Sign of the Times. No More Sex in the City Spending Behavior & Boutiques Feeling the Economic Squeeze

November 13, 2008 • Fashion


Much to my chagrin I predicted months ago we were going to see a flurry of boutique closings. Particularly after the holidays. If you think department stores are suffering, just imagine what independent boutiques are going through. Yikes. There was an interesting article in yesterday’s Wall Street Journal that discussed some of the issues nailing the coffin in the slow death knell of boutiques. Here is the basic premise;

When times were good, independent fashion boutiques flourished as young women with disposable income snapped up the latest designer apparel, no matter the price. But now, in the current crunch, this demographic has stopped shopping.

The credit crisis and the drastic downturn in consumer spending have left many boutique owners as cash-strapped as their customers. In response many vendors have stopped approving shipments to some boutiques. That has forced the owners of these stores to pay cash on delivery or to use their own personal credit cards (a very risky proposition given the high interest rates) so they can stock their stores for the make-or-break holiday season.

Retailers used to have 30 to 60 days to pay their bills. Since summer, however, Hilldun, a factoring firm that extends credit to such designers as Peter Som and Derek Lam, has stopped approving shipments to about 40% of the 5,000 retailers it deals with. Therefore many boutiques are being cut off.

The boutiques’ problems are being exacerbated by competition from Neiman Marcus, Saks Fifth Avenue and other high-end chains, which have been slashing prices to attract shoppers. They can usually take a loss on clothes for a time and focus on higher margin cosmetics during crunch times. That’s why we are all witnessing after holiday type sales so early this year.

How does this effect designers? Contemporary designer and boutique favorite, Tracy Reese has has to start asking small retailers to provide credit-card numbers in advance of shipments.The situation is affecting her production plans, she adds, requiring her to delay production as long as possible to ensure that she doesn’t get stuck with merchandise that retailers can’t pay for.

Rather than cut prices to compete with high-end department stores, some boutiques are persuading designers to swap unsold merchandise for new designs, according to one owner who claims success with this strategy but declines to be named. Their hope is to freshen up their sales floors for the holidays as well as to preserve their profit margins.

Designers don’t want the boutiques to cut prices. Many of them share the burden by reimbursing retailers for some of their markdowns at the end of the season, and they worry that markdowns will tarnish the image of their brands. So now the stores are just reducing their orders. It’s a sad, vicious cycle…

Read "Boutiques Get Squeezed" here.

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