BLOOMBERG: Neiman Marcus to Macy's Trend into China as far as Web: Retail

BLOOMBERG | COTTEN TIMBERLAKE

As Neiman Marcus Group Inc. prepares to start selling its wares in China, the U.S. luxury retailer isn’t opening stores. It’s setting up shop on the Web.

Neiman Marcus, Macy’s Inc. and Milly, the women’s clothier, are all tiptoeing into China -- striking partnerships with local Web entrepreneurs because opening stores there is expensive and complicated.

The moves coincide with slowing economic growth in China that has prompted shoppers there to pull back. Still, Neiman Marcus is making a long-term bet on the world’s most populous consumer market, Chief Executive Officer Karen Katz said in an interview.

“We believe the Chinese economy, like every economy, is going to have ups and downs,” Katz said. “We know that long-term the potential of the luxury consumer is tremendous. There is still quite a big opportunity there.”

Even with the slowdown, online sales will triple to more than $360 billion by 2015, predicts Boston Consulting Group. The number of Internet users will grow to 700 million from 500 million, it said. China’s luxury market will grow by as much as 22 percent this year, by far the fastest rate of any region, according to Bain & Co., also a consulting company.

The deals with local companies mean Macy’s and Neiman Marcus can learn more about Chinese shoppers’ buying habits before deciding whether and how to scale up. The strategy is also cost effective. Macy’s is spending about $15 million on its China Web venture; by contrast it is lavishing $400 million on a renovation of its New York flagship store.

Spending Appetite

“It’s a very clever way of dipping their toe in the water,” said ROBERT BURKE, whose namesake consulting firm is based in New York. “What’s driving it is the sheer numbers. The number of consumers and their appetite to spend is going to be highly attractive to retailers and brands.”

In its first international foray, Neiman Marcus, owned by Warburg Pincus LLC and TPG Capital, is developing a new namesake e-commerce website with a Hong Kong-based partner. Neiman Marcus plans to start the site in China with Glamour Sales Holding before the Chinese New Year in January, CEO Katz said. The Dallas-based retailer has invested $28 million in the closely held Chinese company. Macy’s, the second-largest U.S. department-store chain, will begin selling an assortment of its moderately priced I.N.C. apparel on www.omei.com next spring. It made a $15 million equity investment in the parent VIPStore Co.

Learn First

“International expansion is of long-term interest to us,” Jim Sluzewski, a spokesman for Cincinnati-based Macy’s, said in an e-mail. “But we want to learn as much as we can before making substantive decisions about the future.”

Shangpin.com, a website that says it sells authorized, current-season international designer and contemporary goods at full price, debuted this month. Milly and Tracy Reese, whose fashions are worn by Michelle Obama, are among 80 brands selling their goods through the site, whose Mandarin name means “fashion” and “quality.”

Sensing opportunity, private-equity firms are investing in Chinese e-commerce. Shangpin has attracted $60 million in capital from international investors including Walt Disney Co.- backed Steamboat Ventures. Warburg Pincus and KPCB China invested $120 million in fashion e-tailer www.xiu.com last year.

These Web-only ventures face several barriers. Brand recognition remains low in China, while shoppers prefer to see the actual products and are leery of receiving counterfeit goods, Burke said. They also are reluctant to spend large sums online, said Claire Chung, a vice president for global business development for Shangpin. The country’s average online transaction size is the equivalent of $31, she said.

Educate Consumer

“We are going to have a lot of work to do to educate the consumer about Neiman Marcus,” said Katz, 55. “What is important is this message of history, heritage and authenticity because they don’t know our brand.”

To that end, the Neiman Marcus site will work to be a kind of personal shopping guide.

Milly NY CEO Andy Oshrin said he had been reluctant to enter the Chinese market before he found the right partner in Shangpin. The e-commerce approach is a better alternative to building the Milly brand in China himself with expensive stores and marketing, he said. Online sales of Milly’s colorful, print dresses already tend to outperform those in stores, he said.

“It was a way to enter China strategically,” Oshrin said.

China has its own tastes and quirks. Shoppers prefer washable clothing because dry cleaning is less available, said Winnie Foon, a Shangpin vice president for global merchandising.

Mix Match

There is greater demand for medium sizes in the northern part of the country, and for small and extra-small in the south. Chinese women love dresses because they don’t require the mixing and matching skills that separate skirts, blouses and slacks do. They traditionally have worn fine jewelry, and are just discovering how to wear fashion jewelry, Foon said.

Www.neimanmarcus.cn will offer full-price, current-season fashions specifically pitched to the Chinese luxury customer by a Shanghai-based chief merchant, Katz said. Because Chinese men are avid luxury consumers, Neiman Marcus’s Chinese Web store will carry a larger assortment of men’s merchandise than the U.S. site. Ditto for shoes and handbags.

While Chinese consumers have been interested in merchandise from well-known brands with logos, they’re learning to be more sophisticated, more “in-the-know,” Katz said.

“That shift really plays into where our strengths are,” she said. “We are great editors of product.”

Free Shipping

Shangpin, which is hiring stylists who can provide fashion advice on the phone, is offering free shipping within two days. In major locations, a courier will wait for the customer to try on the items and will take them back if they don’t suit.

“We now have a new generation of Chinese women, of professional women,” Foon said. They are “looking for clothes for the office, for the weekend.”

Designer labels Jimmy Choo, Alexander McQueen and Brunello Cucinelli have signed on to the Neiman Marcus site. They’ll ship their merchandise directly to a warehouse in Shanghai, which will then distribute it to the online customer, Katz said.

It will be difficult for Chinese e-commerce ventures to replicate the customer service that American online shoppers enjoy, including quick delivery to remote locations, and easy returns, said Michael Appel, a director at AlixPartners LLP, a consulting company in New York.

“There is the whole logistical issue,” Appel said.

“China is a very big place.”

Still, the Web ventures may benefit from the cooling economy, Appel said. Shoppers who’ve developed a taste for luxury goods may be less likely to go on shopping sprees to foreign or Chinese cities and will shop online instead, he said.

BLOOMBERG: Macy’s Leads Industrywide Shoe Expansion on 50% Margins

BLOOMBERG | COTTEN TIMBERLAKE

Macy’s Inc. (M) is opening what it calls the world’s largest women’s shoe department at its New York flagship store beginning this month. Barneys New York Inc. just opened a unisex shoe floor, and Saks Inc. (SKS) is expanding its 10022-SHOE concept at its main store and rolling it out to more branches.

Retailers are expanding and enhancing their shoe departments because the footwear business has become so lucrative, with sales per square foot and profit margins that top other categories.

A new generation of designers such as Tabitha Simmons is driving demand, following predecessors including Christian Louboutin, who made designing shoes cool, said Saks President Ronald Frasch. High fashion is coming into ladies’ shoes at prices as low as $100, and the most extreme designs are being adapted for mass consumption by reducing heels to 2 1/2-inches from 5 inches, said Deborah Rudinsky, a footwear-market analyst for Doneger Group, a New York-based trend forecasting firm.

“The shoe can take the center stage and lead the outfit,” said Robert Burke, founder of a namesake luxury-goods consulting firm in New York. “The interest level has continued to grow. I would say it is here to stay.”

The trend was born in the late 1990s and early 2000s, whenHBO’s “Sex and the City” made designers Louboutin, Manolo Blahnik and Jimmy Choo household names. Blahnik’s open-toed Sedaraby d’Orsay pumps and the red soles on Louboutin’s covered platform shoes became icons beyond the New York fashion world.

Recognizable Details

“It became visually apparent from 50 feet that someone was wearing Louboutin,” Burke said in a telephone interview. “It was a detail recognizable not just to the fashionistas, but the husband of the fashionista and the general public.”

Designers Roger Vivier, Walter Steiger and Giuseppe Zanotti helped stretch notions of how to marry form and function, paving the way for new designer names, including Simmons, Alexandre Birman and Nicholas Kirkwood. Jeffrey Campbell and Sam Edelman, who sell fashion shoes at $100 to $200, have helped make the trend more affordable.

Sales of women’s fashion footwear grew 1.1 percent to $21.9 billion in the 12 months ended in June, according to Port Washington, New York-based market research firm NPD Group Inc. While that lags behind the recent growth rates of 4.2 percent for apparel and 7 percent for handbags and luggage, shoes perform well in terms of store productivity and profitability.

“There is no question that shoes are the most productive in terms of sales per square foot,” Muriel Gonzalez, a Macy’s executive vice president, said in an interview, while declining to provide figures. The Saks flagship’s shoe floor in New York is surpassed in productivity only by the main floor, Frasch said in a telephone interview.

Shoe Margins

Shoes and handbags have gross margins as wide as 50 percent at luxury department stores, while women’s apparel has a maximum of 45 percent, according to Kurt Salmon, a New York-based retail consulting firm.

Improving the chains’ profitability through shoe sales may boost their shares’ relative values. Macy’s shares trade at a 40 percent discount to the 32-company Standard & Poor’s 500 Retailing Index on a price-to-earnings basis, according to data compiled by Bloomberg. Saks’s premium to the index has shrunk to 32 percent from this year’s high of 72 percent in January.

The retailers are pulling out the stops to make the shoe shopping experience what Frasch calls more “emotional.”

Macy’s is adding a Champagne and chocolate bar in the shoe department at its Herald Square flagship and is hiring runners to bring shoes to sales associates wielding handheld devices. Saks is adding a camera that will be pointed at shoppers’ shoes and display the images on a screen. Barneys New York has added more obscure designers who appeal to shoe fetishists.

300,000 Pairs

Macy’s 63,000 square-foot selling and stock space on the store’s second floor will carry 300,000 pairs of shoes, feature a designer shoe salon, bigger shop-in-shops for brands such as Coach and Michael Kors and include shoe closets inspired by New York neighborhoods such as the Upper East Side and SoHo. Women’s shoes had commanded 54,000 square feet on the fourth and fifth floors.

“We see a high degree of passion among our customers for shoes,” said the Cincinnati-based chain’s Gonzalez. “We wanted an opportunity to pull it all together in one cohesive statement.”

Saks, based in New York, is adding 7,000 square feet of selling space to its Fifth Avenue flagship’s 8th floor women’s shoe area and has created such 10022-SHOE departments at 11 of its stores with a plan to expand that to 15.

Women’s shoes accounted for 12 percent of Saks’s sales last year, compared with a combined 8.5 percent for men’s and women’s footwear in 2006, the year before the retailer opened its first 10022-SHOE department, named after the special New York zip code Saks obtained for it.

Barneys Department

Barneys New York in mid-July opened its new combined 22,000 square-foot, fifth-floor designer shoe department, adding 350 styles and increasing women’s space by almost 60 percent and men’s by almost 40 percent.

Shoes are less prone to markdowns because footwear is increasingly season-less -- women now even wear boots in the summer -- and ageless, with styles appealing to teenagers and older customers alike, Rudinsky said. Shoes also are easier to fit than clothes and can be worn more often.

Shoes are so prominent now that women increasingly are buying outfits to go with their shoes, rather than vice versa, Frasch said. Fashionistas, for example, have been pairing neutral clothes with currently popular neon shoes.

Designers are expressing themselves with bows and other embellishments, animal faces, signature heels, exotic skins and unusual combinations of materials, Burke said.

“It’s not just the stores that are a lot more open- minded,” said Simmons, the 39-year-old New York-based, U.K.- born designer whose shoes are known for corset-inspired lace-up backs. “The consumer wants to try new things.”

BLOOMBERG: Vuitton’s $1,560 ‘Bebe’ Puts Brakes on Big Bags

BLOOMBERG | COTTEN TIMBERLAKE

After several years of hauling around back-achingly large bags, women are getting some relief. Small bags are back in style.

“The fashion consumer doesn’t want to look like she’s lugging around her entire office anymore,” said Robert Burke, who runs an eponymous New York luxury consulting firm. “There is a desire to look more carefree.”

The trend parallels a general shift toward more ladylike fashion, and may help generate additional sales in the U.S. handbag market, which grew 10 percent to about $10.3 billion in the year ending in June, according to Coach Inc. (COH) Luxury sales will rise 7.5 percent this holiday season, faster than the 6.7 percent increase a year earlier, according to the International Council of Shopping Centers.

Saks Inc. (SKS) Chief Executive Officer Steve Sadove is sufficiently bullish on bags to put more on shelves this fall, and is sticking to his forecast of a same-store sales increase of as much as 9 percent in the second half of 2011. Coach sees small and crossbody bags as a “significant opportunity.”

Fashion houses including Prada, Dior and Gucci ran ads touting smaller bags in Vogue’s September issue. Louis Vuitton’s Fifth Avenue flagship this month displayed a top-handled $1,560 “Lockit BB” -- for “Bebe” -- which at 9.4 inches (24 centimeters) is more than a third smaller than the iconic Lockit.

At New York Fashion Week this month, Ken Downing, fashion director of Dallas-based luxury retailer Neiman Marcus Group Inc., spotted plenty of medium-sized, rectangular, hand-held purses, many accented with the neon colors that dominated the spring 2012 collections.

‘Polished Looks’

That shape goes well with the current “polished looks” that are a nod to the “Mad Men” TV series and the 1950s and 1960s, he said.

Lisa Pak, who co-owns a Tribeca boutique, carried a boxy, 8-inch, yellow patent leather Louis Vuitton shoulder bag to the Vera Wang show -- leaving her oversized bags at home.

“I wanted to wear something special,” said Pak, 45. “This is all I need.”

The return of smaller bags may put limits on an oversize trend that began about 10 years ago and by the mid-aughts had “hit the major leagues,” says Roseanne Morrison, fashion director of Doneger Group, a New York fashion trend forecaster. Women liked big bags in part because they could stuff in everything from their laptops to extra shoes.

They also found pleasing the contrast of a big bag with skinny jeans, Morrison says. “It” bags included the 15-inch “Giant” Balenciaga City, priced at $1,945, and the Fendi Spy, a $2,250 17-inch bag.

Like a Boulder

Over time, however, the bags began to, ahem, weigh on their owners. On fashion blogs women complained that the bags had become so large and heavy that it was like carrying around a boulder. The gripes have prompted handbag wholesaler Rioni to defend big bags; a post this month was illustrated with a perspiring, quivering cartoon figure trying to lift a barbell.

Designer Rebecca Minkoff, who once sold a leather tote that weighed 2 pounds (0.9 kilograms) empty, says just half of her bags are large, compared with about two-thirds before. She defines a large bag as one whose width or height is 2 feet (0.6 meters) or more.

Smaller bags are easier to carry and look better with “statement” high heels than do oversized bags, which make wearers lean over and “waddle,” she says. Minkoff’s bags are also more affordable -- $195 to $295 compared with $495 -- and are selling briskly, she says.

Good for Business

Small doesn’t always equal cheap. Louis Vuitton’s 13.8-inch “petit modele” version of the Lockit, in anthracite crocodile with a chained handcuff, sells for $14,760.

The advent of smaller bags “will be good for business because it shows a new handbag shape and proportion that the consumer doesn’t have in her closet today,” said consultant Burke. “It gives the consumer something new to buy.”

Big bags won’t disappear, of course. Women still need totes to haul around their iPads and other gear, which means retailers will gain two sales instead of one, Burke says.

Nordstrom Inc. (JWN), the Seattle-based retailer, has a solution: a matching envelope clutch and a tote in red and black leather with leopard-print calf hair, at $128 and $248, respectively.

BLOOMBERG: At Fashion Week Hemlines Are Up and Down, Just Like Markets

BLOOMBERG | KATYA KAZAKINA

It used to be so simple at fashion shows. When stocks were soaring, skirts rose with them to mini length. When the markets headed down, hemlines dropped to more modest levels.

This year, it’s not so straightforward. Three days into New York’s Mercedes-Benz Fashion Week, luxury retail consultant Robert Burke was scratching his head trying to find anycorrelation between the runway’s different styles and the economy.

“Hemlines are all over the place, very much like the stock market,” Burke, president of Robert Burke Associates in New York, said in an interview.

In the past month, the Standard & Poor’s 500 Index dropped from 1121.06 on Aug. 10 to 1047.22 on Aug. 26, climbing back to 1109.55 on Sept. 10 for its biggest two-week gain since June. The 97 designers presenting Spring 2011 collections this week feature similar ups and downs -- with everything from micro-mini skirts to floor-swooping maxi pieces made with transparent organza and chiffon.

“We are living in a universe where there’s no hemline edict,”Fern Mallis, a fashion industry consultant, said in an interview. “The old adage doesn’t apply any longer.”

Mallis was referring to a maxim known as the “hemline index,” a 1920s theory attributed to the economist George Taylor that suggested a correlation between hemlines and economic growth.

This time around, BCBG Max Azria had some dresses so short that they could have passed for tunics, and others that reached the ankle, clinging to the models’ long-limbed bodies like fancy nightgowns. Meanwhile, designer Prabal Gurungdropped his hemlines below the knee and, on occasion, even below mid-calf.

Higher Hems

In the 20th century, dresses crept up for the first time around 1915, during World War I, said Daniel James Cole, a fashion historian. Around the same time, the U.S. economy expanded for 44 months, starting in December 1914, according to theNational Bureau of Economic Research.

“The hem went up to mid-calf,” said Cole, a professor at the Fashion Institute of Technology in New York. “That was radical, because the hemline of the 19th century was to the shoe.”

The prosperous “roaring twenties” saw the emergence of flappers, who provoked anger by bobbing their hair, smoking in public and wearing knee-length dresses.

The stock market’s crash of 1929 was a defining moment for the economy and skirt heights, Cole said. Both plummeted, with hemlines below mid-calf. The S&P Index dropped 86 percent from Sept. 6, 1929, through July 8, 1932, according to data compiled by Bloomberg News.

Knee-Length

A decade later, on the eve of the World War II, the U.S. economy entered an 80-month expansion which lasted through February 1945, according to the National Bureau of Economic Research. During this time, knee-length skirts became ubiquitous, though the trend “had more to do with conserving fabric for the war effort than with the economy,” Cole said.

As a reaction against wartime’s austerity and fabric rations,Christian Dior’s first fashion collection in 1947 offered luxurious silhouettes with full skirts reaching below mid-calf.

“The hemlines dropped by 10 inches,” said Cole. The S&P fell 28 percent between May 29, 1946, and May 19, 1947.

During the 1960s, the U.S. economy grew for 106 months, making it the second-longest expansion between 1857 and today, according to the National Bureau of Economic Research. Hemlines reached their highest.

Twiggy Miniskirts

By 1966, miniskirts became a must in women’s wardrobes. British designer Mary Quant and teenage model Twiggy helped popularize the style.

“In 1966, you had to wear a skirt that was at the knee or higher, or you’d look ruefully out of fashion,” Cole said.

With the S&P dropping 36 percent from Nov. 29, 1968, to May 26, 1970, hemlines moved back to modesty. On March 13, 1970, Life magazine addressed the style transition with a cover story, “The Great Hemline Hassle.” On Aug. 21, 1970, the publication announced, “The Midi Muscles In.”

A clear correlation started breaking down during the 1980s, with designers offering a greater range of styles and lengths.

“It used to be that short was in and long was out. If you wore long, you’d be embarrassed,” Marshal Cohen, chief industry analyst at NPD Group, Inc. in Port Washington, New York, said in an interview. “Now you can wear long, you can wear short. You can wear your pajamas to work and no one would care.”

Maxi Return

Yet, even now an occasional correlation can be spotted, Cole said. Last summer, after the S&P fell 57 percent between October 2007 and March 2009, he noticed floor-length sleeveless dresses appearing on the streets of New York.

“There’s a whole generation of young women who’ve never worn a maxi skirt in their lives,” he said.

For her Friday show, Nicole Miller abandoned her signature figure-hugging dresses in favor of a flowing, layered look that incorporated several hemlines within a single outfit.

“I was just trying to move away from the tight and short,” said Miller, in an interview after the presentation. “There’s no subliminal message there.”

The Guli collection designed by Gulnara Karimova, a daughter of the President of Uzbekistan Islam Karimov, included ethnic Uzbek fabrics, patterns and embellishments applied to floor-length dresses. Toward the end of the event, a group of models strutted out in traditional striped Uzbek robes. Untraditionally, the robes were untied, revealing bodices -- and no skirts at all.