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Late arrival of a designer recession

Flannels has issued a CVA proposal, Cruise directors have left the indie business and the Luella label has ceased trading. What’s gone wrong in the designer sector?

The designer sector has come out in support of premium indies Flannels and Cruise in a week when the sector was thrown into turmoil.

Last week, Flannels shocked the market by issuing a proposal for a Company Voluntary Arrangement (CVA) and Cruise announced the surprise departure of directors John Heath and Ian Baird.

Manchester-based Flannels, which trades out of 15 stores, appointed financial services firm Deloitte to handle the proposed CVA last week, which, if approved, would give suppliers 70p in the pound and other unsecured creditors 60p in the pound. It would also result in the closure of three stores – the sites have not yet been confirmed.

Meanwhile, Cruise managing director John Heath and finance director Ian Baird are understood to have left the business just six months after completing a pre-pack administration. The circumstances of their departure are unclear, but non-executive director James Pow has taken over the running of the designer mini chain.

Together with licensee Club 21 pulling out of its investment in British womenswear brand Luella, which has ceased trading, it all adds up to a tough time for the designer sector.

Ben Banks, director of Fourmarketing, the agent for premium denim brand Evisu, – which is stocked by both Flannels and Cruise – says the designer sector needs to rescale itself and believes it could shrink by between 20% and 30%.

“We do hundreds of thousands of pounds per season with both Cruise and Flannels and the information that we have is that [the CVA] is being conducted in an honourable way – we’ll be supporting it,” he says. “The whole [designer] market has been finding life a lot tougher and the implication is that we’re all having to rescale slightly and accept that the market has shrunk. We have to realign our costs.”

The upside to this rescaling, according to Banks, is that it offers new businesses the opportunity to grow. When Heath bought back Cruise and closed eight underperforming stores earlier this year, it “opened doors to other retailers” that may not have been previously able to stock the same brands due to their proximity to the Cruise stores. As a result, Banks says Four Marketing has signed a handful of new accounts.

But Stephen Craig, chief executive of young fashion chain All Saints and a former investor in Cruise, is concerned that Heath’s departure will damage the retailer’s relationship with its stockists.

“One of the main reasons I invested in Cruise was John’s involvement,” says Craig. “The brands will be very concerned as they trusted John and he has such strong relationships at the highest levels. During the collapse of the Icelandic banking system, it was John’s track record, relationships and vision that the brands bought into and was the reason the brands continued to support the business.

“I believe Cruise will miss his knowledge, understanding and experience. This situation puts Cruise in a much poorer position than it was with John at the helm.”

Not necessarily, according to its stockists. Both Banks and John Edwards, sales manager for Lyle & Scott Heritage, which is stocked by Cruise, agree that the fact that Martin Lacey, Cruise buying and merchandising director, is still with the business is reassuring.

“Major suppliers [to Cruise] will be seeking reassurance about who the management will be, but they want the business to succeed,” says Banks. “We’ve traded with Cruise for 20 years and even though we do less business with it now, it is still substantial.”

Edwards adds that last Easter, when Heath bought back Cruise, he had “an extensive conversation” with Lacey, who put forward “fairly conclusive” reasons why Lyle & Scott Heritage should stay with Cruise. “We understand that Martin is still there, so we are quietly confident,” says Edwards.

A helping hand

Brands openly admit that it is up to them to help out their indie stockists, suggesting that price increases and the recent furore over discount websites selling current season branded stock hasn’t helped the sector.

“Brands need to be more realistic,” says Edwards. “The restraints they put on their stockists with minimum orders and the way they are putting up prices at the very high end doesn’t help.”

Guy Salter, deputy chairman of Walpole, the trade body that represents British luxury companies, agrees that, until now, luxury brands haven’t needed to think too much beyond the creativity of their designs.

“Cash flow and stock management haven’t always been priorities for luxury brands, but they need to get as professional as the high street, which most of them have been doing over the last 12 months,” says Salter. “The baby-boomer consumers were used to being led by the brands, which dictated what was cool to wear, but the new breed of shoppers is younger, more diverse and more knowledgeable. They understand the small nuances within each brand and will desert them in an instant if something is wrong.”

Salter adds that the onslaught of the internet has hit premium, multi-brand indies hard, insisting that good buying is the key to keeping indies alive. “A physical store is far less important now. The only reason to visit a store is due to the level of customer service and because your buy [is spot-on] – you are only as good as your last buy,” he says.

Tough property terms

For those indies that do get their buy just right, the landlords are not making it easier for them to show it off, according to Giulio Cinque, owner of two-store designer indie Giulio in Cambridge. “Shopping centre developers have been trying to introduce a more diverse mix [to their malls] and Flannels was one of the first in the sector to go into shopping centres,” he says. “But the rents and service charges are horrendous – it’s a massive drain on cash flow. Developers have misjudged how indies can react.”

Like the premium brands, Cinque is supportive of Flannels’ proposed CVA, suggesting it offers a good way for a business to re-evaluate itself and salvage the aspects that made it successful.

“The premium independent sector is having a serious look at itself as, culturally, people are changing the way they shop,” adds Cinque. “I don’t think the sector is suffering but the support is starting to wane.”

But he is quick to praise his own suppliers for the support they have given his business over the past 18 months. “Even Prada and Gucci are being more proactive,” he says. “As an indie, you have to talk to your suppliers. If you can’t pay a bill, tell them. We all have to start engaging with each other more.”

Readers' comments (3)

  • SInce Cruise's original founder, Jim Gibson, left the business expanded, but was built on sand. Anyone going in and speaking to the staff on the floor of either Flannels or Cruise would have been aware of just how badly both groups were doing; applying a rigid, set template to a market that depends on in-depth knowledge of local clientele made Cruise and Flannels look corporate and badly out of touch, and no longer reflected any passion for the business.
    The banking sector has been aware just how tenuous these expansions were and these were reflected with the credit ratings of both businesses.
    How long before Mr. Gibson returns to buy back Cruise? Flannels- all bets are off.

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  • Guy Salter makes a valid point that "you are only as good as your last buy." Any retailer knows that having the right stock in the business at the right time will define the retailers that will survive.

    When did Heath buy Cruise back from the funders as commentator John Edwards asserts?

    The anonymous comment of 12.23 on 24.11.2009 suggests an incisive insight into this indie market that I would agree with.

    Finally, was Limeys really a good buy?

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  • Limeys, bought? It was picked up from the administrators for a song..
    Then Cruise's mistaken formula was then applied to a group that had a very different customer profile, resulting in a dramatic drop from what had been a bad year under Roger Wilkinson's ownership.
    Cruise did not listen to the Limey's management or their customers and paid the price.

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