Economic Woes Hurt The Trade

Economic woes may be keeping Asia’s big spenders away from Rodeo Drive and Madison Avenue, but surprisingly, the high-end boutique business is still humming in both New York and L.A.

The reason: an influx of American tourists and a growing base of local customers.

Retailers such as Chanel, Hermes and Lacoste are seeing more tourists from Russia and South America in their stores, but the strongest growth has come from local customers and American shoppers.

“I don’t think there’s one particular ethnic group that has replaced those Asian shoppers,” said Tony Cherbak, a retail analyst and partner with Deloitte & Touche. “I think it’s basically these businesses are drawing from their basic demographics, especially Rodeo Drive, which has a hard-core following from its central demographics on the west side and Bel-Air.”

Marion Davidson, vice president of marketing for Hermes, said, “There are fewer Japanese customers, but those who are visiting the stores are spending quite a bit more. The sales growth we are realizing is principally coming from California residents, who seem to be very enthusiastic about our new stores in Southern California.”

Interestingly, Hermes reported only this week that the company’s volume grew in Asia in 1997. The growth was attributed to the fact that the Japanese last year didn’t travel to their traditional destinations elsewhere in the East, thereby concentrating their purchases in Japan.

Hermes has opened two stores in Southern California in the past year — a flagship on Rodeo Drive and a unit at South Coast Plaza in Orange County.

The U.S. accounts for 15 percent of Hermes’s sales.

Another Hermes spokeswoman said, “I think the timing of our opening the new stores has made us really lucky, and we haven’t seen the decline that a lot of other people have seen because we’ve had such a surge in local residents. But who knows, it could probably hit us like it’s hit everyone else, sooner or later. We do have an increase in Russian and South American customers. We’ve seen that a little bit more, though, in New York than in Southern California, in which we really do still see a lot of the Asian customer and a lot of locals.”

Jack Kyser, chief economist for the Los Angeles Economic Development Corp., said he is seeing more European tourists in Southern California.

“Tourism is becoming more democratic. If you go to the Third Street Promenade, you hear all sorts of languages spoken,” he said, referring to a pedestrian mall in Santa Monica adjacent to the Pacific Ocean.

Prior to Asia’s current economic crisis, tourism had already been eroding somewhat, and 1998 figures are expected to reveal sharp decreases. The latest figures available show that the number of tourists arriving from Asian countries to the U.S. dropped from 1996 to 1997, according to the U.S. Department of Commerce. From Hong Kong, the decrease was 8.3 percent; South Korea, 0.4 percent; Thailand, 10.7 percent, and Malaysia, 0.3 percent. The only Asian country to show a slight increase in tourists from 1996 to 1997 was Japan, growing from 5,182,555 visitors to 5,367,578 during this period, a 3.6 percent increase. However, Deloitte & Touche’s Cherbak expects to see a “drastic decrease” in Japanese tourists compared with 1997 because of the way the yen has continually weakened against the dollar.

The number of tourists from many South American countries increased from 1996 to 1997: Argentina jumped 22 percent; Brazil, 10.9 percent; Venezuela, 9.1 percent; Colombia, 27.2 percent; Chile, 13.5 percent; Peru, 11.8 percent, and Ecuador, 26.2 percent. And the number of tourists from Russia visiting the U.S. rose 7.7 percent from 1996 to 1997.

Plenty of those Russian and South American visitors are hitting Lacoste, according to Daniel Barth, president of Lacoste USA. He said the company has experienced “a slight decrease in Asian customers…[but] our local customer clientele is very much picking up. It depends on where we are. In Florida, it’s the South American clientele.”

At the New York Lacoste boutique, in the last six months, there has been an increase in Russian customers, Barth said. “Probably before, they were buying more European brands, and now they’re coming much more to the U.S.”

John Morris, vice president of Softlines Retail Research, a division of Prudential Securities, said local shoppers are making up the bulk of the customer base, replacing Asian tourists for many high-end boutiques.

The prime market for many high-end boutiques is people 45 to 64 years old, and that group is scheduled to grow 32 percent from now until the year 2005, at an annual growth rate of 3 to 4 percent, Morris pointed out. The amount that these customers are spending annually on apparel is also up from recent years, with this group now allotting 4 percent of their budget to clothes, up from 3.7 percent in 1993, he said.

Alain Teitelbaum, president of Comite Colbert, which represents 75 French luxury goods firms, said that in the U.S., “Russia is emerging.”

“Last year, we had some strong growth from Russia, and South America is now appearing on our radar screen,” Teitelbaum said.

The biggest drop in international customer traffic has come from Korea, Hong Kong and Thailand, he said.

At Giorgio on Rodeo Drive, there has been a 20 percent decrease in Asian traffic, said John Schulman, director of merchandising for Giorgio.

“Our biggest increase has been in local shoppers, people coming back to Rodeo Drive. We definitely have gotten an increase of Russian visitors, but a lot of them are actually residents now. They’ve emigrated to Los Angeles,” Schulman said.

There are also South American visitors shopping at Giorgio, but Schulman describes this as “steady, not a giant influx.”

Sales to Asian tourists are also down at Gucci, said Pat Malone, president of Gucci America.

“Really, what’s happening with us is we’re aggressively pursuing the local clients in each of the markets. Because we’re taking an aggressive stand in the ready-to-wear areas, it’s a natural growth,” Malone said. European tourists are hitting Gucci’s New York, Beverly Hills and San Francisco locations, but the local customer base is especially crucial in smaller markets such as Dallas and Boston, she said.

Chanel has also seen a drop in Asian customers, with more tourists coming from within the U.S., especially Florida and the Midwest, said a spokeswoman.

In New York, there is more of a presence of South American shoppers from Brazil and Venezuela. There are also more tourists visiting from Portugal and from Russia, she said.

But while New York and L.A. are weathering the Asian economic storm, business in Hawaii continues to be extremely difficult due to the dramatic drop-off of Asian tourists to the state.

“Interestingly, for many of the retail segments, Hawaii has been hurt the hardest by the Asian crisis because of the tourist element they typically derive from Asia,” said Cherbak. “Hawaii is not getting nearly as many visitors as they have in the past from Japan and the other Asian counties.”

Hawaii hasn’t been able to make up the difference with domestic customers because of its distance from the rest of the nation.

“Airfares from the mainland have gone up. It’s $600 now [from Los Angeles]. It makes it much more difficult for families to think about Hawaii as a tourist destination,” said Cherbak, pointing out that until a few months ago, round-trip airfares from Los Angeles to Hawaii were as low as $300.

As reported, Polo/Ralph Lauren said last week that one reason retail sales dipped 5.7 percent to $102 million for its fourth quarter is because of weakness from its Hawaii units due to economic woes in Asia. Lacoste recently closed its Honolulu boutique, and Louis Vuitton reported last month its Hawaiian business was off 12 percent through early April. Gucci reported weaker U.S. sales than expected, due to lower sales in Hawaii, and pulled out of a duty-free location there.

And most dramatic was the Chapter 11 filing in March of Liberty House, which operates 11 department stores and 25 resort and specialty stores in Hawaii and Guam. The store cited Hawaii’s “no-growth state,” increased competition and the recent slowdown in Japanese tourism.

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