The private-equity firms, which bought Dallas-based Neiman Marcus in 2005 for $5.1 billion, have interviewed banks and are close to hiring Credit Suisse Group AG to run the dual-track process, said the people, who asked not to be named because the process is private. The owners may seek about $8 billion for the company, which has about 40 namesake department stores and owns Bergdorf Goodman’s two stores in New York.

The firms, which have held their investment 60 percent longer than is typical in the industry, are considering exit options after the chain increased in-store and online sales. Neiman Marcus Chief Executive Officer Karen Katz has been working to recapture the sales volume the luxury retailer enjoyed before the U.S. recession while carrying the debt the chain assumed when it was taken private in 2005.

Neiman Marcus’s owners are in the early stages of exploring their options, the people said. If TPG and Warburg don’t find a buyer and demand for an IPO is weak, they may consider a dividend recapitalization, one of the people said.

Ed Trissel, a spokesman for Warburg, and Owen Blicksilver, a spokesman for TPG, declined to comment on the sale process. Jack Grone, a spokesman for Credit Suisse in New York, declined to comment, and Ginger Reeder, a spokeswoman for Neiman Marcus, didn’t return an e-mail seeking comment outside of normal business hours.

TPG and Warburg Pincus bought Neiman Marcus shortly before the 2007-2009 financial crisis sapped retail sales. The median time for buyout funds to sell holdings is about five years, according to Seattle-based research firm PitchBook Data Inc. Holding investments longer hurts the rate of fund returns, a key metric the firms use to market new funds to potential investors.

Warburg Pincus is currently seeking $12 billion for a new buyout fund and had closed on $7 billion as of January, a person familiar with the process said at the time. The New York-based firm’s current pool, which gathered $15 billion in 2008, was generating a 1.15-times multiple on invested capital and a 5.5 percent net internal rate of return as of Sept. 30, according to performance data by Oregon Public Employees’ Retirement Fund, an investor in the fund.

Luxury retailers like Neiman Marcus, Saks Inc. and Nordstrom Inc. have fared better during the economic recovery than lower-priced retailers like Target Corp. Surging stock markets give the wealthy the confidence to shop, Saks CEO Stephen Sadove said at an investor conference last week.

Katz has been trying to lure a younger customer by adding Cusp departments into the main stores. The Cusp name — meant to evoke emerging, cutting-edge fashion trends — was applied to the company’s contemporary women’s departments to better serve customers in their 30s to 50s who shop at the boutiques where the brand started.

Neiman Marcus first introduced the Cusp boutique concept in 2006. That chain, which has its own website, sells brands such as Theory, Rag & Bone and Alice + Olivia.

In its first international foray, Neiman Marcus also developed a new namesake e-commerce website with Hong Kong-based Glamour Sales Holding. Neiman Marcus debuted the site last year.

The company hasn’t recovered all of the sales volume it lost during the U.S. economic slump because so-called aspirational shoppers have been slow to return to the store. The retailer reported revenue of $4.35 billion in its most recent full fiscal year, which ended in July, down from its peak of $4.6 billion four years earlier.

Neiman Marcus’s fiscal second-quarter net income gained 0.9 percent to $40.4 million as sales advanced 6.5 percent to $1.36 billion. The company is carrying debt of $2.71 billion, according to data compiled by Bloomberg.

By: Cristina Alesci, David Welch and Jeffrey McCracken in New York; Editors: Christian Baumgaertel, Larry Edelman

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Chief Executive Officer Mark Lee’s vision for Barneys New York Inc. is art gallery meets luxury emporium — airy spaces where $1,575 Proenza Schouler bags seem like precious artifacts. The Gucci alum wants to broaden Barneys’s appeal while respecting its heritage as the most exclusive and avant-garde of America’s stores. The closely held New York-based chain is making money again and had record sales last year, said Lee, who took over the job in 2010.

“It is good to be a niche in today’s world,” said Lee, 50, who personally scours Paris ateliers for new designers.

Lee’s makeover has gotten a lift in part because resurgent stock markets have given wealthy consumers the confidence to go shopping. Nordstrom Inc.’s sales at stores open at least a year jumped 7.3 percent in 2012, more than double the 2.7 percent rate posted by discounter Target Corp.

Barneys has been a mirror of the U.S. society — and economy — since it was founded as a cut-rate men’s store in 1923. It added a women’s department in the 1970s, was the go-to store for newly rich young bankers in the 1980s, went bankrupt in the 1990s, reemerged and then expanded too abruptly in the aughts. It fell under the control of Arab wealth and then a hedge fund.

Barneys earnings before interest, tax, depreciation and amortization grew 40 percent in each of the past two years, Lee said. It was negative in 2009. His goal is to surpass Barneys’s record Ebita of 2007.

The company’s near-term sales target is $1 billion, according to a person familiar with the figures. Sales hit $800 million in 2012, exceeding 2007’s previous peak of $750 million, said the person, who requested anonymity because the matter is private.

For Lee to succeed long-term, he must appeal to a wider audience without becoming mainstream like Saks Inc. or Neiman Marcus Group Inc. So far, the strategy “seems to be working,” said Michael Appel, founder of Appel Associates LLC, a Purchase, New York-based consulting firm.

“It’s not an easy thing, as we know from J.C. Penney, to have a vision and do it,” he said.

When Lee joined Barneys, the chain was still owned by Istithmar World PJSC, a Dubai sovereign wealth fund, which had bought it from Jones Group Inc. in 2007 at the pre-recession peak of the luxury goods boom. Like Saks, also based in New York, and Dallas-based Neiman Marcus, which also owns Bergdorf Goodman, Barneys struggled in the wake of the financial crisis and recession. Making matters worse, Barneys was crippled with debt, had over-expanded and had gone two years without a CEO.

Lee arrived with 20-plus years of fashion world experience, having worked at Saks, Giorgio Armani SpA, and at Yves Saint Laurent and Gucci, both owned by France’s PPR SA. He was no stranger to Barneys and “vividly” recalls the iconic, since- closed 17th Street store when he moved to New York from San Francisco in the 1980s to study acting and cinema at New York University. He said he has a “great respect for the golden era of Barneys,” and one of his first acts as CEO was to pore over the chain’s archives.

In the first few months, Lee installed his own team, tapping, among others, another Gucci veteran, Daniella Vitale, who is in charge of women’s merchandise. He began the work of honing his designer roster.

“I am a merchant at heart,” he said.

Lee shuttered the Dallas Barneys in February, bringing the chain’s number of flagship stores down to eight from nine when he took over, and is looking for a downtown Manhattan location. He is closing the more-accessibly priced CO-OP chain, which had 17 stores, converting the best locations to the Barneys name. The main Barneys still sell CO-OP merchandise on designated floors.

Hedge-fund manager Richard Perry’s acquisition of a majority stake in Barneys about a year ago wiped out most of the chain’s $590 million in debt and allowed Lee to accelerate his plans. He speeded up the renovation of the 20-year-old, 250,000 square-foot Madison Avenue flagship, with the main floor slated for completion in the coming months. He plans to redo the Beverly Hills and Seattle stores, too.

Tired wood paneling, parquet floor and beige carpeting, all yellowed by dim lighting, are making way for gray marble floors, glass, stainless steel frames, gold scrim, and bright-white lighting.

One of Lee’s innovations is “xo,” or exclusively ours, which focuses on smallish brands with less than $1 billion in sales, such as Valextra SpA, a Milan-based design house that makes leather goods, and Walter Steiger, the Geneva-born shoe designer, who is giving Barneys a jump on a new men’s shoe line.

“Once you get to $2 billion, $3 billion, $4 billion, they are not Barneys brands,” Lee said.

You won’t find branded shop-in-shops of the type unsuccessfully touted by J.C. Penney’s recently fired CEO, Ron Johnson. You won’t see in-your-face Versace bling or Louis Vuitton logo bags. You won’t encounter often dowdy brands such as Eileen Fisher that fall between contemporary and designer collections. Rarely will you come upon a designer’s cheaper secondary line such as Michael Michael Kors.

Lee also is trying to make Barneys friendlier to couples. To make it easier for them to shop together, he has placed the men’s and women’s shoe departments next to each other on a new fifth floor at the New York flagship, and created new passageways elsewhere in the store. He showcases strong dual- gender brands like Balenciaga, Givenchy and Bottega Veneta.

He relaunched Barneys’ website in May 2012 and says it’s now Barneys’s fastest growing sales channel. Not long ago, the industry-lagging site didn’t even have a search function.

Grace Ehlers, an analyst with Robin Report, an industry newsletter, said the new Barneys is watered-down, impersonal and soulless, where it had been edgy, intimate and witty.

“It may be working from a commercial standpoint,” Ehlers said in a telephone interview. “It may not be from the long- term value of the brand.”

Lee disputes that Barneys has lost its indie cred. He makes no apologies for carrying more conspicuous leather goods — which have more than doubled the main floor’s sales per square foot to $9,000 — and has taken pains to retain some of the old while bringing in the new.

While he replaced longtime creative director Simon Doonan in that role, he retained him as ambassador-at-large. Another case in point is the flagship’s windows, which over the years have featured such irreverent displays as a Sigmund Freud lookalike standing in for Santa Claus. Lee devoted the windows to Lady Gaga for the 2011 holidays.

“That is a big part of the DNA,” Lee said. “But it can’t be one tone. I don’t think that everything can be a laugh riot.”

By: Cotten Timberlake in Washington; Editors: Robin Ajello, John Brecher

The post Barneys CEO Lee Takes Anti-Penney Approach to Turnaround appeared first on BoF - The Business of Fashion.

Tainwala, a 55-year-old expatriate Indian, owns Planet Retail, which held the India franchise rights for U.S. fashion labels Guess and Nautica as well as UK retailers Next and Debenhams. He sold the brands last September to various Indian businesses.

“Right now it’s not possible to do business in India without greasing palms, without paying bribes,” said Tainwala, who is also luggage maker Samsonite’s president for Asia Pacific and West Asia. Tainwala said he himself refused to pay bribes to licensing officials, though that could not be independently confirmed.

India is the next great frontier for global retailers, a $500 billion market growing at 20 percent a year. For now, small shops dominate the sector. Giants from Wal-Mart Stores Inc to IKEA AB have struggled merely for the right to enter, which they finally won last year.

But a daunting array of permits – more than 40 are required for a typical supermarket selling a range of products – force retailers to pay so-called “speed money” through middlemen or local partners to set up shop.

In interviews with middlemen and several retailers, Reuters found the official cost for key licenses is typically accompanied by significant expenses in the form of bribes. The added cost erodes profitability in an industry where margins tend to be razor-thin. It also creates risk for companies by making them complicit in activity that, while commonplace in India and other emerging markets, is nonetheless illegal.

That creates a handicap for foreign operators such as U.S.-based Wal-Mart, the world’s biggest retailer, and Britain’s Tesco Plc and Marks and Spencer Plc, which must comply with anti-bribery laws in their home countries even while operating abroad.

A Wal-Mart spokesperson said the company is strengthening its compliance programs, part of a global compliance review that has cost more than $35 million over the last 18 months. IKEA, which is awaiting final approval to enter India, has started assessing the market, a spokeswoman said, adding the group has “zero tolerance” for corruption in any form.

“HARASSED FOR MONEY”

Retail is especially prone to bribery because stores sell multiple types of merchandise, which in India increases the number of licenses and permits needed – a legacy of the so-called “Licence Raj” that was largely dismantled during the country’s early 1990s economic reforms.

The World Bank’s Ease of Doing Business survey ranks India 173rd out of 185 countries when it comes to starting a business, behind Malawi, Niger, Sudan and Guatemala. Transparency International in 2012 ranked it 94th out of 174 countries on its corruption table – a fall from 72nd five years earlier.

“Even for a simple thing like putting up signage in front of your store you are harassed for money,” said Tainwala. “There are many bodies regulating that and the permits needed to set up one shop are baffling.”

The License Raj, he said, substantially increases costs in a market where sluggish consumer demand, high rentals and a depreciating currency for over a year have made it hard for retailers like him to operate profitably. He plans to return when there is more order in the way business is done.

Ais Kumar, head of the western region for the Food Safety & Standards Authority of India (FSSA), acknowledged that graft exists across government ranks and departments. Many government departments also have staff shortages that cause delays.

“These licenses are required for compliance and safety and not because the government wants to delay or complicate things for anyone. It’s the law of the land and it must be followed,” he said, adding the government is striving to put licensing systems online to streamline the process and make it more transparent. Checks with three retailers, however, showed the online forms still need to be physically delivered to the respective licensing departments.

UNDER THE TABLE

Permits needed to open a store range from the mundane, such as a trade license, to the petty: lighted shelves require a separate permit, and even a shop window needs a license.

Want to play music in the store? That requires a license. So does selling cosmetics or providing valet parking.

A convenience store that sells basics such as milk, vegetables, cereal, bread, eggs, meat and baby food will require a minimum of 29 licenses from nearly 20 different authorities, according to a list of licenses compiled by the Retailers Association of India and obtained by Reuters.

Those include a food license; a license for sale, storage and distribution; a food-handler’s certificate; a license for milk products and another for frozen non-vegetarian food. All those licenses comes from the state-level FSSA, but require separate applications.

But the FSSA does not give permission for operating freezers and chillers. That requires a separate license from a municipal body. Selling baby food requires a permit from a state Controller of Food and Supply. The state Agriculture Produce Marketing Committee must give permission to sell vegetables; the central Directorate of Marketing and Inspection gives permission to grade and sort those vegetables; the Controller of Rationing grants licenses for selling essential commodities like rice.

All those licenses need to be renewed, sometimes annually.

The Directorate of Marketing and Inspection declined comment, while the other departments were not available.

Most of the licenses required can either be done away with completely or combined into one, said Lalit Agarwal, chairman of V-Mart Retail. “Every day, you have new licenses added to the list, but nothing ever gets deleted.”

It’s not just the red tape of getting those licenses, it’s also the under-the-table money that retailers typically have to pay on top of the official fees.

In Bandra, a high-end suburb of Mumbai, a state-issued trade license for a 10,000-square-foot (930 square-meter) store – very large by Indian standards – officially costs 100,000 rupees ($1,825). But there is an “additional charge” of 1.25 million rupees ($22,800), according to documents obtained by Reuters from the Employee State Insurance, Provident Fund and Industrial Law Practitioners Association of India (EPILPA), which assist retailers in obtaining permits.

EPILPA said their members, who are consultants, collect the “speed money” from retailers and pass it on to the government officials. They act as middlemen who do not take a cut and hence should not be held responsible for the bribes being paid.

“In India, you don’t need to ask retailers if you need to pay bribes,” said Punit Agarwal, CEO of Promart, a mid-sized multi-brand clothing retailer. “It’s known. Here you have a price tag for everything.”

He said his company hires middlemen and pays their fees because he knows bribes have to be paid, but does not want his company to get directly involved.

SPEED MERCHANTS

Middlemen sell speed. They provide access to government officers who can sign off on permits as soon as they are paid. The middleman negotiates the bribes, thus keeping company officials from being directly involved.

Take the case of British footwear retailer Clarks. It entered India through a partnership with Future Group, which runs the country’s largest listed retail entity, Future Retail. Clarks has hired consultants and, according to one of them, is negotiating with municipal officials for a 365-day license that would allow it to open three of its five stores in Mumbai every day of the year.

For each of the three stores, the company was asked to pay 60,000 rupees ($1,100) per officer for the eight officers involved in its case – a total of 500,000 rupees ($9,100) per store, said Oovesh Sarabhai, of Atlas AVA Consultants, who is working with Clarks to secure the licenses. The official fee is about 6,000 rupees ($110) per store, he said.

The government officials involved in issuing the license declined to comment when contacted by Reuters. Future and Clarks declined to comment.

A senior Clarks official, who declined to be identified, confirmed the company had applied for a 365-day license for the three Mumbai stores in January 2012 and received notifications from the government related to this, but has so far failed to receive the licenses. “It’s stuck because of the bureaucracy,” the official said.

No high-level official dealing with licenses ever accepts a bribe directly, said Raichand Jiwani, owner of Emkay Consultancy Services, who is a member of EPILPA and helps several top Indian retailers to procure licenses. Officials use subordinates to collect the money and only from trusted people. The payment is then shared by junior and senior officers and up the bureaucratic chain.

“The nexus runs far deeper than just a few corrupt officials at the local level,” said Jiwani, noting that if a retailer approaches an official directly he will not be told about the bribe, but his papers will take months to be approved.

IS INDIA WORTH IT?

While India holds vast promise for retailers, with its growing spending power and rising middle class, most local supermarket chains lose money due to low prices, poor supply chains and high rents. Wal-Mart has said it aims to turn a profit in 10 years, something it hasn’t managed in China after 12 years.

Tainwala thinks India offers miniscule retail returns for the massive investment of time and energy that is needed. Fast expansion requires paying speed money, he said.

Tainwala recalls he was asked to pay either a 22,000 rupee ($400) monthly fee to have signage outside his store in Mumbai’s plush Atria mall, or a 2,000 rupee ($36) bribe every month to circumvent it. He said he chose to pack up rather than bribe the municipal officials needed to get his signs approved.

“My people said we have to close the stores, and we decided to do that,” he said. “You get excited about the Indian middle class but then you wonder – is it really worth it?”

($1 = 54.80 Indian rupees)

Editing by Tony Munroe, Bill Tarrant and Ian Geoghegan

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But there was more on the BoF playlist this week than just Mr Ghesquière. While the premium denim market has, according to some reports, been stagnating since the global economic crisis, we investigated the rebound that is beginning to gain steam. As more than one commenter pointed out, the timing of the article coincided with the surprising news of a European Union tariff hike, from 12 to 38 percent, on women’s denim made in the USA, which may be a boon for European brands but certainly adds a hurdle for American brands as they navigate the ever-changing denim market.

My favourite quote of the week goes to Vera Wang, profiled in our ongoing First Person series, which chronicles the personal and professional journeys of the most talented designers working in fashion today. Ms Wang likened the resilience it takes to be a successful designer to her first love, figure skating: “When you fall down — which you have to [do] if you want to learn to be a skater — you pick yourself right up and start again. You don’t let anything deter you. Oddly enough, it’s strangely like fashion — you have a limited amount of time in which to get a point of view across.”

In the world of Fashion 2.0, we got some great insight on two forces that are bound to shape the fashion industry in the years to come — and perhaps more quickly that one might expect.

‘Big data,’ a buzzword that has been making its way through Silicon Valley over the past few years, has hit the mainstream. We talked to Viktor Mayer-Schönberger and Kenneth Cukier, authors of Big Data: A Revolution That Will Transform How We Live, Work and Think, to understand the forces at play and the implications for fashion.

We also explored an emerging technology trend that the fashion industry has, for the most part, largely ignored: the rise of wearable devices. As Vikram Kansara pointedly wrote, “it’s time for fashion and luxury brands to take the space seriously, or risk losing highly lucrative real estate on the emerging battleground of the human body.”

And from around the world, we brought you reports on Brazilian fashion’s identity crisis, a compelling op-ed on the need to re-make ‘Made in France,’ as well as an insider look into the prestigious Festival International de Mode et de Photographie à Hyères.

That’s all for now, plenty of great articles to sink your teeth into over the long weekend here in the UK. We’ll be back in action on Tuesday.

Imran Amed, Founder and Editor-in-Chief

The post Week in Review | Ghesquière Speaks, Vera Wang, Big Data, Wearable Devices, Hyères, Remaking Made in France, Brazil’s Identity Crisis, Premium Denim appeared first on BoF - The Business of Fashion.

Net income climbed 6.5 percent to 308 million euros ($403 million), the Herzogenaurach, Germany-based company said in a statement today. That beat the 298.5 million-euro average estimate of 15 analysts in a survey by Bloomberg.

“The gross margin saved the day,” said Sebastian Frericks, a Frankfurt-based analyst at Bankhaus Metzler, by phone. “It’s a very strong start to the year and there could be some upside to their 2013 forecast. Revenue wasn’t great but this was expected.”

The gross margin widened to 50.1 percent from 47.7 percent on higher pricing and a bigger proportion of sales from the company’s own stores, where profitability is higher. Analysts predicted a gross margin of 48.6 percent. Adidas, which had record soccer sales last year helped by the European championships, is pushing other categories because of the lack of a major soccer event in 2013.

Top Priority

“We delivered strong margin progress, which is our top priority for the year,” Chief Executive Officer Herbert Hainer said in the statement. “We delivered stable revenues, despite running against high prior-year comparisons due to the sell-in of event-related products for the London Olympics and the European Football Championships as well as facing a continuation of macroeconomic challenges in Europe.”

Adidas shares have gained 27 percent in the past year, giving the shoemaker a market value of 16.6 billion euros.

First-quarter revenue fell 1.9 percent to 3.75 billion euros. That missed the 3.76 billion-euro average estimate of 15 analysts in a Bloomberg survey. Revenue in western Europe declined 6 percent on a currency-neutral basis, led by sales declines in Spain, Italy and the U.K. Sales gained 6 percent on a currency-neutral basis in greater China, while climbing 12 percent in Latin America.

The company introduced the Energy Boost shoe for runners in February and expects Reebok to return to growth this year as it expands the brand’s activities in the fitness market. Reebok sales tumbled 16 percent in the first quarter.

Wholesale revenue fell 5 percent in euro terms while retail sales gained 4 percent on the same basis.

Adidas reiterated it expects sales to increase at a “mid- single-digit” percentage pace excluding currency shifts in 2013, while the operating margin will improve to almost 9 percent from 8 percent in 2012. Adidas aims for an operating margin of about 11 percent by 2015.

“Continued operating margin improvement is the key story for the financial year 2013,” Christopher Svezia, an analyst at Susquehanna Financial Group, wrote in a report on April 30. “There is upside to guidance on the margin, particularly if sales come in stronger than expected in the second half.”

By: Julie Cruz; Editors: Thomas Mulier, Tom Lavell

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Digitisation set the stage for a transformative shift. From Google search queries and GPS signals to transaction records and social media updates, today’s information society emits an estimated 2.5 quintillion bytes of data every day. At the same time, increased computing power, cheap storage and new data-crunching technologies have given us the ability to analyse a far larger volume of information than ever before, extracting insight and creating new forms of value in ways that stand to radically change the way consumers, businesses and governments operate and interact.

Fundamentally, ‘big data’ is about making predictions. Indeed, it’s now possible to leverage large amounts of messy, real-world data to build predictive models that can find patterns, establish correlations and infer probabilities with enough accuracy to help us do things like pick the best moment to buy a plane ticket, foresee the spread of deadly infections or identify emerging fashion trends.

To find out more, BoF spoke with Viktor Mayer-Schönberger, professor of internet governance and regulation at Oxford University, and Kenneth Cukier, data editor at The Economist, about the power of big data and what it means for the business of fashion.

How do you define big data?

Big data describes our recent ability to collect and analyse much more data about a particular issue than ever before to gain new insights and offer innovative products and services. It will affect all sectors of our economy and all aspects of our existence, from business to healthcare to education.

To give a sense of how much more data we have these days, consider that when a new major telescope facility begins operations, it tends to collect as much information in the first week as was collected in the entire history of astronomy up until that point. And then it does it again, and again, and again, week in and week out, until a new telescope goes online and we see another step-change in the amount of information that is gathered. Or, think of biotechnology. It took ten years and $1 billion to sequence the human genome in 2003. Today, a single lab can do that in two to three days at a cost of less than $3,000.

How does big data change the way we understand the world?

We currently understand the world through hypotheses — ideas on how exactly a piece of the world works — that we have tested against a small amount of data because collecting data has been so costly and time-consuming. That, of course, limits us in how many ideas we test, as we often have to re-collect the data for a slightly different idea. It makes understanding hard and slow. In contrast, with big data, we can have algorithms test hundreds of millions of hypotheses automatically against an often large dataset.

For example, Google was able to track the outbreak of the seasonal flu using search terms alone. They didn’t do that by guessing which terms would best correlate with the flu. They get 3 billion queries a day. Trying to think through what the right terms might be (fever? sneeze? cough medicine?) would be a fool’s errand. Instead, Google took the 50 million most common search terms and ran them through 450 million mathematical models to determine which search queries could be used to predict flu outbreaks.

It meant giving up our innate preference for causality and placing our trust in correlations — that is, knowing what, but not why. We don’t know if Google’s model works because someone goes online when they’re feeling ill — they may be overhearing sniffles in the cubicle next to them. We don’t know and we don’t need to care. To track the flu with searches, correlation was good enough.

What are the implications for business? In your book, you describe data as “the oil of the information economy.” Can you unpack that?

Data has always been useful for businesses. It enables economic transactions and helps supply meet demand. After all, price is data, as much as certain product qualities and transaction terms. But until recently, data was seen largely as the lubricant that greases the machine of commerce.

In the age of big data, data itself becomes the good that’s being traded. This shift happens as we realise that the value of data is not exhausted when it’s used for the purpose it was collected. Rather, we can use data for novel, additional purposes that nobody thought about when it was collected.

Who would have thought, for instance, that search terms sent to Google can be repurposed to predict the spread of the flu?

Another example is Farecast, which was acquired and became part of Microsoft’s Bing Travel. Farecast told people whether the price they were quoted for an airplane ticket was likely to go up or go down, empowering consumers by letting them know if they should buy right away or wait. It worked by crunching data on previous airfares. In fact, it processed 200 billion flight price records that amounted to almost every seat, on every plane, for every route, every day for an entire year across all commercial aviation in the United States. That’s a lot of data with which to base it’s prediction. Farecast saved travellers a lot of money and Microsoft eventually bought the company for over $100 million.

But the key is this: Farecast’s brilliance was to take information generated for one purpose — selling tickets — and apply it for another. The data had become a raw material, a vital economic input. That’s what we mean when we say that data is the oil of the information economy.

Big data is often discussed in the context of technology companies like Google and Microsoft. How can retailers harness the power of big data? Who is doing this well?

Internet companies are some of the first to use big data because they almost viscerally understand the importance of data. Their businesses are often founded on it. But many others can harness the success of big data. What’s crucial is being able to either collect or access relevant data easily.

Take large retail chains: through loyalty cards and other methods they are able to collect a staggering amount of information about what people buy — brands, sizes, types, colours, styles — and when and where they buy. This data is used for transaction and payment, restocking and inventory management, and, in the best of cases, for sales promotions and coupons. But much more could be done, for instance, by analysing and optimising what products are being displayed next to each other, or close to the check-out counter, and when.

To cite one example, Walmart discovered that before a major hurricane, not only did sales of storm supplies spike, but so did sales of Poptarts. Who would have thought? But by seeing the correlation, they could act on it by placing Poptarts at the front of the stores next to the flashlights and batteries, thus making shopping easier for customers and boosting sales.

In trend-driven product categories like fashion, accurately predicting consumer demand is a complex matter. Historical sales data never results in consistently better commercial decisions, while traditional forecasting tools are slow and unscientific. Can big data help?

So far, predicting consumer demand for fashion has been the domain of self-styled ‘experts,’ focus groups and relatively unsophisticated models based on ‘small’ data. Collecting and then analysing actual preferences from potential customers was just too costly and hard to do. This is changing.

As we collect and analyse far more data about people’s interactions, individual preferences will become much better known, more comprehensively and in greater detail than ever before. That provides valuable insights for the fashion industry, from what products might perform best, in general, down to what will likely sell well in which store locations, what products are successful when placed next to each other and how to optimise retail experiences.

How else can big data give fashion companies a competitive edge? How can big data analysis inform activities like identifying creative talent, product development and marketing?

Big data will be used to predict customer preferences. Of course, this does not mean that innovative design and original ideas are being replaced by numbers. Rather, the numbers can help designers identify in which direction to go, where to push harder and how to excel in satisfying customers.

And the predictive insights of big data are not limited to understanding customers only. It will enable brands to pick the most promising creative talent earlier and with a better success rate.

Marketing and advertising will become more efficient, too. For instance, advertisers today rarely know how well billboards are working, because we have little actual data about how many people look at these ads. As we collect data about the human gaze — just think of Google Glass — we’ll be improving advertising, too.

In a sector as subjective and seemingly unpredictable as fashion, what are the limitations of big data? Is there still room for intuition?

Absolutely. Intuition is central. After all, analysing customer preferences would not easily have revealed that people wanted to buy cars before they were invented; they might have, instead, just wanted a faster horse, to paraphrase Henry Ford. But in the age of big data, intuition will not compete with data about what customer preferences are. Rather, human intuition will be needed precisely because data can never tell the full story and surprise and serendipity are central to human nature.

How might big data change the fashion industry in the years to come?

Every aspect of the business will change, from what colour will be in next season to how to make clothing that fits different body types and how to optimise supply chains.

Viktor Mayer-Schönberger and Kenneth Cukier are the authors of Big Data: A Revolution That Will Transform How We Live, Work and Think, published by Eamon Dolan/Houghton Mifflin Harcourt.

The post The Long View | Big Data Will Change All Aspects of the Fashion Industry appeared first on BoF - The Business of Fashion.

The net loss narrowed to $52.2 million, or 44 cents per share, from $60.6 million, or 60 cents per share, a year earlier.

Excluding special items, the loss from continuing operations came to 16 cents per share.

Sales of Kate Spade products, now the company’s biggest brand, rose 63.1 percent to $141 million, while at Lucky Brand, known for its contemporary clothing, they were up 16.5 percent at $117 million.

Fifth & Pacific’s other major brand, Juicy Couture, continued to struggle, with sales down 10.7 percent at $98 million, dragging down the company’s overall gross margin 1.6 percentage points to 54.9 percent of sales.

Companywide, sales were up 17.2 percent at $371.8 million, above the $360.5 million Wall Street was expecting, according to Thomson Reuters I/B/E/S.

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Big news

• LVMH’s first quarter results announcement mid-April caused a sell-off in the sector. Its fashion and leather goods division, dominated by Louis Vuitton, posted one of its lowest quarterly sales growths since 2009. A drop in Asian tourists has hit Louis Vuitton sales in Europe, while China has been sluggish. Mr. Arnault announced plans to slow down the brand’s expansion and move its products more upmarket. Kering (formerly PPR), which published disappointing first quarter numbers, echoed its biggest competitor’s remarks about depressed consumption in Europe and a China slowdown.

• Swiss watch exports to China fell by more than 25 percent in the first quarter of 2013. Sales to Hong Kong were down 9.1 percent. Luxury watchmakers expect sales growth of high-end watches to slow this year as a recovery of the US and Middle East demand fail to offset a China slump that seems more deep-rooted than a temporary blip caused by the anti-corruption climate. On the other hand, Swatch still sees double-digit sales growth in China this year for its mid- and entry-price brands.

• Against the trend, Burberry posted forecast-beating fourth quarter results, boosted by its efforts to position the brand more upmarket as well as regained momentum in China.  Hermès also reassured the market by announcing strong first quarter numbers, underpinned by continued high demand in China for its soft goods.

• M&A activity is picking up again: Kering acquired jeweller Pomellato and porcelain maker Richard Ginori, Hermès gained control of Swiss watch case maker Joseph Erard, Hong Kong-based watch group China Haidian acquired Corum, Manzanita Capital acquired niche fragrance brand Byredo, Italy-based private equity firm Clessidra acquired Buccellati.

Going up

• Coach beat market expectations in its third quarter with a 7 percent sales increase, which included continued growth in its core North American segment and an eye-popping 40 percent same-store sales growth in China. The stock is up almost 15 points.

• Safilo, helped by better operating performance throughout, stabilised balance sheet issues and excellent contribution from its Polaroid brand (acquired last year), has also gained momentum with an increase of over 14 percent over the month.

Going down

• Top luxury groups – with the exception of Richemont – all suffered this month following the announcement of their quarterly results, alongside the majority of the SLI components.

• Prada fell by over 8 percent over the month. Although it posted a 45 percent increase in full-year net profit, driven by strong growth in Asia, the result still lagged analysts’ estimates. The group outlined plans to expand in the Middle East and the Americas to offset softer demand in Europe and peaking demand in China.

• Mulberry continues its descent after it issued its second profit warning last month. The stock is down almost 10 points.

What to watch

The sector may be hitting a turning point. Demand for luxury goods in China seem to be shifting from high-end to mid-segment goods as a result of the economic slowdown and the government’s crackdown on ostentatious gifting.

Luxury brands are moving their focus from China to other markets and are re-discovering the US, which has proven to be a resilient market in the last two years.  It also still holds a lot of untapped growth as it is home to more than a one third of the world’s ultra HNWIs and is benefitting from more tourism from Brazil and Asia as the government shortens the visa application process.

Sector Valuation

Pierre Mallevays is a contributing editor at The Business of Fashion and founder and managing partner of Savigny Partners, a corporate advisory firm focusing on the retail and luxury goods industry.

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Earnings before interest, taxes, depreciation, amortisation and one-time items fell to 132.6 million euros ($174.6 million) from 148.4 million euros a year earlier, the Metzingen, Germany-based company said in a statement today. The average estimate of nine analysts surveyed by Bloomberg was 135.1 million euros. Wholesale revenue adjusted for currency effects declined 14 percent, Hugo Boss said.

“The market environment proved to be very challenging in the early months of this year,” chief executive officer Claus-Dietrich Lahrs said in the statement. “With a better performance of the wholesale business in the further course of this year, we shall return to renewed growth in the second quarter.”

Hugo Boss, which sells men’s suits for 400 euros and women’s pumps for 200 euros, doubled its number of collections to one per season. The switch to four fashion lines a year will affect deliveries at the wholesale business in the first quarter after “supporting” them in the fourth quarter, Andreas Riemann, an analyst at Commerzbank AG, wrote in a report on April 22.

Hugo Boss posted a 21 percent increase in fourth-quarter revenue at its wholesale business partly because of the new delivery cycle, the company said in February.

Revenue fell 2 percent to 593.5 million euros, the company said. The average estimate of 11 analysts surveyed by Bloomberg was 607.6 million euros. Revenue adjusted for currency effects gained 1 percent in Asia while sales in Europe dropped 5 percent. Hugo Boss still expects sales adjusted for currency effects to rise at a “high single-digit rate” this year.

Retail sales, which exceeded wholesale in 2012 for the first time, will be the “growth engine” this year, Lahrs said in March. The retailer, controlled by buyout firm Permira Advisers LLP, will spend more this year as it expands its own store network, Lahrs said.

Revenue at Hugo Boss’s own stores gained 15 percent in the first quarter.

Hugo Boss aims for revenue of 3 billion euros and EBITDA of 750 million euros in 2015, with the retail business representing about 55 percent of revenue by that year.

Permira, based in London, acquired a majority holding in Valentino Fashion Group SpA in 2007. Valentino was Hugo Boss’s parent company at the time. Permira owns about 66 percent of Hugo Boss, according to data compiled by Bloomberg. The stock price has more than doubled since the end of 2007.

By: Julie Cruz in Frankfurt; Editors: Marthe Fourcade, Celeste Perri

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Fast forward to 2013 and renewed consumer appetite has put the premium denim market on the rebound. As consumer research group NPD reports, the fastest-growing segment of the denim market is premium ($75+) with an estimated market value of $1.4 billion for the year ended February 2013, up 17.3 percent from the year before; just two years ago, the premium denim market had not yet reached the $1 billion mark. What’s more, the total units of premium jeans sold grew 16.4 percent to 13.5 million pairs for the same period. By comparison, the overall denim market grew only 7.0 percent in value, while unit sales remained flat.

In just two indications that retailers are sensing the shift, last July, Selfridges hosted a month-long, store-wide shopping event entitled ‘Destination Denim,’ complete with workshops and talks, while earlier this year, Saks Fifth Avenue Beverley Hills launched a subterranean denim lounge dubbed D-Bar.

But where is the new growth coming from?

In the past, in the arrival of new styles and cuts have driven macro movements in the denim market, from the high-waisted flared jeans of the 1970s to the boot cut of the early 2000s. But with few new styles to challenge the decade-long dominance of the skinny jean, expansion is coming, instead, from new brand propositions and fabrics.

Where flailing denim labels exited the market, a number of new brands have emerged to fill the void. In recent years, Swedish cult hit Nudie Jeans, for example, has ascended steadily on the strength of its stylish, high quality product. Nudie devotees swear by the brand’s slim, five-pocket styles and raw denim, or ‘dry jeans,’ which mould and fade to the wearer’s shape, bringing to life the company’s philosophy of denim as second skin.

A sustainable approach has also helped to differentiate Nudie. Indeed, sustainability is a particularly pertinent question for denim makers, as jeans manufacturing consumes incredibly high quantities of water and produces caustic chemical runoff from synthetic indigo dyes, practices which Nudie avoids. In 2012, the company accomplished its goal to use 100 percent organic cotton across all ranges.

“For us, the future is in our philosophy. The philosophy has, for some reason, been a company secret for too many years. Now it’s time to tell the world,” commented Palle Stenberg, co-founder of Nudie Jeans, which, on the heels of a recent launch in Brisbane, Australia, is set to launch its latest concept store in London’s Soho, complete with an official repair station where customers can bring their Nudie jeans for free repair or alteration.

Another premium denim label pushing forward is MiH. The brand’s first incarnation, called Made in Heaven, was one of the UK’s earliest jeans companies, launched in 1969 by Tony O’Gorman, who opened Britain’s first specialty denim shop, Jean Machine, which, at its peak, had over 100 locations across London.

In 2007, O’Gorman’s goddaughter, Chloe Lonsdale, relaunched the label with meticulously crafted denim with a higher rise and slightly wider legs than the predominant styles. “My aim was not to create a 70s product, my aim was to make a relevant, modern product; to make timeless jeans,” she told BoF. “A beautiful pair of jeans is something that gets better with age and wear.”

Having grown up with a certain respect for timeless classic denim — her father wore jeans to her wedding — Lonsdale eschews trends, restrictive styles and aggressive detailing, preferring sophisticated, flattering cuts and understated styling.

Then there’s John Park, who, in 2009, founded British denim label Natural Selection, which reflects the belief that today’s consumers yearn for less clutter. “The sheer amount of competition in the market and the [volume of] choice for the consumer will make people think more about the values they are looking for, be it quality, trend, local brands, ethics, etcetera,” he told BoF. “We target the 30-to-35-year-old man, who will start looking deeper, past branding and hype for quality, construction, fabrication… all the factors that were in the mix from the genesis of this category from a practical and longevity point of view.”

New high quality fabrics have also driven growth in the premium denim market.

“Today’s consumers are looking for a jean that does more. They want premium denims that perform well and look and feel great, and they want an added bonus of knowing what they wear is environmentally sustainable,” said Kara Nicholas, vice president of product development at Cone Denim, the century-old American textile mill that supplies fabric for a number of global denim brands, including True Religion, as well as smaller niche labels.

After a period of struggle, including a bankruptcy filing in 2004, the company has found its footing again on the back of eco-conscious fabric. Their latest Sustainblue range “incorporate[s] recycled yarns derived from plastic containers such as brown beer bottles, green soda bottles and blue water bottles,” Nicholas told BoF.

The revival of selvage denim, highly prized among denim aficionados for its dense weave and unique imperfections, is driving the market forward, as well. At Cone Denim’s White Oak plant in North Carolina, skilled workers weave selvage on 1940s-era vintage shuttle looms to “recreate the authentic character of jeans made in the mid- to early 1900s,” said Nicholas. Indeed, high quality selvage is the secret behind the success of many young denim brands, including Norwegian label Livid Jeans, which exclusively uses Japanese and Cone Denim selvedge for their handmade jeans.

But admittedly, the premium denim recovery is still in its early phases and the consolidation of underperforming brands continues. Most recently, the ailing True Religion has put itself up for sale. Lucky Brand Jeans has done the same. And indeed, many champions of the last pre-recession wave of premium denim brands, including 7 For All Mankind, have been absorbed into VF Corporation, an American apparel and sportswear giant that also owns Lee, Wrangler, and Rock & Republic, which it purchased out of bankruptcy.

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