31% GE Capital, CIT Group CIT -0.42%and Wachovia Corp. are dialing back lending to retailers.

CIT, which lends money against vendors' receivables, recently withdrew coverage for orders to Bon-Ton Stores Inc., BONT +5.16% of York, Pa. Bon-Ton spokeswoman Mary Kerr said, "We are in the process of contacting those affected vendors with whom we have good relationships in order to work directly with them." A CIT spokesman declined to comment.

Recent changes in the bankruptcy code make it more difficult for retailers to emerge from bankruptcy reorganization. The changes, passed in 2005, shortened to 210 days the time retailers have to determine whether or not to assume real-estate leases, limiting the amount of time they have to complete their restructuring. Lawrence Gottlieb, a New York bankruptcy attorney at Cooley Godward Kronish LLP says that only two retailers have successfully emerged from bankruptcy proceedings since the amendments to the code were passed.

In turn, because the debtor-in-possession market for financing bankrupt companies remains squeezed, many bankrupt retailers could quickly turn into liquidations -- as was the case earlier this year with chains Linens 'N Things, Mervyn's and Steve and Barry's.

Store Closings: The International Council of Shopping Centers estimates that 148,000 stores will close in 2008, the most since 2001, and it predicts that there will be an additional 73,000 closures in the first half of 2009.

This underscores a sea change in retailers' business strategy. "Generally speaking the way retailers have grown is to get more volume, and open more stores," says Greg Maloney, chief executive of the retail practice at real estate services firm Jones Lang LaSalle JLL -2.14% .

Despite the closures, the U.S. is still likely to see a net gain in square footage mostly due to projects under way before the credit crisis hit. Barclays Capital analyst Jeff Black says growth in retail square footage will slow to 5% in 2009 from 8% in 2008. Some retail sectors likely to see growth include specialty teen stores while cutbacks are coming in the women's apparel sector.

Already a number of specialty retailers have said they are closing stores, includingAnnTaylor Stores Corp., ANN -2.27% Talbots Inc. and Charming Shoppes Inc. Those that aren't closing stores will likely curtail expansion to conserve capital. J. Crew GroupChief Executive Mickey Drexler said that the company is "revisiting all new store openings" and plans to cut square footage growth in half in 2009, excluding a new concept. Liz Claiborne Inc. is postponing store expansion until the economy improves.

Less Selection: Several department stores, including Saks Inc. SKS -0.09% and Neiman Marcus Group Inc., already have announced that they would narrow the range of merchandise they carry and drop vendors that don't perform. The cutbacks will ripple through the apparel industry, hurting the companies that are most exposed to the wholesale channel. Companies such as Jones Apparel Group Inc., JNY -1.82% for example, generate 50% of sales from department stores. Other manufactures, such asVF Corp., VFC -0.71% are less vulnerable because they have rolled out their own retail stores and realize only 10% of sales from department stores, according to J.P. Morgan Chase & Co.

"We are so used to using history to guide our future," says Brendan Hoffman, chief executive of the 48-store Lord & Taylor chain. Setting inventory levels "will be a challenge until we get to some level of economic stability."

Meantime, Lord & Taylor, a unit of Hudson's Bay Trading Co. is buying conservatively, preferring to be out of stock on key items than over-stocked. Buyers at Lord & Taylor will purchase "deeper in merchandise we really believe in" and cut back on the rest.

As a result of such cutbacks, a number of smaller fashion brands that have thrived over the past decade as luxury boomed, are expected to struggle or fail. "There's no question that you are going to see bankruptcies in the designer world," says Peter Boneparth, a Kohl's Corp. KSS -0.92% director and former chief executive of Jones Apparel.

Contemporary clothing label Theory LLC, which had sales of about $600 million in 2008, already is planning to sell 25% less to retailers in 2009, says Andrew Rosen, the company's president and co-founder. "The consumer's shopping patterns are going to change from what we've come to know over the past few years," Mr. Rosen says.

Smaller vendors are also adjusting the way they operate. Chantal Bacon, chief executive officer of designer Betsey Johnson's firm, said the brand is bringing its international sales in-house for the Spring 2009 collection to lower prices by cutting out a distributor.

Robert Burke, chief executive of Robert Burke Associates, a luxury-goods consultancy, said he is working with clients to shorten lead times between orders and deliveries, which are typically six to nine months. Long lead times, in part, are blamed for the inability of stores to respond quickly to the downturn.

"There's a focus on identifying what the key items are for the season and making sure that there is fabric and production capabilities more quickly," Mr. Burke says.

Fewer Concept Stores: Many retailers invented new brands to spur rapid growth in recent years. But many such concepts already are being abandoned or cut back. Neiman Marcus said it would postpone plans to expand its Cusp store concept. Pacific Sunwear of California Inc. PSUN -2.60% closed down its d.e.mo. stores earlier this year, and AnnTaylor abandoned plans for a "modern" baby-boomer concept.

Closing unprofitable new store formats "is something investors would like to see," says Barclays' Mr. Black.

WWD: The Global Challenge: Fashion Heads to the Middle East

WWD | MARC KARIMZADEH

At Ralph Lauren’s spring collection, unveiled during fashion week in September, models made their exits through an Arabian archway adorned with a single filigreed hanging lamp. It set the tone for a beautiful collection full of Middle Eastern touches, from the golden desert textures to harem pants, turbans and exotic jewelry.

Lauren of Arabia — as WWD dubbed the designer — couldn’t have hit the fashion Zeitgeist at the time any better. It’s fair to say that this year, the Middle East eclipsed China as the much-buzzed-about region for fashion companies to explore.

With every rise in the price of a barrel of oil, the oil-rich region got a little richer. Places such as Kuwait, Qatar and Abu Dhabi became even more flush with cash, and that part of the world became one of the fastest-growing regions for luxury and fashion — and deal-making. Dubai amplified its status as the desert region’s epicenter, with tourists from nearby countries, from Iran to Saudi Arabia, descending on the Persian Gulf city to play. They came with deep pockets and a seemingly endless appetite for luxury. It came as little surprise then that major luxury brands were rushing to the region to benefit from the momentum.

That said, even the Middle East hasn’t been immune to the global financial crisis, especially with slumping oil prices. Dubai in particular has found itself in a precarious situation. Unlike some of its neighboring Gulf countries, Dubai’s wealth does not come from oil, and it is largely reliant on tourism, expatriate communities and construction. The Arab emirate has been going through a spectacular building spree in recent years that is widely expected to slow down — especially as the number of tourists and expats arriving in Dubai is expected to decline next year.

“It’s all built of a very precarious base, because it’s all being financed by the other countries,” said one industry source on condition of anonymity. “There is a huge amount of building already accomplished, and a huge amount of building under way. You can’t help but wonder who is going to fill up those buildings, and how are they going to pay for them?”

Despite the caution, many fashion houses have been forging ahead with their plans for the region. Lauren already has two stores in Dubai, Kuwait City and Saudi Arabia, and added another in not-too-far Istanbul in October.

In September, Bloomingdale’s said it was opening two stores — a three-level, 146,000-square-foot men’s and women’s apparel and accessories unit and a one-level, 54,000-square-foot home store — at the Dubai Mall, which is attached to the Burj Dubai, the world’s tallest building. The Burj Dubai will boast an Armani Hotel when construction is completed next year, although it is said to be in a holding pattern at the moment.

Karl Lagerfeld in July teamed up with Dubai Infinity Holdings to conceive and design 80 residential homes on Dubai’s Isla Moda. When finished, the island, dedicated to fashion, will be part of the city’s “The World” project, a man-made cluster of islands in the form of the world’s continents.

Christian Lacroix, meanwhile, said this year that he will add his design touches to a residential tower in Dubai in a joint venture with Kuwaiti-based developer Abyaar.

Roberto Cavalli, too, jumped on the bandwagon, opening his first nightclub, Cavalli Club, at the Fairmont Hotel in Dubai last month. The venture is in partnership with Pragma Group, an investment, outsourcing and business incubator based in the United Arab Emirates.

Qatar, meanwhile, also has been getting its fair bit of attention these days. The I.M. Pei-designed Museum of Islamic Art opened in Doha last month, and a man-made island development called The Pearl will, when completed, offer 280,000 square feet of retail space for luxury brands. In recent months, there also has been buzz about an investment vehicle linked to Qatar’s ruling family looking to invest in Lanvin.

Just how much the economic depression will impact the region remains to be seen. Other emerging markets, for one, are already feeling the pinch. After privatization has created enormous wealth for some in the last decade, Russia has recently been experiencing a slowdown. China, where manufacturers depend on exports to fuel much of the country’s income, has also taken a hit.

“For a Madison Avenue type of retailer, it’s not pretty,” an industry source said. “The top luxury distributors are either freezing or pulling back. The demand for China imports is down and factories are closing.”

As for India — another much-anticipated emerging market — it remains to be seen how the terrorist attacks in Mumbai late last month will affect the local economy. It is sure to have an impact on tourism in the region.

In the Middle East, however, nothing seems to be putting a damper on the party spirit, at least for now. In late November, billionaire hotel mogul Sol Kerzner spent $20 million on the launch of his $1.2 billion Atlantis The Palm resort in Dubai. The three-day party brought out the likes of Kylie Minogue, who performed, as well as Charlize Theron, Mary-Kate Olsen, Janet Jackson, Quincy Jones, Lindsay Lohan and Samantha Ronson, the Duchess of York, Robert De Niro and Mischa Barton.

“You are dealing with countries [in the Middle East] that have significant natural resources,” said Robert Burke, founder, president and chief executive officer of Robert Burke Associates. “Even when [the price of] oil is dropped in half, there is still wealth there, and money that they are interested in using to their advantage.”

FINANCIAL TIMES: Bamford looks to expand the definition of luxury

FINANCIAL TIMES

Bamford is looking for partners. The British organic luxury brand presenting its spring/summer 2009 women's wear collection in Milan has engaged Blackstone Group to help it field investment offers.

"We've come to the end of phase one, and we need a partner with more expertise in other markets," Carole Bamford says, acknowledging the extraordinary luck she has had with a label she founded from her Gloucestershire farm in 2004 on the "intuition that the timing was right to introduce a brand with a conscious." Bamford includes the eponymous women's ready-to-wear brand as well as the men's wear Bamford & Sons and the food and beauty brand Daylesford Organic (but not JCBs, the Bamford business started by her husband's father), and is characterised by its founder as "a way of life".

A more accurate description might be "our way of life". The organic ethos and the products - trapper jackets, trenchcoats and jodphurs in recycled wool, flannel and taffeta - are inspired by the pastimes of the family (the farm went organic in 1978). It is this instant "heritage", she believes, that has enabled the four-year-old brand to establish itself so quickly: 50-55 per cent growth a year for the past two years, now selling in 52 doors. But even she does not think such numbers are sustainable: "35 per cent is probably a more realistic figure."

Interest has reportedly come from the major luxury groups such as Richemont and Moët Hennessey Louis Vuitton, who have recently explored non-traditional acquisitions. Last month LVMH bought Royal van Lent, the maker of Feadship luxury yachts, while in 2007 Pinault Printemps Redoute purchased sportswear brand Puma. Also in the running are private investors, who have driven many of the sector's deals. Case in point: Labelux, the Benckiser family's holding company, which has bought Derek Lam of the US, Swiss footwear brand Bally and British jeweller Solange Azagury-Partridge in the past year.

If any of these companies were to invest in or acquire Bamford, the deal would continue the trend towards expanding the definition of the luxury market, as well as underlining the importance of a world that most groups believe may exert growing influence over their consumer base.

Bamford is the first mainstream luxury brand to make an identity out of its organic stance. Though high street brands such as Gap have added an eco component to their offering, it generally takes the form of a smaller diffusion line. Similarly, London Fashion Week showcased a number of high fashion eco-brands but they were accorded their own niche display. The only luxury brand with an overtly environmental onus is Stella McCartney (part of Gucci Group), which does not use leather products and introduced an organic skincare line last March, but they position this as a personal choice, not the brand identity. Bamford, by contrast, set out to "be as organic as possible and make it part of our DNA".

Thus it sources its cotton in India via two villages it has supported to control the use of pesticides or fertilisers, its cashmere is hand-loomed in Scotland and Tim Field has been employed as organic scientist specialist. But Bamford does use leather and fur.

"I think it's luxury," Lady Bamford says. "I know it's an area where we can be attacked, but we only use Saga furs and they are very carefully sourced and farmed. I've questioned myself about it many times, but I am satisfied." Bamford does not show on the catwalk and often re-uses designs.

Industry observers see this as working both for and against it. Robert Burke, founder of the consultancy Robert Burke Associates, thinks tougher economic conditions may lead to consumers becoming reluctant to pay an organic premium, especially from a young brand. A report from Research and Markets, however, suggests as consumers make harder choices, brands that wear their values on their sleeves could benefit.

As to whether any future partner will appreciate the investment needed to ensure organic strictures, Lady Bamford is not concerned. "I do think I will know whether someone is genuine in their interest and commitment. In the end, it's pretty easy to recognise a greenwash."

FINANCIAL TIMES: LVMH seizes spotlight with Philo appointment

FINANCIAL TIMES | VANESSA FRIEDMAN

As the women’s ready-to-wear season began on Thursday in New York, LVMH, the world’s biggest luxury-goods group, ensured all attention was on Paris by announcing the appointment of Phoebe Philo as creative director of Celine, the French fashion house. It is the style equivalent of a vice-presidential bombshell.

Ms Philo, who is British, was the designer responsible for putting Chloé, owned by LVMH rival Richemont, on to the path toward becoming a billion-dollar brand, but she resigned in 2006 to spend more time with her family.

The Celine appointment marks her long-awaited return to the industry, as well as a change in policy at LVMH, according to Robert Burke, chairman of the brand consultancy Robert Burke Associates.

“It’s an obvious shift in overall direction,” said Mr Burke. “Consumers today are more educated than they’ve ever been and they want to know who’s behind the label.”

Pierre-Yves Roussel, chief executive of LVMH’s Fashion Group, which includes the conglomerate’s smaller brands such as Givenchy, Pucci, Loewe and Marc Jacobs, said: “LVMH is fully committed to developing the potential of the brand within the group.”

After the departure of Tom Ford from Gucci in 2004, strategy in the fashion industry moved from one focused on high-profile creative talents to one focused on the brands themselves.

Little-known designers were hired such as Frida Giannini, Mr Ford’s successor at Gucci, and Ms Philo’s predecessor at Celine, Ivana Omazic.

The last time Celine had a recognisable designer at its helm was four years ago, when Michael Kors resigned. Neither his successor, Robert Menechetti, nor Ms Omaciz, managed to turn the house into one of LVMH’s “star brands”.

Ms Philo’s appointment is part of a general reshuffle. On the corporate side, Marco Gobbetti, the chief executive of Givenchy, will move to Celine to become president, and Serge Brunchswig, the current chief executive of Celine, will become chief operating officer of Christian Dior Couture, one of LVMH’s flagship brands.

Still more changes are coming, as Mr Roussel needs to fill the design chair at Pucci, which has been left empty since Matthew Williamson’s departure earlier this summer.

“Pierre-Yves Roussel obviously has a business strategy he wants to implement to turn these brands around, and we’re just starting to see it,” said Mr Burke.

Ms Philo’s first collection for Celine will be shown next February during Paris Fashion Week.

FINANCIAL TIMES: High quality can beat the credit crisis

FINANCIAL TIMES | RICHARD MILNE

Luxury goods group are traditionally hit hard by economic downturns. Lehman Brothers’ analysts point to a 25 per cent cut in earnings in the previous slowdown after the September 11, 2001, terrorist attacks on the US and say that the sector underperformed the market during the period despite its appeal to high-end customers.

LVMH, the world’s largest luxury goods group, saw its profits drop by 20 per cent in 2001. But heading into the current slowdown courtesy of the financial crisis, luxury goods companies appear upbeat.

In some ways they are right to be – they have expanded out of their long-time base in the west into faster-growing countries in emerging markets and analysts’ consensus earnings estimates for this year still point to ten per cent growth in the sector. But can they really escape a global slowdown thanks to rich customers from Dubai, Moscow and Shanghai? Or will they become yet another victim of the credit crunch in the traditional fashion?

Most industry executives insist it will be the former, but most analysts and experts believe the latter. Both sides have supporting evidence but the feeling persists that the luxury goods industry will not escape unscathed.

“At the very top end of the market is a part of the luxury goods sector that is not very cyclical and that is full of growth from the emerging markets.” says Gerry Adolph, a senior management consultant at Booz & Company. “But the aspirational brands in the middle will be the ones most sensitive to the economic slowdown.”

Argument number one for the positive view of the industry is the continued spending by the super-rich. Gerard Aquilina, head of international private banking for Barclays, says his ultra-wealthy clients have felt no effects of the credit crunch and, if anything, are more optimistic at the moment. “They look at this crisis as an opportunity. I haven’t seen a decrease in them buying luxury goods whatsoever,” he says.

That is good news for the most exclusive and traditional brands at the top end of the market such as Chanel and Hermès.

It was notable when Gucci reported mixed first-quarter sales recently that Bottega Veneta, its most upmarket brand, was the top performer, with a 32 per cent sales increase on a comparable basis.

Argument number two for the industry is exposure to emerging markets. Regions such as the Middle East and Asia have developed into main drivers of growth for many companies. Francesco Trapani, chief executive of Bulgari, says softness in the US and some parts of Europe is being offset by the strength of Asia. All of this shows how far the balance of power has shifted in the industry and how the worst-performing luxury goods companies currently are those with the highest exposure to countries such as the US and UK.

Examples abound of success in countries recently thought unable to support a big luxury goods sector – LVMH, with its stable of luxury goods from Louis Vuitton to Dom Pérignon, more than tripled its revenues in Vietnam last year while Richemont of Switzerland says it sees growth not just in China but in virtually every country in Asia.

But will the emerging markets be enough, and could the slowdown hit them eventually?

There seems little doubt that the rich of the Middle East and elsewhere, flush with oil and raw material cash, will continue to splurge. But it is less clear what will happen in other regions such as China if the ripple effects of the financial crisis reach them.

Allegra Perry, analyst at Lehman Brothers, points out that 50-60 per cent of the luxury goods industry’s consumers remain in classic, developed markets. “The most important thing right now is geographical exposure,” she says.

The naysayers have not just history to back them up but also early evidence that points to a slowdown from companies themselves – Bulgari felt slower sales growth in March, Richemont at the end of last year, while Gucci sold less in the first quarter than last year.

Top-end department stores in the US, such as Neiman Marcus and Saks, reported that it was not just aspirational luxury customers cutting back on spending but the very rich ones as well.

Robert Burke, a former luxury retail executive who is now head of Robert Burke Associates, a consultancy, says US consumers are definitely cutting back on spending but foreign tourists to the US are using the cheap dollar to go on shopping sprees.

“Is that enough to offset the losses? In some cases yes, in many others no,” he says. “When times get tough, though, the aspirational luxury buyer is pinched out of the market first.”

All experts are agreed that consumers are likely to become more discerning. And that in turn is likely to lead to a shake-out in the industry with the lower-end brands and the aspirational marques suffering the most.

“Companies selling the $10,000 to $20,000 handbag are likely to be OK but those that moved downmarket to find growth – like Burberry or even Gucci – are going to be more exposed,” says Mr Adolph.

Rogerio Fujimori, an analyst at Credit Suisse, agrees that more accessible companies such as Coach in the US are the most likely to struggle. But he says factors other than the economic slowdown will determine how luxury goods groups perform – particularly tourism flows and the related issue of currencies.

One consequence of the possible shake-out of the industry is that many expect to see a return of merger and acquisitions activity. Many in the industry still have a sour taste in their mouth from the last round of deals that peaked with the ill-timed purchase of Gucci by PPR on September 10, 2001.

But LVMH, the arch-rival of PPR, in April made its first acquisition in years when it paid several hundred million euros for Hublot, the high-end watchmaker. Experts such as Mr Burke and Mr Adolph expect to see companies from outside the sector and from areas such as Asia and the Middle East becoming involved. Mr Burke says he is advising SK Networks, a South Korean conglomerate, as well as investors from Dubai. Mr Adolph underlines that many companies still owned by the founder, such as Armani, need to decide on their development and, if they sell, whether to become part of a luxury goods conglomerate or sell to an alternative buyer.

As a sign of how investors see the sector going, rumours have already started up about Hermès, the French group that is one of the most expensive and best-protected in the sector.

Few in the industry doubt that – acquisitions or not – “some kind of slowdown is inevitable”, as Mr Fujimori says. But the jury remains out on how hard the impact will be. As in many industries the flight to quality is likely to be apparent.

Mr Burke says: “The true luxury shopper is going to be more discerning than in the past. They are going to buy fewer things and more selectively.”

FINANCIAL TIMES: Brands look to the east to ease pain of credit crunch

FINANCIAL TIMES | RICHARD MILNE

One in four bankers at Lehman Brothers, the investment bank, owns three to five luxury watches, according to Allegra Perry, the bank's luxury goods analyst.

It is statistics like that which make the luxury goods industry boast about its potential and at the same time worry about the impact of the financial crisis.

The credit crunch is likely to answer the question: are luxury goods companies subject to the same consumer pressures as other retailers or are they in a sector of their own catering to the super-rich?

Luxury goods companies have traditionally been hard hit in economic downturns. Already evidence is amassing that after a difficult Christmas for many, the new year has not started as positively as some expected. The Gucci brand provided the first real sign on Thursday when its like-for-like sales growth in the first quarter reached only 2.4 per cent (in reported terms it was even down 3 per cent).

That comes after Bulgari, the Italian jewellery company, warned of soft sales in March. But it contrasts with solid figures from Richemont, LVMH and Hermès.

"The luxury goods sector is impacted by the financial crisis but to a much lesser extent than normal retail. The traditional, high-end brands will do well. The more accessible ones will struggle more," says Rogerio Fujimori, analyst at Credit Suisse.

Gerard Aquilina, head of international private banking at Barclays Wealth, says there is no sign whatsoever of a slowdown of spending among the ultra-wealthy - perhaps it is even the opposite. Gucci's best-performing brand Bottega Veneta is its most expensive.

More of the super-rich are coming from emerging markets in the Middle East, Asia or eastern Europe.

That in turn means those luxury goods companies most exposed to these regions seem to have the best chance of avoiding the slowdown. LVMH, for instance, more than tripled its revenues in Vietnam last year while Richemont is seeing growth across Asia.

In contrast, those companies most exposed to developed markets such as the US and Europe will feel the most pain.

Francesco Trapani, chief executive of Bulgari, told the FT last month: "We are seeing a pretty soft business in the US and in some important European countries . . . [But] almost all of Asia is going extremely well and counterbalancing [that softness]."

Robert Burke, a former luxury retail executive who now heads the Robert Burke Associates consultancy, says brands which cannot offer the consumer anything special will suffer particularly. "Product is paramount. The true luxury shopper is going to be more discerning than in the past," he says. "They are going to buy fewer things and more selectively and that means second-tier and less sophisticated luxury companies will suffer."

Industry watchers are divided as to who will suffer most. Luxury stores in the US report sales declines across the spectrum - not just with aspirational buyers but also very affluent customers.

However, names such as Chanel and Prada seem the most secure. Mr Fujimori points to two other issues that play a role on luxury goods as well as the economy: tourism and currency. Anecdotal evidence suggests that wealthy tourists are not just heading to the US to buy, taking advantage of the weak dollar, but also to London because of the weak pound.

Ms Perry underlines that the strength of the euro leaves companies with the dilemma of either raising prices and thus lose sales or not pass on the full impact of the currency, which will affect margins.

FINANCIAL TIMES: Deal appetite mounts in luxury sector

FINANCIAL TIMES | RICHARD MILNE

Wealthy individuals used to be content buying a luxury watch or boat. Now they are looking at buying the company as well.

Luxury goods analysts say the sector could see another wave of deals as ultra-wealthy individuals and investors from Asia and the Middle East increasingly seek out companies to buy.

"You can buy a yacht but you can also now buy your yacht builder. That is something we are seeing more and more of as it is an interesting market for ultra high-net worth people and their friends," said Gerard Aquilina, head of international private banking at Barclays Wealth.

Robert Burke, the head of a US luxury goods consultancy, said: "We help bankers screen companies and we have never been busier than in the past few weeks.

"We are seeing a lot of interest from places like Korea and the Middle East, and also from rich individuals for smaller deals. That is very new."

LVMH, the world's largest luxury goods group, this week unveiled its first acquisition for some time as it bought Hublot, the upmarket watchmaker, leading some analysts to predict increasing merger and acquisition activity from companies too. Mr Burke said: "Before it was only seen that the likes of LVMH and Gucci were buying luxury goods groups but this time it will be broader just because that it where the money is."

Few companies have openly said they are for sale but analysts say attempts to buy some of the big name fashion houses are likely. "All the potential target companies say they are not for sale but I think we will still see some approaches," said Allegra Perry, analyst at Lehman Brothers.

She said she expected the big companies only to get involved if share prices continued to drop.

The increase in interest in luxury acquisitions comes amid the first signs of the financial crisis hitting the sector. Gucci unveiled weaker-than-expected sales this week and many analysts are predicting a shake-out could take place as the lower-end and more aspirational brands suffer more than traditional, exclusive names.

Analysts point to Mulberry and Burberry - and even to Gucci - as brands that could come under threat, while top-end brands such as Hermès and Chanel are more likely to escape.

"The higher the prices for the products, the more insulated the company will be. The more accessible brands will suffer more," said Rogerio Fujimori, analyst at Credit Suisse.

Mr Burke, a former senior executive at luxury retailer Bergdorf Goodman, said: "There is going to be a major shake-out of the companies. When times gets tough the aspirational luxury buyer gets pinched out first."

WWD: SK Networks Acquires Y & Kei and Hanii Y

WWD | ROSEMARY FEITELBERG

SK Networks Co. Ltd., a $17 billion Seoul-based global marketing company, has acquired Obzee Co. Ltd. and its affiliate brands Y & Kei and Hanii Y.

With a $60 million, five-year investment plan, SK Networks plans to bolster marketing and merchandising for both labels, which were started by the husband-and-wife design team of Hanii Yoon and Gene Kang. The brands generate $100 million in turnover and $10 million in profits annually. The designers, who retain their titles as creative directors, will relocate from Seoul to Manhattan, where SK Networks will open a design center to focus on broadening the pair's global marketing efforts.

After working with SK Networks on different brands, Robert Burke Associates will be pitching in with the development and merchandising of Y & Kei and Hanii Y, as well as widening retail distribution. The labels are sold at Barneys New York, Bergdorf Goodman and other retailers worldwide. The design duo is also considering opening stores in New York, Paris, London, Tokyo and Shanghai, according to a statement on Monday.

Robert Burke Associates is also helping SK Networks to expand distribution in Korea and China and to introduce an undisclosed U.S. retailer to Seoul.

"The desire for luxury goods in Seoul is very interesting,'' Burke said. "What we're finding with the weak dollar is that we're dealing with more international companies looking at U.S. acquisitions."

SK Networks is the exclusive distributor of Donna Karan, DKNY and Tommy Hilfiger in Korea. The company also sells its private label brands through China. Last year the company took a minority stake in Richard Chai's business.

TIME: Geography Lessons

TIME | KATE BETTS

The sidewalk surrounding Manhattan's Bryant Park is lined with posters promoting a new image of Lord & Taylor, the U.S.'s oldest department-store chain. In the pictures, members of some mythical extended suburban family smile as they frolic in their vintage Mercedes convertible or slide into a wooden canoe.

Despite their beauty, the photos and the inference that they epitomize American style seem jarringly anachronistic. At a time when fashion has become global thanks to the Internet and the access it provides to ideas, resources and products, American style is becoming increasingly difficult to define. At New York City's Fashion Week there were 259 designers of different nationalities--including Chinese, Thai, Brazilian, Japanese and Turkish--showing their spring 2008 collections.

"Fashion is no longer regional, and the notion of American sportswear is no longer valid, nor does it look current," says Robert Burke, a luxury consultant. "I've seen shows this week that could easily have taken place in Paris or Milan." More and more, it is the itinerant lifestyles of multinational designers--many of whom frequently travel around the world to visit factories, stores and suppliers--and the global reach of the Internet that inspire the clothes they send down the runway.

Take Tia Cibani, the Canadian-born designer of Ports 1961, a line that is produced in southern China and shown in New York. While Cibani commutes between New York City and Xiamen, inspiration can come from as far away as East Africa, as it did this season. Her collection, called Safiri, pays homage to African women's spontaneous sense of style and their imaginative fabric treatments such as tie-dyeing, rolling and wrapping.

Other popular destinations for spring included Rome, with Vera Wang excavating ideas from the city's ancient polycultural society and translating them into toga-like dresses, and Bali, where Diane von Furstenberg found bold floral prints. Japan--specifically its traditional folded-and-dyed fabric-printing technique, shibori--turned up on the runways of designers like Narciso Rodriguez, Proenza Schouler and Thakoon Panichgul.

"We grew up in a time of complete globalization," says Lazaro Hernandez, 28, who, along with Jack McCollough, designs the label Proenza Schouler, "so the boundaries are not as strict. We're young, and we don't have the money to travel that much, but we travel in our heads. We go online. With technology, you can go anywhere on the Internet." This season they found a trove of vintage kimonos in McCollough's parents' attic, and the trapezoidal sleeve shape became a major motif of their collection.

One of the reasons designers look so far afield for ideas is to stay one step ahead of the mass-market manufacturers that copy trendy fashions and sell them for much less. Designers like Hernandez and Panichgul say craftsmanship is what sets their clothing apart. "I don't think we could have survived in the late 1990s because minimalism, which was so popular then, is so easy to copy," says Hernandez. Indeed, consumers who want to buy a black sweater or a pair of black pants are inclined to go directly to H&M for the best price. As a result, Hernandez and McCollough feel the pressure to make their clothing even more ornate. This season, for example, they employed the French haute couture supplier Lemarie to embellish their clothing with rows and rows of tiny feathers.

"You have to develop a cult customer," says Panichgul, "someone who is looking for this kind of elaborate work every season." And someone who can afford it.

NEW YORK TIMES: Preppy Gets a 21st-Century Makeover

NEW YORK TIMES | KATE WEISMAN

NEW YORK — The young male models at Thom Browne's fashion show last week may have worn some unusual styles like short-sleeve blazers and quilted codpieces. But they also sported one of the most iconic preppy items ever: the white braided-rope friendship bracelet.

Preppy signatures seem everywhere. Polo shirts have become a trendy uniform with young women favoring the tight-fitting, navel-bearing Lacostes while men opt for faded or oversized versions. The white dress shirt has staged a comeback, and no-iron technology has made them a best-seller at Brooks Brothers.

But are we really in the midst of a preppy trend? Or are some savvy companies and designers - other than Ralph Lauren, of course - now realizing that there are not a lot of "proper" or "appropriate" clothes on the market?

"Fashion is fun and intoxicating, but most of it is fantasy," said Jenna Lyons, the creative director of J. Crew, the U.S. catalog and retail purveyor of chic and casual sportswear. "'I have always had an appreciation for approachable, wearable clothes. There is nothing more satisfying than giving real people a hint of glamour."

Lyons says that one of J. Crew's strengths is its ability to update the classics. This approach to design helped the company's revenues grow 27 percent in 2006, to $366.7 million. And energizing classics and inventing new ones has been a key factor of Ralph Lauren's success. Polo Ralph Lauren saw revenues rise 15 percent, to $4.3 billion, for the fiscal year ended March 31, 2007.

"Maybe we are the reason why this trend is happening," Claudio Del Vecchio, the owner and chairman of Brooks Brothers, said as a joke - sort of. He noted that the popularity of preppy and classic clothes is taking place simultaneously with the renewed success of Brooks Brothers.

Del Vecchio acquired the 189-year-old company from Marks & Spencer in 2001 and, in addition to restructuring, Del Vecchio and his team have sought to improve the quality and style of the men's and women's selections. For example, the company recently added a "trim fit" option to its basic oxford shirt for men, "opening the door to younger customers," Del Vecchio said.

He also surprised the fashion world last year by inviting Thom Browne to create "Black Fleece," a capsule collection for men and women that had its inaugural party in New York Tuesday.

Observers note that the preppy out there today is not the clichéd preppy uniform of the 1980s (like a twin-set with pearls) but a more interpretive version ranging from the sexy, soft button-downs and super low-waisted jeans of Abercrombie & Fitch to the sly martini glass-printed ties of nine-year-old Vineyard Vines.

Yet Lilly Pulitzer, reborn after being acquired by Scott Beaumont and James Bradbeer in 1993, continues to thrive with its super-preppy signature bold floral prints for women and girls, and brightly printed blazers from its recently debuted men's collection.

Many believe that this preppy peppering of fashion will be around for some time. "If our orders for upcoming seasons are any indication - and we book our orders a year ahead - then we expect this preppy or classic trend to continue," said Shep Murray who, along with his brother, Ian, fled New York in 1998 and founded Vineyard Vines with an $8,000 charge on their credit cards.

Last year, this fashion firm, based in Stamford, Connecticut, which makes clothes and accessories for men, women and children, had sales of $37 million - and this year they expect sales to rise 60 to 70 percent. The Murrays do not disclose profit or other figures of their privately held company.

Ian Murray notes that the bulk of the Vineyard Vines business is done in staples - khaki pants, solid polo shirts or cabled sweaters - as opposed to their tongue-in-cheek brightly patterned preppy separates, even though the louder pieces draw customers into their stores.

"Preppy has always been around, but now its fashionable," observed Robert Siegel, the chairman and chief executive officer of Lacoste U.S.A. For the American market, the subsidiary of the venerable 74-year-old company tweaked the shape and fabrication of its legendary polo shirts, introducing new form-fitting cuts, stretch blends and a tinier crocodile.

The reasons behind this so-called trend are many. Lyons at J. Crew referred to the lack of designers creating innovative, modern classics. Thus, those who do stand out and have an impact in the market.

Robert Burke, founder of the Robert Burke Associates luxury brand and fashion consultant based in New York, followed the same train of thought. "Consumers don't want to look like fashion victims," he observed.

Tiffany Vasilchik, a principal at BrainReserve, the trend forecasting and marketing consultant founded by Faith Popcorn, said the preppy trend is a result of "icon toppling" trends and expects it to continue for what the agency describes as "the medium term."

"People are frustrated by big corporations, from the Catholic Church to Enron, and the scandals. They are thirsty for stuff that's good. Preppy is here as a solution; it's a clean look, more innocent," she explained. "It's why some are flocking back to classic retailer Talbots because they want their children to actually look like kids."

Many in the business use the terms "preppy" and "classic" interchangeably but most consider preppy to be the extreme or exaggerated pink-and-green interpretation of classic styles.

"Preppy is polos, cables, pink and green, pears and seersucker, all worn together," Lyons of J. Crew said. "Classic is taking those pieces you've owned for years and making them look new with your own take and style."

The term "classic" is generally frowned upon in the fashion world because it conjures up images of frumpy navy blazers or practical trousers. But some of the more "fashion forward" designers like Thom Browne exploit classics and take them to the edge.

"My signature collection started from a classic point of view - timeless, effortless. It's how you take something classic and interpret it," Browne said in an interview earlier this year.

"Classic becomes a bad word when it's lacking in personality or identity," he added. "If it's simply a commodity, then it's nothing. Yet, there is nothing more beautiful than a classic white shirt."

'Preppy' and 'classic,' but so 21st century.

TIME: Fashion's Final Cuts

TIME | KATE BETTS

It's not every day that the Orangerie at Versailles is transformed into a bal des artistes complete with flamenco dancers, a gospel choir and a guest list that includes supermodel Gisele Bündchen, Spanish director Pedro Almodóvar and hedge-fund billionaire Steve Schwarzman. But this was the 60th anniversary of the house of Dior, and the resident designer, John Galliano, was putting on the glitz, while his boss, LVMH CEO Bernard Arnault, ensured that the fabled French house's high-end image was telegraphed around the world with all the rat-a-tat-tat of a flamenco beat.

Although Galliano, 47, was celebrating only his 10th anniversary at Dior, there were other, more poignant and symbolic anniversaries at the fall 2007 haute couture shows in Paris and Rome this past week, including Valentino's 45th, where, it had been rumored, he would announce his retirement. Like Giorgio Armani and Karl Lagerfeld, Valentino, 75, is part of a generation of designers in or nearing their 70s. And the questions hovering over the runways concern not trends or silhouettes but rather the end of a golden era in fashion that has been defined by a handful of visionary designers.

"When all these grands mâitres disappear, this world of hypersophistication will disappear too," says Jean-Jacques Picart, a Paris-based consultant who for many years helped Christian Lacroix build his business. "It will become a niche business. The world is changing, and appearance is less important than before." Certainly the kind of appearance that requires deep pockets and two or three fittings in a Paris haute couture salon will eventually disappear. Indeed, much of the pageantry at places like Versailles is for image and also, to a certain extent, to influence more accessible markets like ready-to-wear and even the fast-fashion labels. The pale blue of Galliano's Renoir-inspired Dior couture dress might inspire a trend for blue in the house's ready-to-wear collection next season or a dress that will show up on the racks at H&M next summer or even an eye shadow on the cosmetics counter at Macy's.

But, in many ways, the same marketing machine that has taken fashion global and made luxury titans like Arnault rich has also made it impossible for a younger generation of designers to build their reputations and brands the way their predecessors did. Galliano, for example, has had to rely on the name recognition that comes with working for an international powerhouse like Dior to bolster his eponymous label, which is also backed by Arnault.

"Today it's a very different way of creating businesses than 30 or 40 years ago," says Robert Burke, a luxury consultant. "Back then designers were able to take their time and to focus on the high end, but today it's increasingly difficult to make money on the high end. You have to diversify and license your product very quickly."

And yet the business model needs star power to drive the marketing machine and inspire the creativity that influences fashion at every price point. There would be fewer eye-catching options at the local mall without the high end to inform them. And the high end in turn demands the vision of a personality or a point of view. "Miuccia Prada's personality permeates every bit of that brand," says Tom Ford. Unlike the brands of most other new-generation designers, his menswear line is funded entirely with his own money. "It helps to have a personality to latch onto as a brand. It absolutely matters not only as a public face of the brand but also for the creation of the product."

But not everyone agrees with Ford. Gucci Group CEO Robert Polet has long insisted that the brands are the stars now, and his strategy of hiring lesser-known designers, including a few of Ford's former design assistants, seems to have paid off: sales at Gucci have soared to $2.1 billion. "Brands can survive without the namesake designer if you have a team and staff who understand the DNA of the brand," says Dana Telsey of the New York City--based retail-research firm Telsey Advisory Group . "Most of these brands that are global now could never have gotten to where they are with just one person anyway."

Ultimately, fashion is a keen reflection of the times. And if the golden era of couture ends with this generation, perhaps that is inevitable. Says Lagerfeld, who, like Valentino, started as an assistant in Paris' couture houses 50 years ago: "Times are what they are, and you have to find your niche in the moment and not dwell on the good old days."

TIME: The Third Season

TIME | KATE BETTS

Back in the late 60s and early 1970s, fashion designers created warm-weather clothes for affluent women who were heading south to the tropics, where they would wait out winter's chill in more temperate climes. They called it resort or cruise wear, and the tags stuck even when many of those women started staying home and going to work.

Today resort, that élitist-sounding fashion niche, has exploded into a full-blown category complete with runway shows, designer appearances and lots and lots of very salable merchandise. Originally conceived of as clothes to wear on a vacation--casual separates, swimwear, maybe a few simple cocktail dresses--these days resort includes evening gowns for the red carpet, accessories and suiting in lightweight fabrics like cool wool or cotton, something that could be worn to the office in mid-fall or early spring. As a business, it has become as important to big-name designers as the more high-profile clothes they create for their spring and fall seasons, not only for the long shelf life--merchandise sold under the resort label can sell at full price from late October all the way through to early April--but also as a fashion testing ground. Many European designers use their resort lines to try out ideas for upcoming spring collections. A color like last spring's grass green and a shape like the skinny pant first emerged in resort collections. For its 2007 resort line, Prada is introducing a new fuller shape, floral prints and a brightly colored soft leather bag. Chances are a variation on these looks will show up again on the label's spring runway. Prints are also an important trend at Louis Vuitton, where designer Marc Jacobs worked with English artist Pippa Cunningham to create travel-themed prints that playfully feature airplanes, anchors and motorboats.

Resort collections also provide an opportunity for press attention at a time when the market is quiet. In May, both Dior and Chanel invested in full-scale runway shows in New York City and Los Angeles, respectively. Chanel's elaborate presentation at a private hangar at the Santa Monica airport included a host of camera-friendly celebrities like a pre--Memorial Day rehab Lindsay Lohan, Victoria Beckham and Demi Moore, plus two Challenger 601 jets that carried the models right onto the "runway."

Resort wear is typically high-priced, and according to designer Michael Kors, the resort season represents the biggest sales opportunity for his signature line. In response to the demand for these clothes, Kors will, for the first time in 26 years, schedule trunk shows this fall to presell the collection to clients in his own stores.

"The idea that people are only buying these clothes to go to the Caribbean or on a weekend in Palm Beach is a complete misnomer," says Robert Burke, a luxury fashion consultant at Robert Burke Associates. "For retailers, it's about having fresh product on the floor. The luxury shopper is shopping now multiple times during the year. They're not just going into stores in March or September to buy their spring or fall wardrobes."

And they're not just shopping in the U.S., either. Many of the products designers offer--whether they be a floaty chiffon Dior cocktail dress or a printed Gucci skirt--are also in demand in new and expanding luxury markets, such as Dubai, India and parts of China. They're perfectly in keeping with another trend: global warming and the desire for lighter clothes. "From the Sun Belt to the global-warming issue, [resort wear] has evolved to reach a very broad audience," says Gucci CEO Mark Lee. "If you look at the items offered in the collection, there is a complete spectrum, from summer-weight suits to leather pieces."

For businesses like Versace S.p.A., the resort collection has provided an opportunity not only to presell most of the collection (as much as 70%, according to Donatella Versace) before it hit the runway but also to create clothing that is ultimately more accessible than the usual runway theatrics. "The customer feels more comfortable with this collection," says Versace, who made a special trip to New York City this month to present 24 resort looks to the press and buyers. "There's an easiness that is hard to do on the runway because the expectations are so much higher for fashion shows."

Indeed, a simple white piqué A-line Versace coat or a classic Chanel tweed jacket might not make the headline news that fashion houses are seeking for their big spring and fall presentations. But then again, as Versace reflected, "maybe the time of fashion shows as major events is over. This is a time of reality now."

TIME: Fashionably Late

TIME | ADAM SMITH

With its dark furniture, high-tech gadgets and model jet plane, Philip Green's London office feels a lot like the work area of an investment banker or hedge fund manager. On the wall behind his enormous desk, there's even a photograph of Wall Street antihero Gordon Gekko. But on this May morning, a daytime-TV segment flickering on his sleek, flat-screened television betrays his role as a master of an entirely different universe: women's fashion.

Green, the billionaire owner of the Arcadia Group, which controls a clutch of U.K. clothing chains like Miss Selfridge and Wallis, is watching a spot about the latest fashion collection to hit Topshop, the jewel in Arcadia's crown. The much-ballyhooed line inspired by Kate Moss — the supermodel's own wardrobe formed the basis of the designs — went on sale the previous night at the chain's flagship store in London. Basking in the nonstop Moss-fueled coverage, Green can't help but smile: "You couldn't dream for a better start," he says. And on May 9, the hype hopped the Atlantic when Barneys, one of New York City's toniest department stores, opened a boutique selling Moss's striped blazers, skinny jeans and hot pants. After four hours, the boutique sold out; even the mannequins were stripped of their dresses.

Moss's new line is only the latest in Topshop's recent successes among "fast-fashion" retailers, which specialize in almost constantly updating collections of cool clothing at prices so low the clothes are almost disposable. Over the past nine years, Topshop has carved an enviable niche atop this hypercompetitive sector in Britain by appealing to a broader demographic than its competitors, by getting its new designs quickly to market and — in a category where inexpensive too often equals cheap — by emphasizing quality. Topshop's combination of fashion and value has "changed the way we dress," says Lauretta Roberts, editor of Drapers, the British fashion-business bible. That mix has also made it a hit not just with the masses but with celebrities and fashion bigwigs as well. No American fashion editor's trip to the U.K. is complete, for example, without a pilgrimage to Topshop.

The Topshop formula is proving not just popular, but profitable, too. The chain made around $200 million in pretax earnings last year on revenues of approximately $1.14 billion. That's about half the total profits and a third of sales at the privately owned Arcadia Group. It wasn't always this way. As recently as the late 1990s, says Nick Bubb, a retail analyst at Pali International in London, profits were as little as one-tenth last year's haul.

How did Topshop turn it around? By heading (relatively) upscale. Tired of its reputation for tackiness and losing out to budget chains in the '90s, Topshop's managers decided to stop competing just on price. "The decision was made to create a fashion authority," says Mary Homer, a joint managing director of Topshop who's been at the retailer for 20 years. (Green, a retail entrepreneur with years of experience in various types of businesses, acquired Arcadia in 2002, and helped execute the strategy already under way.) The company now employs 22 of its own designers, up from around a dozen in 2002, and they aim to create new looks just as deftly as they copy those from the catwalks.

Getting new fashions into stores even faster than before also became a central part of Topshop's revival. While traditional clothing retailers might take six weeks to get a design to sales floors, Topshop's trucks are delivering new duds to its outlets usually just two weeks after suppliers have received the order. The result: Topshop debuts hundreds of new pieces in its London flagship outlet every week. And if the emphasis on speed and stylishness means Topshop's togs are a bit more expensive, then so be it. That's a premium the chain's customers have come to expect and are willing to pay for. "If we can get it in four weeks in the U.K., we'll buy it at four weeks in the U.K. rather than buying it cheaper" elsewhere over a longer time frame, says Karyn Fenn, Topshop's other joint managing director.

With 300 stores in the U.K and 100 international outlets (all of them franchises) in Asia, Europe and Latin America, Topshop is looking to expand its reach further overseas. "There's no lack of demand," Green says. Even after opening its biggest international store in Stockholm, he says, Scandinavia still holds tremendous potential. But to grow much larger, Topshop will have to make some radical changes. Today, no matter where its smock dresses or miniskirts are stitched together — or where they're destined — everything passes through the U.K. "The existing franchising model and supply chain would not work for significant global expansion and will need to be adapted," Green says. To construct an efficient, decentralized distribution system is a logistics puzzle management is now attempting to solve.

Caution also defines Topshop's approach to the U.S. There's no denying the lure of the American market: while fast fashion accounts for around 12% of the British clothing market, that figure drops to just 1% in the U.S., according to Bain, a consulting firm. Spying massive opportunities, Topshop's European rivals have been quick to pile in. Spain's Zara has two dozen stores in the U.S.; Swedish chain H&M boasts more than 100.

Not Topshop. Though it is content to market individual collections in America — alongside Barneys' agreement to flog the Moss range, Topshop's Unique line already sells in the Opening Ceremony boutique in New York City — it has not yet followed with any stand-alone stores. The track record of British clothing retailers in the U.S. is not particularly auspicious. A number of retailers, including the ubiquitous U.K. chain Next, have retreated after failing to find their feet in the competitive U.S. market.

While it looks into diversifying its supply chain, Topshop's go-slow approach to the American market is especially prudent. And glitzy department stores are an ideal venue to test market the Topshop brand. Moss's 50-piece collection might seem cheap compared to most else Barneys has to offer — prices range from around $24 for a strappy tank top to $300 for a leather jacket — but these days, says Robert Burke, a retail consultant in New York, fashion retail's territorial lines are blurring. "Traditional categories no longer exist, he says, "There's almost a reverse snobbery today: people really like the idea of mixing a variety of price points." In other words, few fashionistas think twice about pairing a $1,000 jacket with a $20 T shirt anymore. Launching Moss's opening collection in Barneys, Burke says, makes "perfect sense."

Even so, opening stand-alone stores in the U.S. is clearly one of Green's ultimate goals. "I'm not going to get enough scale out of Barneys," he says, adding that he set up a series of real estate meetings in the U.S. to coincide with the Barneys launch. But with competitors like H&M and Zara already flourishing in the U.S., is there room for Topshop? "H&M and Zara are hitting the ball out of the park," reckons Howard Davidowitz, chairman of Davidowitz & Associates, a New York-based retail consultancy. But thanks to its broader customer appeal, Davidowitz says, the potential for Topshop "is better than either of these."

Not that there isn't plenty of opportunity to occupy Topshop at home. The company is looking at ways of expanding its brand into new areas in the U.K., too, from confectionery to luggage to footwear. With Topshop stores already selling 35,000 pairs of shoes each week, says Green, "We've got a very good shoe business. Is there a Topshop shoe business in its own right?"

With a brand this strong, it's difficult to see why not. Earlier this month, 21-year-old student Caroline Dickinson joined thousands of shoppers for the launch of Moss's collection in London. She waited in line for four hours to buy a $100 white cotton dress to wear at her university ball. By the time she got inside the store, however, she was told that item wasn't available. Unperturbed, Dickinson emerged a quarter of an hour later and a few hundred dollars lighter with two other dresses and a couple of vests. And she vowed to track down the white frock another day. That is the kind of loyalty any retailer would envy.

FINANCIAL TIMES: From gangsta rappers to classic chic

FINANCIAL TIMES | ELIZABETH RIGBY

Tommy Hilfiger is reclining in a deep sofa in a private room at Claridges Hotel in London trying to weigh up which is his preferred Hilfiger pin-up: Is it Paris Hilton, the poster girl of Hollywood’s brat pack, or Lauren Bush, the archetypal all-American girl?

“You can never control who wears our clothes,” says the immaculately dressed fashion entrepreneur. “But we feel that with our European-influenced approach, the sophisticated and higher level of quality and fashion somehow reaches the type of people who represent the brand very well.”

A decade ago, Mr Hilfiger may have given a very different answer. Back then, the label he launched in 1984 had turned into a mega-brand on the back of celebrity endorsements from edgier stars such as Snoop Dogg, the gangster rapper.

But its success as the favourite and most fashionable label with America’s youth was short-lived.

By the early noughties, through a mix of changing tastes and competition from newer brands such as Abercrombie & Fitch, the business was struggling. Profits fell from $123m in 2001 to $85m in 2005.

The solution was radical: Hilfiger, which had a far more chic image outside of its home market, was taken private in a management buy-out by its European team, led by Fred Gehring, now chief executive, and backed by Apax Partners. The headquarters were moved from New York to Amsterdam and Mr Hilfiger, who remained creative director, dropped streetwear for classic chic.

The positioning of Europe became the positioning for the rest of the world. “Fred started Tommy Hilfiger in Europe 12 years ago, and he positioned the brand on a much higher level,” explains Mr Hilfiger. “He put clothes only into very sophisticated, better specialist stores.”

Turning round an all-American brand from the vantage point of Amsterdam is a novel – and high-risk – idea. But Mr Hilfiger, kitted out in a pristine pin-striped suit, complete with brown suede desert boots, says he had little choice but to turn to the European team.

“Decisions were being made that were not necessarily the best for the business, and it was very frustrating,” he says, looking back. “Tommy Hilfiger was struggling, it was public and decisions were made to do certain things that were not healthy for the business.”

He is about to go on but is cut short by Mr Gehring. “I don’t think you should go into that,” he says.

Mr Gehring says he has “redefined” America over the past three years. “We have shrunk the business and traded it up. We have a position now where there is a significant level of demand and a much lower level of supply.”

The fashion label has signed an exclusive wholesale deal with Macy’s to stock Tommy Hilfiger Sportswear. This is the classic casual line – navy wool jersey dresses paired with riding-style burgundy boots – that Mr Hilfiger showed on the catwalk at the Lincoln Center in New York. It is aimed at 25- to 45-year-old Americans, who have a household income of at least $75,000.

Street wear is over, with the old US “baggy jeans” collection replaced with Europe’s Hilfiger Denim. This line is targeted at 18- to 24-year-olds and competes with the likes of Diesel, Replay and G Star.

It is an “unusual” rebranding exercise, says Robert Burke, founder of Robert Burke Associates, the New York luxury consulting firm. “It is always more difficult to trade up than trade down in any brand. I think that Tommy Hilfiger and his team are repositioning in Europe first because they have a better chance trying that in Europe,” he says.

The next stage is to introduce Tommy Hilfiger stores into the US. Of 550 shops around the world, only six are based in the US. In November, the company plans to open a flagship on Fifth Avenue in New York for conservative, affluent urbanites. It will open up to 10 stores a year for “several years”.

“Our own brand is positioned in a different way [now],” says Mr Hilfiger. “Ten years ago it was positioned with a lot of red, white and blue and a lot of logos and you would look at these street kids wearing the clothes as billboards.”

Now Tommy Hilfiger – as modelled by Ms Bush – represents something very different. “The brand had been known for its streetwear and now it is not as much on people’s radar, which is probably a good thing when they go about repositioning,” says Mr Burke.