As an economic downturn continues to push upon its consumer this first quarter of 2008, the sun maybe shining and the birds may be singing, but the business and formal wear industry is preparing themselves for long cold winter. Any possibility of sunshine at all?
Men’s business and formal wear industry today
Special to FashionIndustryToday.com
May 2, 2008
by Eric J. Leech, San Francisco
As an economic downturn continues to push upon its consumer this first quarter of 2008, the sun maybe shining and the birds may be singing, but the business and formal wear industry is preparing themselves for long cold winter. Looking at the poor economy in the US from the consumer’s perspective, it is easy to see exactly why consumers will be cutting back on their fashion expenditures considering the rise in cost of gas, as well as many other staples to living that are at a record high. Real estate is down everywhere, pinning homeowners down with declining home prices, and as job losses continue to escalate through the summer as predicted by economists, the poor prices will force many owners with no other choice but to except foreclosure in order to get out from under their home.
With all the negative effects of the economy affecting consumers and their spending practices, we turn to a few 2008 first quarter reports by the industry leaders of men’s business and formal wear, such as Men’s Warehouse, Perry Ellis, and Calvin Klein, and ask the question, are they suffering equally?
Men’s Warehouse, who has been in business for 35 years, is predicting a very weak economic environment in men’s business and formal wear according to their Chairman of the Board and CEO, George A. Zimmer. They are also saying that while many economic slumps in the past were short lived, they are agreeing with the economics experts who are claiming the current downturn will most likely last for the long, rather than short term.
They pointed out during their recent 2008 Quarter End February2, 2008 Earnings Call, from past experience during such times, it is usually the men who are the first to cut spending of apparel. It is also the men who will continue to reduce spending for the longest period of time until a positive economic status is returned. With men being the most significant consumer in this market, sale volume is indeed a concern, but The Men’s Warehouse is confident that rented formal wear should continue to produce positive sales throughout the years slump.
In the past, Men’s Warehouse’s tailored business wear produced the most profits during their most difficult economic conditions. This year however they are predicting it will be rented tuxedos and their main consumer for this niche will be among the 18 to 34 age demographic. Tailored business wear is something that many men can wait on or “live without”. When it comes to life’s events that involve rented formal wear, “the show must go on” as they say.
This includes such yearly events as weddings, adult proms, galas, award ceremonies, charities, celebratory events, and various other business functions. These are a few of the areas that they are expecting less impact over economics. They do however have a plan to compensate for the expected lull is tailored business wear, and it once again involves focusing on the age demographic of 18 to 34, of whom has not been their traditional consumers for the most part.
Men’s Warehouse is planning on focusing on the younger demographic consumer by bringing two new designers aboard their primary rental lineup. These designers will offer the cutting edge trends of today that will draw these younger consumers to their product line. They are also planning on using a new advertising campaign that will feature young, hip, and striking men as their spokesmodels. Their hope is that while many traditional men will reduce their spending this next year, the younger, fashion-conscious consumer should continue to shop the newest fashions so as to stay up of the latest trends. The younger consumer cares about their image and is willing to pay to maintain it during most any economic situation. Men’s Warehouse will be attempting to reach this focal demographic this year through a variety of means beyond edgy advertising in magazine and on television.
For the start of the new year Men’s Warehouse has focused on participating in over 500 bridal shows, which has allowed them to be introduced directly into their target demographic with what they consider to be their product with the greatest sale volume potential for this year tuxedo and wedding rentals. During this time when they would normally cut back on spending, they are planning on boosting their marketing efforts with an even greater amount of money than normal in hopes this new niche of consumer will increase sales by 2009.
This means increased spending on the short order, but increased profits for the long. The young and trendy consumer holds the key to Men’s Warehouse eventual catch up of lost sale volume as they see it, because they will hopefully “fill-in” where the traditional customer has been tapering off. In effect, they are adding a strong consumer whose spending patterns should be less affected by today’s economics as the male 35 and over demographic. This should also prove helpful in the industry cycles to come.
While the initial effect of today’s poor economy has not been particularly favorable to Men’s Warehouse, who reported dwindling 2007 sale volumes as compared to 2006. Traditionally tux rental sales have always been slow during the last and first quarter and picked up speed during the second and third. Men’s Warehouse appears to be experiences a loss beyond what is typical however, but this has not necessarily been the case for the entire industry.
Perry Ellis and Calvin Klein apparel have had a fantastic year according to 2008 first quarter earnings. Perry Ellis boosted profits from last year’s $807,616 million to this year’s $838,465 million. Much of their success has been deemed by their popularity with the in-fashion 18 to 34 age group, who as we mentioned before, tend to purchase during both good and bad economic times. To some men, style and fashion knows no economic boundaries. Perry Ellis has predicted 2008 to be another great year of continuing increased profits throughout the next three quarters on up to the start of 2009.
Calvin Klein (Phillips-Van Heusen) is another example of trendy men’s business wear overcoming profit loss during the past years economic slump and reporting increased earnings for the fiscal year 2007. They are confident in the coming year producing another 4% to 6% of increased revenue. Emanuel Chirico, Chairman and CEO of Phillips-Van Heusen, boasts a $270 million balance sheet this first quarter of 2008, so while competition will be fierce due to a ramp up of trendy fashion designers, the most well-known brands should continue to stay on top of the more newer introduced brands, at least for this coming year. Their overconfidence could however bite them the proceeding year if companies like Men’s Warehouse are able to aggressively market themselves as the newest trend for 2008 and are able to steal some of the thunder away from the traditional high fashion brands that are relying on consumer patronage.
Against the reports of Men’s Warehouse warning of slow economic times for the business and formal wear industry, the NPD Group (National Research Company) recently posted a 4% increase in volume sales for men’s attire in general, from $54,819,040 to $57,212,450. The basis for much of this growth was traced back to the dressier, tailored lines of attire (suits and sport coats), which were found to have leaped in sales 7% overall. Currently, the most popular form of tailored business and formal wear according to the NPD Group are separates, which allow the consumer to mix and match various pants and jackets. Beyond the 7% increase in volume of sales for business and formal attire for men, separates were found to make-up an incredible 35% of the volume sales for that entire category. One reason for current trend in separates is the ability for the consumer to create their own image by mixing various styles, but more importantly, it allows the consumer to choose separate items off the rack that fit, therefore reducing the need for custom tailoring in some cases.
One alarming difference that the NPD Group found that contradicts The Men’s Warehouse predictions during poor economics, is that men are currently out buying women when it comes to fashion, which includes the business and formal segment. If you remember, The Men’s Warehouse claimed that men were usually the first to reduce spending on fashion during economic slowdown, but the U.S. Apparel Market from 2007 shows a different story. Looking at the volume sale increase from 2006 to 2007, women were the ones who backed off of purchasing, only increasing their purchases by 1% throughout the entire year, while men and children averaged a 5% increase.
The main concern here, is that if women are not brought back into the mix, a chain reaction could occur, sending the entire apparel market into the red with low volume sales for all of women, men, and children business and formal wear The idea on how to accomplish this is to offer woman an assortment of exciting styles and trends to get them back into the buying mood. This follows the same advice for how to bring the men back into the business and formal apparel store by using the new and exciting designs of fresh-faced designers.
The next three years forecast for the men’s business and formal wear industry will be very tricky to predict according to many experts. With the election coming up and gas prices souring, it is hard to know when the current economic slowdown will subside and an up-cycle to begin, but it is unlikely that it will be before the years end according to University of Michigan economists.
The word “recession” has been thrown around as of lately, but most refuse to admit that we are either headed or already in one. The good news is according to these economists, the second quarter of this year should see small growth in sales as tax rebate checks reach the hands of consumers. The beginning of 2009 should see the price of oil settle, along with inflation, which should find itself around 2.5% and continue there through to 2010. The job market should see some growth, which will boost spending from its current 1% to around 2%.
The more important question should be if the small players in the industry can sustain themselves long enough for their brands to continue to exist after the economy recovers. With this said, the established industry leaders will probably enjoy a very modest increase in sales volume of business wear as long as they can reach the younger generation with their new and trendy fashions. Formal wear should remain at a low, but stable overall increase in sales as we begin 2009 on up through 2010. While traditional suits will probably not be a big seller for the next three years.
As the US economic situation improves, we should see a substantial boost in sale volumes once men who have waiting for a stronger economy head back into the stores to replace their aging wardrobe with some of the newer trends that we will begin to see releases throughout the next three quarters of 2008.[]
Eric J. Leech is a business writer at FashionIndustryToday.com.