Investors dress down publicly held fashion houses

From Susan Lisovicz
CNN Financial News Correspondent

February 10, 2000
Web posted at: 2:46 p.m. EST (1946 GMT)

NEW YORK (CNN) -- The models stride, the designers strut, the fashions sizzle. All is flash and dazzle this week along 6th Avenue, where fashion houses are previewing their fall/winter 2000 collections.

But all is not so flush a few blocks away on Wall Street, where some fashion houses' stocks' performance is more dismal than dazzling.

Donna Karan stock has been down since spring, although it's still up for the year. Ralph Lauren stock is languishing, off more than 20 percent. And Tommy Hilfiger stock has tumbled 63 percent. Together, that represents $4 billion in lost value in a bull market.

Walter Loeb, a retail consultant for Loeb & Associates, says the stocks' lackluster performance underscores a cash-hard reality: What plays well on the runways may falter on the financial stage.

"I don't think designer houses should be public because a designer will run hot and cold from time to time," he says. "Sometimes they have a tremendous season -- and maybe several tremendous seasons -- and then they will not have another inspiration for several quarters or years."

Other factors are working against the fashion houses, analysts say. Consumers now are pouring money into their homes and spending less on upscale apparel. Department stores are knocking off designer clothes with their own private labels. And retail stocks in general often slump when interest rates rise, as has happened recently.

Fashion houses that go public also are under pressure to meet Wall Street's growth expectations. That can mean rapid expansion -- and, in some cases, big woes.

"They're just dealing with the problems ... of getting very big very fast," says Jane Ozzard, deputy editor of Women's Wear Daily. "It's just a matter of tinkering with the structure of the company, making sure that their inventories aren't too big, making sure that they don't have too many stores (or) too many personnel."

Leslie McCall retail analyst

Analysts say the apparel industry is already overpopulated -- too many stores, not enough buyers -- which is why designers looking for growth are trying new options. Ralph Lauren, for example, bought trendy retailer Club Monaco. Privately held Calvin Klein is looking for a buyer.

"People can't wear any more clothes than they are already wearing," says Leslie McCall, a retail analyst for Brown Brothers Harriman. "So for the big companies to grow they need to acquire other companies."

An early U.S. Fashion Week: Emphasis on deep pockets
September 14, 1999

Donna Karan
Women's Wear Daily
Brown Brothers Harriman

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