January 19, 2009

(BN) Ferragamo to Cut Store Openings by Half as Recession Hurts Luxury Demand

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Ferragamo to Cut Store Openings as Crisis Hurts Luxury Demand

Jan. 19 (Bloomberg) -- Salvatore Ferragamo SpA, whose shoes have been worn by Greta Garbo and Marilyn Monroe, plans to reduce store openings by half this year as the global recession hurts demand for luxury goods.

The company plans to open about 20 stores this year, compared with about 45 in 2008, Chief Executive Officer Michele Norsa said in an interview. As recently as September, Norsa said he planned to keep store growth for the Florence, Italy-based company at the same level as last year.

Luxury-goods makers are cutting costs to protect profitability, with LVMH Moet Hennessy Louis Vuitton SA canceling a planned flagship Tokyo store and Bulgari SpA halting all store openings beyond the 12 planned for this year. Sales for the 175 billion euro ($234 billion) luxury goods industry may slide between 3 percent and 7 percent this year, excluding currency movements, consulting firm Bain & Co. estimated in October.

"It's important to keep developing our own retail because directly owned stores have performed better in the crisis than wholesale, with department stores among the worst hit," Norsa said before Ferragamo's men's wear show in Milan yesterday.

Ferragamo plans to keep prices stable this year except in Japan, where Norsa said he plans to cut prices between 5 percent and 10 percent to stimulate demand.

Seven or eight outlets will be opened in China, while stores are also planned in Valencia, Spain, and in London's Westfield shopping center, he said, without elaborating on other planned locations for new stores.

Mall Delays

Norsa said store openings would also be slower this year because of delays in shopping-mall developments in places including Las Vegas and Macau. Billionaire Sheldon Adelson's Las Vegas Sands Corp. has halted construction worth about $12 billion in Macau.

Consumer demand has been weakened by the financial crisis, which has seen banks and insurers rack up $1 trillion in credit losses and writedowns since the start of last year.

In the U.S., retailers' holiday sales dropped 2.2 percent, the most in at least 40 years, the International Council of Shopping Centers said this month.

Ferragamo's 2008 sales will be higher than the 687.4 million euros posted in 2007, Norsa said, citing preliminary figures. The label founded in 1927 had "better-than-expected" sales in December after selling more goods at discounted prices, Norsa said.

U.S. Sales

Higher sales in Europe and Asia compensated for a weakening U.S. market last month, Norsa added. Overall sales in the first two weeks of January are slightly higher than in the previous year, he said, while declining to provide specific figures.

Footwear, which still represents about 40 percent of sales even after Ferragamo expanded into clothes, perfumes and accessories, is selling well, Norsa said.

Watches, introduced last year under a license with Timex Group, are also performing well, particularly styles priced at around 1,200 euros, Norsa added.

Ferragamo's initial public offering, which had been expected in 2008, "depends on the market," Norsa said.

Ferragamo has appointed JPMorgan Chase & Co. and Mediobanca SpA to arrange its IPO when markets improve. The shoemaker is still owned by the widow of founder Salvatore Ferragamo and other family members.

To contact the reporters on this story: Sara Gay Forden in Milan at sforden@bloomberg.net

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(BN) Madonna, Dior Lacemakers Wither as Recession Hammers 184-Year-Old Industry

Bloomberg News, sent from my iPhone.

Madonna, Dior Lacemakers Slump as Recession Slows Weaving Mills

Jan. 19 (Bloomberg) -- Weaving mills are slowing in Caudry, a northern French town whose workers have been spinning fine lace for Chanel, Valentino, Dior and their high-fashion predecessors since 1825.

"I'm worried," said Laurent Sautiere, a 35-year-old worker with lacemaker Solstiss as he knelt before a clattering 10-ton Leavers lace-making machine, cranking a steel wheel to halt the spinning. "There's less and less work."

Caudry is home to 10 lacemakers, including two of the world's biggest weavers for haute couture. Together with nearby Calais, the town has 80 percent of the 100 million-euro ($139 million) global market for luxury lace. The factories' fabric adorned Hillary Clinton's gown at the 1993 presidential inauguration and dresses worn by Nicole Kidman and Madonna.

As the recession bites, the lacemakers, who've dominated the market with their Leavers machines, are scaling back production for the first time in three decades and cutting jobs. They risk losing further ground as Asian manufacturers acquire the machines and master the savoir faire.

About 13 percent of the 800 lace-making jobs in Caudry, a town of 14,000 people, disappeared in 2008 and more will go this year, said Edith Mery, head of an organization representing French Leavers lacemakers. Noyon, a Calais lacemaker, filed for bankruptcy in November and plans to cut a third of its 438 jobs.

The worldwide luxury goods market faces its first recession in six years in 2009, an October study by Bain & Co. said.

Lace Capitals

Calais and Caudry became lace centers in the 19th century, when Leavers machines were smuggled into France from Britain. The lacemakers survived two World Wars, Pope John XXIII's abolition of mantillas in churches in the 1960s, the fashion of unadorned dresses inspired by pop art in the 1970s, and imports of cheaper lace from China and Thailand.

While demand has shrunk, companies such as Dior say they will still turn to French suppliers.

"We continue to buy only French lace because its quality is the best," said Chloe Bourgignon, an assistant to lingerie designers at Dior in Paris.

That's little comfort to Sophie Hallette, Caudry's biggest lacemaker, which will report a loss for 2008 and this year, Chairman Bruno Lescroart said.

Solstiss, which unites four Caudry lace-making families, may break even this year after a 30 percent revenue drop in 2008, said Herve Protais, its sales director. The two combined have a more than 50 percent share of fine-lace market.


Solstiss charges about 30 euros a square meter for its best-selling, off-the-shelf 447-200 lace, called "volute," which featured on translucent Dior gowns this winter. Prices go up to 3,000 euros a square meter when designers want something new created. As demand falls, prices are sliding, Protais said.

"My plan for 2009? Survive," said Christophe Machu, Solstiss's president, watching a worker insert 300 nylon threads into coils at his grandfather's plant in Bethencourt, on the outskirts of Caudry. "Eighty-five percent of my cost is labor. I will be forced to adjust."

Caudry, where lacemakers are the biggest employers in the town, is seeking government help for the first time.

"This industry is part of the national heritage," Guy Bricout, its mayor said. "The state could help a little."

The Industry Ministry said it has no plan to support lacemakers.

More Competition

Mery said the failure of even one manufacturer would be "devastating."

"The machines could be acquired by a foreign competitor," she said. "Skilled labor, key to the handling of the machines, may be lost for good."

The lacemakers work with designers including Alexander McQueen and Jean-Paul Gaultier on creations. For the past three decades, the strategy supported exports of 80 percent of production.

Lacemakers in high-volume segments like lingerie, including Noyon, have been hit by competition from China and Thailand, Mery said. That risk may spread to the luxury ready-to-wear industry as low-cost countries acquire more of the limited supply of Leavers and as Asian workers master the machines, she said.

In 1984, equipment makers stopped manufacturing Leavers, whose mechanism was invented in 1804 by British engineer John Heathcoat and still make the world's finest lace.

About 700 of the machines are in service, 80 percent of them in Caudry and Calais. French lace families systematically buy Leavers machines that go up for sale, keeping their competitive advantage at home.

Aging Workers

Foreign competitors such as Hyogo, Japan-based Sakae Lace Co., with plants in China and Thailand, have acquired some.

"Sakae is upgrading its collection and is now making beautiful things," Mery said.

The possible liquidation of Noyon and the sale of its 60 Leavers machines are worrying because local lace families may not be able to buy all of them, Mery said.

Meanwhile, workers like Sautiere, who has been with Solstiss for 14 years, worry they may be let go.

"Already five workers have been laid off," he said, sliding fingers blackened by carbon dust over white spirals on his machine. "And from what I know, the beginning of the year doesn't look good."

To contact the reporter on this story: Anne-Sylvaine Chassany in Paris achassany@bloomberg.net

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