When times are tough, retailers focusing on mid-priced clothing are often the hardest hit. For some European apparel and accessories makers, that once-shunned market is proving to be the most resilient.
Companies such as Paris-based The Kooples, whose products are priced between $100 and $1,000, expect sales to rise as much as 50 percent this year even as a worsening economy weighs on retail demand in Europe. That’s about five times faster than both mass market retailers such as Hennes & Mauritz AB (HMB) and luxury brands including Gucci (PP) and Louis Vuitton, which are getting more expensive.
“There’s a big thirst for variety yet variety is mostly offered at very high price points,” said Andrea Ciccoli, founder and managing partner of Milan-based investor Officina. Between mass and luxury, “if you’re better than average, you’re taking market share and there’s a lot of share to be taken.”
Fall-winter sales of brands including A.P.C., The Kooples and Sandro “exploded” at Printemps in Paris, said Tancrede de Lalun, the department store operator’s general merchandise manager. These and other so-called affordable luxury labels are winning clients because they strike the right balance between price, quality and “wow factor,” he said.
To keep the momentum going and gear up for an ambitious store expansion, Kooples has hired New York Cosmos director, actor and former Manchester United soccer star Eric Cantona and his wife, actress Rachida Brakni, to appear in advertising for a new sportswear line.
‘Subdued’ Luxury Demand
The clouds hanging over the European economy are also helping. European shoppers who once bought apparel and accessories from companies like Burberry Group Plc (BRBY) are reining in spending as the threat of recession looms in the region. Local demand in Europe for high-end goods will be “subdued” in 2012, according to Thomas Chauvet, an analyst at Citigroup Inc. Yet, consumers still want original products and these aren’t always available at mass-market price points, said Ciccoli.
“The crisis changed things a bit,” said The Kooples Chief Executive Officer Alexandre Elicha, one of three brothers who founded the men’s and women’s label in 2008. “People really want to think about what they’re going to buy.”
Sales at the maker of 95-euro ($127) Gorilla-print tank tops and 435-euro tuxedo jackets should climb to 150 million euros in the year ending Aug. 31 from 100 million euros, Elicha said. Hennes & Mauritz may report a 2 percent rise in comparable sales and a 10 percent reported gain this year, estimates Bank of America Merrill Lynch analyst Richard Chamberlain. Luxury goods sales may increase 10 percent in 2012, according to CA Cheuvreux’s Thomas Mesmin.
‘Room to Grow’
Investors are taking note. In 2011, LBO France bought a 20 percent stake in The Kooples, which will help the company open as many as 140 outlets this year, including in New York, said Elicha. Half the openings will be under the recently introduced The Kooples Sport banner, he said. The company currently operates some 200 outlets in France, the U.K. and Spain.
L Capital, a private equity fund backed by Groupe Arnault and LVMH Moet Hennessy Louis Vuitton SA (MC), in 2010 bought a stake in Groupe SMCP, which operates Paris-based women’s fashion labels Sandro, Maje and Claudie Pierlot. L Capital’s other ready-to-wear investments include stakes in denim-makers Dondup in Italy and Pepe Jeans in Spain.
The affordable luxury segment is attracting investment because “there’s a lot of room to grow” in developed and emerging markets, said Ciccoli, who expects more acquisitions as brands need capital to fund store expansions.
Looking the Same
Too many mass retailers have sought to differentiate their offers in terms of price and speed to market, which has led to “copycatting,” said Ryan Ross, chief creative officer at London-based consultant Stylus. “Things do really start to look the same,” he said. “It started a number of years ago and in the current economy it’s just got worse.”
H&M, Europe’s second-largest clothing retailer, reported in January a fifth consecutive drop in quarterly profit as the cost of making garments rose and the company stepped up discounting. Euro area retail sales will decline in the first nine months of 2012 as macroeconomic conditions deteriorate in southern Europe, Moody’s predicted Feb. 21.
The luxury market is consolidating into fewer larger groups with strong retail networks and advertising clout, making it harder for small independent companies to grow, said Ciccoli. That’s leaving a lot of space in the middle, which, though crowded, is much less competitive, he said.
To create buzz around its latest fashions, in March the Kooples will introduce a collection co-designed by British singer Pete Doherty. The Kooples’ sportswear line starring Cantona hit shelves this month.
“You need to take risks to create something new so that people see you,” said Elicha, whose parents founded French clothier Comptoir des Cotonniers that Japan’s Fast Retailing Co. acquired in 2006. “If you don’t take risks, you don’t do something different and you stay like the other ones. You stay small.”
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