This article is part of The Luxury Slowdown Survival Guide, a collection of articles that examines the recent industry downturn and the strategies brands may employ to come out of it unscathed.
It was drizzling that evening in September 2008 at Paris Fashion Week, as the last of us rushed into the day’s final show, but the chairman of Saks Fifth Avenue at the time, Ron Frasch, oddly wasn’t stepping inside. He stood under a stone archway in a damp trench coat, talking on his phone.
It was the first ominous sign that a mortgage lending crisis was on the verge of sweeping the world’s economy and the luxury industry that autumn. Almost no one in fashion saw it coming. But soon, the fashion industry would change for good.
It had been a bling-filled summer for luxury brands, even after Bear Stearns investment bank shockingly failed in March 2008. Aspirational shoppers scarfed up handbags and jewellery while brands gobbled long-term leases for new stores. Michelle Stein, then US president of Aeffe, which owns Moschino and Alberta Ferretti, signed several — including one that August on trendy Melrose Avenue in Los Angeles. “It was go-go-go-go. Customers were going to buy-buy-buy-buy,” recalls fashion industry consultant Robert Burke, a former Bergdorf Goodman executive who had launched his then-fledgling agency just two years earlier.
At Gucci Group, now under the Kering name, then chairman and chief executive Robert Polet’s main challenge was producing enough product to restock the shelves of Saint Laurent, Balenciaga, Bottega Veneta and Alexander McQueen among other brands. He was intent on re-establishing the Gucci brand’s glitzy aura with new logo-bling products by designer Frida Giannini.
That year’s September Vogue, with Keira Knightley on its cover, was a 798-page catalogue of glitz, loaded with ads from Barneys New York, Donna Karan, Vera Wang, Juicy Couture and new-at-the-time online Gap spin-off Piperlime.com — as well as a 32-page glossy ad spread from Neiman Marcus.
By the time the issue hit newsstands, though, consumers were cutting back on big-ticket purchases. The banking crisis had spooked everyone — even wealthy shoppers, and particularly the aspirational ones. Retailers began to worry they’d bought too much autumn and holiday inventory. The Lehman Brothers collapse unravelled during September 2008 London Fashion Week.
A week or so later, Frasch was standing alone on a Paris street attending an emergency meeting of the Saks board on his cell phone, he would later say. Saks was the first among the department stores to slash prices before Thanksgiving, forcing other stores to follow. Discounts were 20, 40, then 60, and even 80 per cent by Christmas. One fashion executive I interviewed still owns a $3,000 Jil Sander leather travel bag that he bought for roughly $300 that November.
“I personally called it ‘The November to Remember’,” says the former executive, who asked not to be named because he still works in the industry. “What happened right after that were the layoffs.”
Stein watched ruthless cancellations pour in from stores even for autumn goods that were already in transit. “It became immediately clear that the major department stores would do whatever it took to remain solvent,” she says.
The dramatic discounts sent the industry reeling. “Putting products on sale for a luxury brand is awful for your regular customers. That’s really damaging for a luxury brand,” says Polet. “Wholesale is not good for luxury brands — big ones. Small ones need it.” In Gucci Group’s former boardroom on Grafton Street in London, Polet called a special meeting of brand executives, many of whom had never experienced a downturn. He worried that without fast action, the group could run out of cash as inventory piled up.
“Assume we’ll lose 10 per cent of top-line [revenue],” Polet recalls telling his team. The group cut orders from roughly 700 suppliers in Italy, many of which were family owned, and were forced to cut their own orders in a supply chain domino effect. Gucci Group offered financing to some to keep them in business, but there were widespread factory failures in Italy in the ensuing years as many global luxury brands retrenched. Gucci, in particular, faced a new dilemma as shoppers adapted to the economic downturn by shifting into stealth-wealth mode.
“Nobody wanted to be seen at a party with a logo bag,” says Polet, who left the company in 2011. “We took the cues of the Bottega Veneta brand.” Bottega had a no-logo policy marketed with the tagline: ‘When your own initials are enough.’ The group moved Bottega’s merchandising and marketing executives to Gucci, among them former CEO Patrizio di Marco.
Stein and other brand executives spent that autumn and the following spring trying to renegotiate the terms of the leases they’d signed just months earlier. “Landlords were not sympathetic and concessions almost impossible to negotiate. It was an absolute nightmare, day and night,” says Stein, who is now a luxury brand consultant at Stein Borgna Consulting. “My consolation was that it was happening everywhere — and not only in North America — so we were all grappling with the same issues.”
Big luxury brands moved to wrest control of pricing and merchandising. They took to hiring their own sales associates in department stores. “Look, I want a fixed person in that shop-in-shop that’s actually on my payroll,” says Polet. Two years into his new consultancy, Burke was also scrambling to adjust to this new hyper-speed reality. “We lost half of our clients in a matter of six weeks,” Burke remembers. “Retailers were cancelling orders. No one was ready for disruption on that many levels.”
Except those who were built for disruption.
One day in early 2009, producer Keith Baptista got a call from his friend Mazdack Rassi, who co-owned Milk Studios in New York’s Meatpacking District, inviting him to a meeting with Jenné Lombardo, a fashion connector working for Mac Cosmetics. Lombardo had a budget for backing fashion shows and Rassi had a studio. They were looking to help turn those assets into a showplace for emerging talent.
“There was a whole generation of young brands that were going to get wiped out,” Baptista says. “None of those guys were going to be able to show that season.” The result was Made Fashion Week, which took place during New York Fashion Week with a weekend of shows and presentations at Milk Studios. Made Fashion took a fresh approach, even inviting influencers who at the time had never been invited to runway shows before. The trio donated their time and effort, seeing the work as an investment. “We thought we were just doing it for one season. It ended up being a community-rallying point,” Baptista says.
Made, which was in 2015 purchased by IMG, helped lift New York Fashion Week to a brief heyday of innovation and a hub for emerging talent. Over the next few years, Made helped launch labels including Altuzarra, Proenza Schouler, Public School, Billy Reid and Alexander Wang. Many brands failed in the ensuing years, though, as that September 2008 Vogue issue can attest. Fiercely independent Barneys New York is nothing but intellectual property today.
Ralph Rucci, Donna Karan, J Mendel, Vera Wang, Zac Posen, Doo.Ri, Milly, Narciso Rodriguez, Marc by Marc Jacobs and Diane Von Furstenberg are among the many New York runway labels that disappeared or shifted strategies drastically in the decade or so that followed, as the industry reshaped itself.
The Great Recession is second only to the Great Depression for the harsh and long-lasting impacts of the downturn. It created the retail world we live in today, where big luxury brands control their merchandise and prices almost universally, leasing space in department stores and owning their own vast retail networks. Without that clout, smaller labels struggle between wholesale and direct-to-consumer distribution models, hit hard by discounting and consumer acquisition costs.
Department stores also lost out. Walk into a modern Saks or Neiman Marcus and you’ll find yourself in a luxury mall of sorts, where many sales associates work for the brands, not the store. This may have benefitted brands, but department stores have lost much of their point of view. “Where’s the edit?” one former department store executive asked me recently.
No Great Recession veteran who I interviewed believes the current luxury downturn is remotely as concerning as what happened in 2008. Most attribute the current struggles to China’s economy, or to brand missteps such as the Gucci brand remake that left sales plummeting. But they do note that there are lessons to be learnt from the survival tactics they employed 16 years ago.
“This is a correction. If you’re smart and you’re a luxury brand, you’re pivoting,” says Baptista. “We went through a period after the pandemic that was not rational and not normal. Brands got aggressive about profits and pricing and moved from a luxury to an ultra-luxury tier. That’s not sustainable.” Design, merchandising, pricing — they’re all up for a global rethink.
“If you forget the lessons of history, you will fall flat,” says Polet. “The takeaway is that these difficult times can be an enormous opportunity for brands.”
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