High End Fashion Retail - Will Economic Downturn Affect Sales?

With news that many retail stores, and not just fashion chains, in California feeling the crunch of the economic downturn and credit crisis aftershocks emanating from the housing bubble meltdown, many high end fashion stores might be feeling the effects of less consumer confidence and penny pinching from the general buying public. However, will it really have much of an effect on brand name fashion items such as those from Versace and Chanel, or can these popular fashion brands stay relatively immune or safe from a less financially secure climate in the world at the moment? The spate of retail closures announced in California recently in the first quarter of the year has been worryingly and the obvious result of the worsening economic situation there, but while there are some medium level retail chains included, none of the brand names have surfaced.

What might have more of an effect on high end fashion companies like that from Burberry to Prada is that of the weakening US dollar, simply because a large slice of their revenue would come from the US economy and there are still substantial operations that are concentrated in that country. These fashion brands are not of US origin, but they have enough vested interests in the country to feel the effects of the dollar that would probably feel akin to becoming as weak as the currencies from countries such as Indonesia or Malaysia. An option would be to move the operations out of the country to another which offers lower operating costs without adverse effects to productivity and returns. But that would require another investment in terms of shifting operations but it might provide longer term rewards.

High end fashion items from the typical Italian brands like Prada and Versace will probably still retain their core client base and also remain elite enough to not experience overtly critical effects but are definitely likely to to take a hit in revenue. But these are all established brands and will survive. It is medium level and lower end fashion retail that will bear the brunt, especially those which disregarded expensive real estate costs in their fast expansion plans.

Incidentally, at the same time, the crashing real estate market in the US will offer opportunities to the fashion companies that are hardier, as they can take advantage of plummeting value in retail space to expand their chains. That is of course if they can also offer affordable fashion items and accessories otherwise the revenue will not be sufficient to cover costs. At the end of it all, it looks like high end fashion companies will again come out the winners, assuming with their larger reserves and better financial and asset management. This opportunity will also be open to overseas investors from foreign fashion and clothing brands, such as those suggested here with Chanel. Local US fashion brands will have their hands tied one way or another.