KENNEDY REPLACES STAHL AS REVLON CEO/2Women’s Wear Daily • The Retailers’ Daily Newspaper • September 19, 2006 • $2.00

Natural Selection

WWDTUESDAY Ready-to-Wear/Textiles

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De la Renta’s New Deal: O Oscar Line to Launch Exclusively at Macy’sBy Marc Karimzadeh and Whitney BeckettNEW YORK — Federated is taking home the Oscar.

Federated Department Stores Inc., Oscar de la Renta and Kellwood Co., which makes the licensed O Oscar sportswear collection, will today unveil an exclusive deal to relaunch O Oscar de la Renta, this time as a better line, for exclusive distribution in Macy’s.

This is de la Renta’s second attempt to make it with O Oscar, after the designer abruptly pulled the plug on the then-moderate sportswear collection last year. O Oscar, the better incarnation, will be sold exclusively at Macy’s nationwide

NEW YORK — Earthy, yes. Hippie-dippy, no.

The New York collections were fi lled with newly

defrilled dresses in an organic palette, often

with safari undertones. Donna Karan, for one,

showed quietly exotic looks that were worlds

away from fussy girlishness. Here, her languid

shirtdress. For more, see pages 6 and 7.

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Global Edition

WWD.COMWWD, TUESDAY, SEPTEMBER 19, 20062

FASHIONDresses reigned on the spring runways in New York, with understated looks that were effortless and graceful, and a touch of sophistication.

GENERALFederated Department Stores, Oscar de la Renta and Kellwood Co. have struck a deal to relaunch O Oscar de la Renta as a better line at Macy’s.

After a four-year turnaround effort at Revlon, Jack Stahl has left the beauty fi rm’s top post after a series of calamitous setbacks.

EYE: Louis Vuitton gave artists carte blanche to create works around its iconic bags, the results of which were unveiled at its gallery in Paris.

RTW: Specialty store owners are on the march to improve service to hold onto customers in an increasingly competitive business.

Juicy Couture inked a distribution deal to expand the brand into China, Taiwan, Hong Kong, Macau, Singapore, Thailand, Malaysia and Indonesia.

The National Retail Federation’s annual holiday forecast predicts overall retail sales increasing 5 percent this year to $457.4 billion.

Former Lands’ End executives launched apparel fi rm Fair Indigo on Mon-day, with a multichannel strategy and a lofty goal of fair worker wages.

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WWDTUESDAYReady-to-Wear/Textiles

● NEW CFO AT VF JEANSWEAR: D. Paul Dascoli has been named chief fi nancial offi cer of VF Jeanswear, a division of VF Corp. Dascoli, 45, will join VF on Oct. 2, succeeding Mark Thoma, who is retiring after 33 years at the fi rm. Dascoli was most recently executive vice president and cfo for Thomasville Furniture Industries. He is also a former vice president of fi nancial opera-tions for Revlon, a post he held from 1994 to 1996. Dascoli will re-port to Robert Shearer, senior vice president and cfo of VF Corp. and will be based in Greensboro, N.C.

● DELTA GALIL USA NAMES CEO: Tel Aviv-based Delta Galil In-dustries has appointed Tom Witthuhn to the post of chief execu-tive offi cer of Delta Galil USA. Witthuhn succeeds David Kostman, who is returning to Lehman Bros. to head its Global Internet Investment Banking Group after three years at Delta. Kostman, who was previously managing director in Lehman’s investment banking division, led Delta Galil’s public offering on the Nasdaq in 1999 during his tenure at the intimate apparel fi rm. Witthuhn was senior vice president of international operations and global licensing for Fruit of the Loom before joining Delta Galil.

● DIRECTOR IN DALLAS: Fashion Industry Gallery, the bou-tique-style mart here that accents contemporary and bridge styles, has named Shelli Mers director. Mers, who started work last week, replaced Elyse Wasserman, a consultant who became interim director after the departure of Gavin Smith. Mers spent almost four years as director of leasing and merchandising at FashionCenterDallas’ 15th floor, which also featured contem-porary and bridge brands.

In Brief

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Revlon, Jack Stahl to Part WaysBy Molly Prior

NEW YORK — After a four-year effort to turn around Revlon, Jack Stahl has left the beauty fi rm’s top post following some calamitous setbacks. Stahl has been replaced by chief fi nancial offi cer David Kennedy.

Space losses in a number of key retailers this summer led many to wonder if Revlon’s pri-mary owner since 1985, Ronald Perelman, would make changes to top management. Kennedy, 59, is the sixth ceo under Perel-man’s watch, following the footsteps of Stahl, Jeff Nugent, George Fellows, Jerry Levin and Sol Levine.

But the change seemed abrupt to retailers and Wall Street, as well as Stahl’s beauty indus-try peers, who honored the ceo last week at the Dream Ball, an annual event that benefits the American Cancer Society.

Revlon’s stock price remained relatively un-changed. Shares closed at $1.41, down 1.4 per-cent, on the New York Stock Exchange Monday.

Kennedy could not be reached for comment.

Revlon has stated — and ex-ecutives inside the company have reiterated — that Stahl left of his own volition. But the view on Wall Street is that he was forced to step down in the midst of a tough year for the fi rm. One industry source said that Stahl’s right hand, Stephanie Klein Peponis, is expected to leave as executive vice president and chief market-ing offi cer by October, and that a round of layoffs is slated to take place in the next several weeks. Revlon would not comment on either statement.

Stahl joined Revlon as chief executive offi cer in 2002 from Coca-Cola, where he was presi-dent and chief operating offi cer. He has worked with Kennedy for two decades and recruited him from the beverage company four years ago to run Revlon’s international business. Kennedy took on the role of executive vice president, cfo and treasurer in January, swapping posts with Thomas McGuire, who is now ex-ecutive vice president and presi-dent of Revlon International.

On Monday, Kennedy offi cial-ly took over the reins of director, president and ceo of Revlon, but Stahl has agreed to stay on as an adviser for a 30-day transition period.

“David has a clear vision at Revlon International and he achieved significant success there, generating top-line growth and restoring meaningful profi t-ability to the business,” said a Revlon spokesman. He added that Revlon’s fundamental strategy of

leveraging its brands will remain consistent but noted, “We expect David will make his own mark as he did at Revlon International.”

From 2001 to 2002 — prior to Kennedy’s arrival — Revlon’s inter-national sales de-clined 8 percent each year and

the business generated operat-ing losses. In 2003, the year after Kennedy joined Revlon, the company’s international sales were up double-digits and oper-ating profi tability was restored.

Upon joining Revlon in 2002, Stahl outlined a fi ve-year turn-around plan for the struggling beauty fi rm that hinged on pol-ishing core franchises, including Age Defying and ColorStay, the relaunch of the Almay brand and the introduction of a new line of cosmetics for mature women called Vital Radiance.

William Chappell, an analyst with SunTrust Robinson Hum-phrey Capital Markets, also cred-ited Stahl with mending rela-tionships with retailers that had turned sour after a series of ship-ment troubles and spotty in-store execution. Chappell said Revlon’s appointment of Kennedy, part of Stahl’s management team, might be an expression of confi dence by the company.

Several industry sources said that while Stahl had successes at Revlon, the Achilles heel of his tenure was Vital Radiance.

Since its launch in January, Vital Radiance has failed to gain traction in the mass market, and has hindered Revlon’s turn-around momentum. Company sales ticked up less than 1 per-cent in the most recent quarter to $321.1 million from $318.3 mil-lion, but were pulled down by a $17 million returns-and-allowanc-es provision for Vital Radiance as big-box retailers cut the new line from a number of their doors. Revlon would not comment on which retailers scaled back space for the line, but industry sources said the list includes Wal-Mart, Target and CVS.

“Revlon had been struggling for years. It was losing money for 22 or 23 straight quarters, but I think they were making some progress,” said a cosmetics man-ufacturer executive. “Then the Vital Radiance debacle just shat-tered them. In hindsight I think there were a series of market-ing errors. The leap of faith on the price point, taking a line and doubling the average retail price, if not tripling it, was signifi cant.”

Several beauty buyers said that Revlon’s plans to fi x Vital

Radiance include reducing prices — which are on par with Clinique, a department store brand — by nearly 13 percent and amending the brand’s name to Vital Radiance by Revlon. One buyer noted that a recent 50-per-cent off promotion helped bolster sales of the product.

“I think using the Revlon name will help with recognition. We didn’t fully get Vital Radiance set up until July and we needed more than 30 to 60 days to judge it,” said an executive from a mid-sized Midwestern drug chain. “We’ve decided to hang on and see what 2007 brings.”

Another setback was the abrupt postponement in June of a daring and bold plan to re-enter the department store fra-grance market with a women’s scent called Flair.

“Was this bound to happen? I think probably yes,” said Credit Suisse analyst Filippe Goossens referring to the change in lead-ership. He noted that ceo’s are often given a four- to fi ve-year window to implement a turn-around. “By year four, you clear-ly need to see improvement.

“Revlon still has a formidable presence in the U.S. market, but one of its biggest challenges is its balance sheet,” he continued, noting that the company has not had a year of positive free cash fl ow since 1996, the year it went public. “Its competitors have sig-nifi cantly deeper pockets to fund marketing and research and de-velopment,” said Goossens. “One of the ways this company could fl ourish again is to bring in a strategic investor seeking access to the U.S. mass market and new channels of distribution.”

Several retailers and analysts raised concerns about filling Revlon’s top post with another Coca-Cola executive. “Just be-cause you are successful in an-other consumer products indus-try does not make you successful at the helm of a beauty compa-ny,” said one research analyst.

“My thinking is if they are appointing a cfo to replace him there is some financial con-sideration that will happen at Revlon,” said an executive at a competing beauty fi rm. “It is a debt-ridden company so you have to get rid of some of the parts. It could be that they sell Almay, sell the HBA/Mitchum business, and then fi gure out how to pay off the debt. Otherwise, you need a swift marketing-turnaround-ceo type of person.”

— With contributions from Faye Brookman and

Andrea Nagel

BEAUTY BEAT

David Kennedy

Jack Stahl

Bloomingdale’s in August will launch a new lifestyle concept for presenting home furnishings at the full-line store opening in Chevy Chase, Md. This was incorrect in a story starting on page one, Monday.

Correction

Sourcing Horizons runs in this issue as a Section II.

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PARIS — “Did you see the 2 million euro Jean Prouvé table?” asked Karl Lagerfeld at a gala last Wednesday to fete the Biennale des Antiquaire’s return to the soaring glass-domed Grand Palais. “Unbelievable, no?”

Lagerfeld may no longer be interested in such rarities — his new Paris apartment will only feature

furniture designed after the year 2000 — but there were plenty of other people spending big bucks.

When Susan Gutfreund, who is decorating the Claridge Bellman hotel here, asked the price of the ivory-inlaid tables at Galerie Vallois that Jean-Michel Franck made for the Rockefellers’ Fifth Avenue apartment, she was refused — it had already found a taker. “I asked if it was Russians, and they replied, ‘Oh, no, madame, des Americaines.’ I wonder who the buyer could be?”

The list of possibilities was a long one, since there were connoisseurs aplenty — Henry and Marie-Josée Kravis, Bernard and Helene Arnault, Bethy Lagardère, Pierre Bergé, Simon de Pury, Christian Louboutin, Hubert de Givenchy, Peter Marino, Empress Farah Pahlavi, and actresses Monica Bellucci and Anna Mouglalis were among those at the charity dinner, hosted by French fi rst lady Bernadette Chirac, to benefi t the Hôpitaux de Paris.

“There are so many spectacular pieces,” gushed John Galliano, his hair swept up in a rockabilly bouffant. “It makes you dream.”

The night before, the indefatigable social set — including Princess Caroline of Monaco

and Prince Ernst August of Hanover, Marisa Berenson, Lily Safra, Betty Catroux, Robert Wilson and Louise Blouin MacBain — attended a dinner to celebrate the overhaul of the Museum of Decorative Arts, which had been closed for a decade. Many of the couture-clad ladies made a beeline for designer Jeanne Lanvin’s re-created boudoir. Yet not everyone focused on Lanvin’s impeccable taste.

Cordelia de Castellane, wearing sleek Emanuel Ungaro from her days in the press offi ce there, revealed she’s dabbling in children’s wear. “It’s really bohemian chic,” she said. “But not expensive.”

Earlier the same evening, it was shoulder-to-shoulder at Galerie J. Kugel, where brothers Alexis and Nicolas Kugel teamed up with Belgian whiz Axel Vervoordt to re-create the eclectic apartment of the late and legendary Paris antique dealer Nicolas Landau. After the throngs had departed, Natalie Kugel invited a kernel of her friends for Champagne and dancing. “After all this, I need to blow off some steam,” she said.

Finally, at a party on Thursday night to inaugurate Louis Vuitton’s “Icons” exhibition, in strolled Marc Jacobs, fresh from New York Fashion Week.

“I just stepped off the fl ight,” said Jacobs, wearing the Mickey Mouse T-shirt he sported at his signature show. “It will be nonstop from now until the [Louis Vuitton] show.”

And how. Dominique Miceli, the mother of Vuitton creative consultant Camille Miceli, was at the party with a fi lm crew in tow for a fl y-on-the-wall documentary tracking the designer’s working life. The 65-minute documentary will be screened on the French/German TV channel Arte in April, and then distributed internationally.

“It’s the fi rst time [Jacobs] has ever agreed to having every element of his work recorded, from the trend meetings through to the fi nal countdown to his shows,” said Miceli.

WWD.COM4 WWD, TUESDAY, SEPTEMBER 19, 2006

Why can’t a handbag be more like a building — and a futuristic, sculptural one at that?

So asks acclaimed architect Zaha Hadid, one of nine creative types tapped by Louis Vuitton and given carte blanche to create artworks around its iconic bags. The results — including Hadid’s mind-bending vision of a bucket bag gone warp speed on “Star Trek” — were unveiled last week at the Espace Louis Vuitton gallery in Paris.

The exhibition springs from Vuitton creative director Marc Jacobs’ occasional collaborations with artists Stephen Sprouse, Julie Verhoeven and Takashi Murakami for leather goods, but takes the idea several conceptual steps further.

“A lot of the artists decided to make something quite autobiographical,” explained Hervé Mikaeloff, curator of the exhibition. “They each brought their own vocabulary to the project.”

For example, James Turrell, who has been fascinated with fl ying since he was young, dreamed up a light-based artwork in a wardrobe trunk: a portable art gallery complete with its own light and a fold-up chair to contemplate the work. “I like to travel light,” he quipped.

Travel, a key Vuitton brand theme that permeates many of the works, also fi gures in an installation by interior architect Andrée Putman, who hung a steamer bag from a brown leather hot-air balloon. Turns out she’s a descendent of the Montgolfi er family, which invented the early hot-air balloon fl ying machine.

Sometimes the works are quite literal, like Sylvie Fleury’s bronze version of the Speedy from 2000, which inspired the vinyl “mirror” bags Jacobs designed for this fall and winter. Others are quite abstract, like Bruno Peinado’s rotating sculpture, a visual puzzle of holiday clichés, from the Eiffel Tower to palm trees — all exploding out of a Speedy bag.

“It’s not a corporate project,” Mikaeloff said. “In some of the works, you can’t recognize the bags.”Running through the end of the year here before traveling to Hong Kong, Tokyo and New York in 2007, the exhibition also

features works by Ugo Rondinone, Tim White-Sobieski, Shigeru Ban and Robert Wilson.— Miles Socha

Fair Ladies

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6 WWD, TUESDAY, SEPTEMBER 19, 2006

Dresses still reign in New York, and the spring collections were big on understated looks that were simpler and sophisticated, with a touch of exotica in the back-to-nature palette.

NEW YORK

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WWD.COM

NEW YORK — As fashion continues to gain more of a worldwide scope, specialty store owners are on the march to improve service to hold onto customers in an increasingly competitive business.

That was the word from retailers attending the Atelier Designers and Pacifi c Designers trade shows Monday at the Doubletree Guest Suites here. Jayne Siever, a co-owner of Pilgrims’ Progress in Plymouth Mass., summed up the retail scene, “We’re competing with the world. Our customer travels. Everybody is exposed to everything now. The customer is very savvy.

“In its 29th year, her family-owned business recently doubled the size of its store to 1,800 square feet. “We are always on the fl oor selling and we carry everything — women’s, men’s, shoes and accessories. Our customers have become extraordinarily loyal given the competi-tion,” Siever said.

Developing a friendly rapport with customers is a pri-ority, as is knowing what type of clothing will work for each customer’s lifestyle. Siever’s family members make up fi ve of the store’s six employees, and the one nonrela-tive has worked there for 29 years. At Pacifi c Designer Collection, Siever was looking for great better sportswear items like jackets, skirts and T-shirts, she said. “From a buying perspective, you have to know what you’re looking for based on your customer. This is a very intuitive busi-ness. My intuition helps with my buy. It’s hard to articu-late, but I know what she needs when I see it.”

Having canvassed six trade shows, Siever said, “I’m amazed by the number of companies showing in New York that they can all survive.”

Pina Ackerman, owner of Pina Boutique in Fort Lauderdale, Fla., was also making the rounds at several shows. “I always check out everything. There could be one line that makes it worth the trip. I also go to a lot of European markets. You have to always be looking. Otherwise, you stay behind and you lose.”

She said she was visiting Pacifi c Designers for the fi rst time, but at Atelier she planned to check out Amy Leiner, Beppa and Vitamin Inc. A 33-year retail veteran, Ackerman didn’t let last year’s massive hurricane damage to her store deter her from reopening four months ago. She expanded the space, but insisted customer service is the key to success.

“If you have good customer service and you really care for your customers, you will succeed,” said Ackerman. “People are looking for something that works for them, but it’s all about service, service, service. People love to be catered to.”

Nadine Buch, owner of The Tiger’s Eye in Lititz, Pa., said for the fi rst time in her store’s 10-year history, business is slightly off compared with the previous year. “It’s been a tad off — not bad, not scary. I’m still hoping that the last quarter sales will pull us out,” she said. “There is a little less traffi c in the store. It could be that people aren’t traveling so much due to gas prices.”

To try to get shoppers revved up about fall, Buch plans to host a few in-store fash-ion shows and mail select customers coupons for $25 discounts on $100 purchases. She was also on the lookout for immediate orders at the shows, with jackets, scarves

and wearable art sportswear topping her list. She also planned to check out Treadle, Frittelli & Lockwood, Nooshin and Beppa.

Alice Materasso, owner of Alice, Alice, Alice in Ridgewood, N.J., was also looking for immediate merchan-dise, especially capes and sweaters, as well as new lines for spring. “Finding two new lines will make the store more ex-citing,” she said. “People are defi nitely more cautious [about spending] in the suburbs. People who would normally spend a lot of money are spending less. They seem to be bargain-ing more with prices and even with alterations. Department stores mark down so early in the season. They’re not saying it, but I’m sure it has an effect.”

Running some early fall advertising has helped to get shoppers in her store, and Materasso has a few trunk shows planned for fall.

A few exhibitors were also trying new tactics. Sally Bridge, a Providence, R.I.-based label, was showing its ready-to-wear at Atelier for the fi rst time and its special occasion dresses at Moda. Another newcomer, Karen

Allen, was offering her cashmere knitwear to retailers for the fi rst time. Until now, she has sold her collection from her store by the same name in Great Barrington, Mass. Allen attended FIT as a young woman and then went on to have a 25-year acting career, with her most recognizable role being as the woman who would drink people under the table and punched Harrison Ford in the chin in “Raiders of the Lost Ark.” As for her new role, she said, “I’ve been waiting all my life to do this.”

At Pacifi c Designers, Seattle-based Betty David was selling her signature hand-painted shearling jackets and coats wholesale for the fi rst time. For 15 years, David, a Spokane Indian, has been selling them through the Santa Fe Indian Market and craft shows.

— Rosemary Feitelberg

8 WWD, TUESDAY, SEPTEMBER 19, 2006

Ready-to-Wear Report

Stores Strive to Appease Shoppers

Knitwear from Karen Allen. A Betty David jacket.

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WWD.COMWWD, TUESDAY, SEPTEMBER 19, 2006 9

By Miles Socha

PARIS — Yvan Mispelaere, slated to take a bow at the end of the Chloé show here on Oct. 7, is also bowing out of the company and heading to Gucci, WWD has learned.

Reached on Monday, Mispelaere con-fi rmed he starts at Gucci in Florence after he fi nishes up his Chloé duties. He said his title would be design director, working under creative director Frida Giannini.

The move could turn up the heat on Chloé to name a designer successor to Phoebe Philo, who resigned from the Paris-based house in January to spend more time with her family and her new baby.

Asked about Mispelaere’s exit, Chloé chairman and chief executive officer Ralph Toledano said, “We don’t comment on rumors.”

However, he said Chloé would appoint a new creative director shortly after its show in Paris. He also reiterated that “two possibilities are considered: inter-nal and external.”

Mispelaere has long been a key mem-ber of Philo’s team, and came out at the end of the runway in March in Paris along-side two colleagues — Blue Farrier and Adrian Appiolazza. More recently, he was given credit for Chloé’s pre-spring collec-tion, which was well received by buyers and press, according to the company.

Sales at Chloé more than doubled last year, and parent Compagnie Financière Richemont has said the fi rm’s momen-tum has been unaffected by the depar-ture of Philo and is growing “beyond expectations.”

Before joining Chloé, Mispelaere was the creative director of Louis Féraud, but he spent much of his design career in Italy, working for Prada in Milan and Valentino in Rome.

Known for his tailoring and intricate dressmaker detailing, Mispelaere joins Gucci as it enjoys strong sales momen-tum under Giannini’s direction. Gucci declined to comment on changes in its design department.

Mispelaere Exiting Chloé To Take Position at Gucci

JUICY COUTURE, ONE OF LIZ CLAIBORNE INC.’S MOST VISIBLE brands, is expanding its presence to Asia.

Juicy signed an agreement with the Lane Crawford Joyce Group for exclu-sive distribution rights to the Juicy Couture brand in China, Taiwan, Hong Kong, Macau, Singapore, Thailand, Malaysia and Indonesia. During the fi rst four years of the contract, 24 Juicy Couture freestanding stores will open, along with 23 shop-in-shops, with the majority of the presence focused in Greater China, including the Mainland and Hong Kong as well as Taiwan.

Juicy Couture, which was founded in 1994, was acquired by Claiborne in 2003.

The Lane Crawford Joyce Group is Asia’s premier international brand group. Among its portfolio of brands under franchise and distribution in Greater China are Marc Jacobs, Marni, Hugo Boss, Versace, Coach and BCBG.

“Limiting Juicy Couture’s wholesale distribution in the U.S. has always been a key element of our long-term growth strategy, and Juicy has prospered under very select, very exclusive distribution,” said Gela Taylor, co-president of Juicy Couture, in a statement. “We expect a substantial portion of the future growth for the brand to come from international expansion as well as acces-sories, brand extensions, licensing and a focus on specialty retail in the U.S.”

Juicy, which began as a women’s contemporary brand, has expanded into men’s, children’s wear, accessories, swimwear, footwear, sunglasses, watches and fragrance. Stateside, the fi rst Juicy Couture store opened in Las Vegas in 2004. In June, the fi rst Manhattan Juicy Couture fl agship opened, and three more lo-cations in the city are planned. By yearend 2007, the plan is to have 40 freestand-ing units, including fl agships in New York, San Francisco, Milan and Tokyo.

Industry sources estimate the Juicy Couture universe now does up-ward of $300 million in wholesale volume, and the brand’s fi rst fragrance, launched last month, is expected to add signifi cantly to that fi gure.

— Lisa Lockwood

Claiborne Sets Asian Plan For Juicy Couture Growth

“We expect a substantial portion of the future growth for the brand to come from international expansion.”

— Gela Taylor, Juicy Couture

Yvan Mispelaere

WWD.COM

By Stephanie Epiro

MILAN — A return to its home in the city proved to be a good-luck charm for the third edition of Italian textile fair Milano Unica.

Visitors rose by 15 percent compared with February’s edition, to 35,512, as the exhibition moved to the Milan city fairgrounds. International visitor numbers also increased, by 26 percent to 12,441, with organizers reporting buyer attendance from Japan, the U.S. and emerging markets India, South Korea, China and Russia. Combined exhibitor numbers totaled 709.

Milano Unica made its debut last September in Milan’s old fairgrounds and moved to the suburban Rho-Pero space for its sophomore edition in February. Snarled traf-fi c and unrelated events simultaneously taking place at Rho-Pero produced logistical headaches and plenty of complaints.

Milano Unica president Paolo Zegna said despite disappointing results from Italian textile sales in 2005, this year would close much more positively.

The Italian textile industry recorded sales of 8.6 billion euros, or about $10.7 bil-lion, in 2005, a decrease of 3.9 percent from 2004. Exports in 2005 dropped 5.3 percent to 4.9 billion euros, or $6.1 billion, compared with the previous year. The fi rst six months of 2006, said Zegna, showed production volume had decreased compared with the same period in 2005, while sales have increased, thanks to Italian mills shifting their focus to high-end products.

“[The Italian textile industry] is aware of the pathway we need to take to ensure success through quality and creativity, and of Milano Unica as an instrument to follow that pathway stronger, faster and more directly,” said Zegna.

Riccardo Marini, president of Prato Expo, which is part of Milano Unica, said, “There’s renewed faith this time around for Unica by Pratese exhibitors. In Prato, the path we have to take is clear now to all of the textile mills that have since abandoned producing basic product.”

Some mills admitted to being more strictly focused on high-end products. Prato-based Marcolana restructured its collection to make higher-priced, fancier fabrics.

“It’s a risk we are prepared to take because the fabrics are more adapted to the clients who come here to buy Italian-made fabrics,” said Andrea Barontini, executive vice president of Marcolana. “Now we’ve delocalized everything basic from the collection to Bulgaria.”

Executives were well aware of the problems international buyers faced.“We understand why some big overseas manufacturers are pressured to buy tex-

tiles from a place where they can be made into garments at the same time,” said Stefano Rigotti, co-director of Prato-based mill Ultra. “But for me, someone who wants to make fashion has to get textiles from Europe.”

International buyers shopping at the fair echoed Rigotti’s sentiments.“All our textile manufacturers come from Italy, so it makes sense for us to come to

this show,” said Timoteo Corelli, designer for the Florida-based line Blue Ice. “It’s the only way to source the interesting, novelty fabrics we seek for our line.”

Outerwear fabrics at Loro Piana included double-faced cashmere with a fuzzy tex-tured fi nish for coats in hues of rustic orange and bottle green. Loro Piana also produced a luxurious baby camel hair fabric in sand with a weave that resembled moiré silk.

Larusmiani produced some luxury women’s wear fabrics for fall and winter, in-cluding a cotton and cashmere and cotton and silk plaid and herringbone woven cloth. The mill also experimented with denim, creating a cotton and cashmere blend dark indigo denim and in some cases adding glittery Lurex.

Venice-based mill Gentax showed denim woven from a combination of cotton, wool and linen available in a lilac blue tile-pattern jacquard. The fi rm also produced a pin-stripe indigo and silver lamé denim.

Following a fi nancial restructuring, Biella-based mill Luigi Botto went back to

its roots and showed a collection that featured alpaca and angora. For its Lanifi cio Fila line, the mill produced cashmere fl annel and cashmere mixed with Lurex, as well as a spongy outerwear fabric of alpaca.

“It has an Eighties look, but it’s a little more refi ned,” said Arianna Leone, marketing director of Luigi Botto.

Silk producers at the Ideacomo section of the show felt the pres-sure of Unica’s early dates, with most admitting to being able to exhibit only a percentage of their fi nished collection.

“Clients come here and look, but they won’t decide on anything at least until Première Vision,” said Beppe Pisani, president of Ideacomo and the mill Serikos.

Tiny jacquard designs inspired by neckwear were part of the trends in silk fabrics, as well as tone-on-tone embroidery and three-di-mensional weaving effects. Beige, honeycomb, caramel and pale rose pink were shown alongside darker shades of violet, plum and black.

Wool and silk specialists played with textures in fabrics for fall-winter 2007-2008. Soft gunmetal gray stretch chenille was woven with metal and Lurex at Prato-based Lanifi cio Lamberto, which also pro-duced a popular cream wool plaid fabric with organza inserts. Gauze and cobweb black and cream wools were mixed with washed gold lamé-embroidered ivory velvets at Varese-based Ricamifi cio Lusi.

Knitted fabrics featured a rainbow of Lurex stripes in gray, gold, silver, blue and fuchsia at Silanco, while Marini & Cecconi produced a diagonal fi ne-striped wool and linen coat fabric in black and lamé gold, alongside smart mercerized shiny black compact cottons.

10 WWD, TUESDAY, SEPTEMBER 19, 2006

Milano Unica Rebounds in Return to Home VenueTextile & Trade Report

Left: A camel hair and wool, cotton and cashmere blend from Loro Piana. Right: A purple viscose, cotton blend and a wool, acetate blend from Serikos.

Paolo Zegna, president of Milano Unica, and Pierre Luigi Loro Piana, speak at a press conference during this year’s show.

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Issue Date: October 30 Close: September 25

More immediate. More authoritative.

More insider. More provocative.

14 WWD, TUESDAY, SEPTEMBER 19, 2006

By David Moin

While holiday sales are expected to in-crease this year, it could be a “sub-

dued” season for retailers, according to the National Retail Federation.

The industry trade group, in its annual holiday forecast released today, predicts total retail sales will increase by 5 percent over last year, bringing the nation’s holiday spending to $457.4 billion. In comparison, holiday sales in 2005 rose 6.1 percent to $435.6 billion.

Over the last decade, the average annual percentage increase in sales for the holiday season was 4.6 percent, the Washington-based trade organization said.

With the housing market softening, an ane-mic job market, gas prices still high but slowly dropping, and growing unrest regarding the Bush administration’s Mideast policies and the Iraq War, retailers are getting increasing-ly concerned about how consumer confi dence will hold up come Christmas. But as the NRF points out, consumers have been resilient this year, keeping retailers mostly satisfi ed.

According to NRF statistics, one-fi fth of retail industry sales, 19.9 percent to be pre-cise, occur during the holiday season, mak-ing it the most important time of the year for the industry. The NRF defi nes holiday retail sales as those occurring in November and December. The NRF’s retail scorecard tabulates most traditional retail categories

including discounters, department stores, grocery stores and specialty stores, and ex-cludes sales at automotive dealers, gas sta-tions and restaurants.

However, retailers also take in plenty of holiday-related sales during January, when consumers use their gift cards to buy mer-chandise and price promotions flourish, potentially putting a different spin on the fourth quarter’s outcome. For the fourth quarter through January, the NRF has pre-dicted a 4.6 percent total sales gain. The trade group also predicted a 5.5 percent sales gain for the third quarter.

“Consumers have faced a number of eco-nomic challenges this year and have taken them in stride,” said NRF chief economist Rosalind Wells, in a statement. “Although sales gains will not be as robust as last year, retailers can still expect above-average holi-day sales growth.”

“Consumers make small sacrifi ces all year so they can splurge a little during the holi-days,” added NRF president and chief execu-tive offi cer Tracy Mullin. “If gas prices contin-ue to fall, shoppers will fi nd a little something extra in their wallets, giving them even more reason to celebrate.”

The NRF will provide more specifi c pro-jections on how much consumers are plan-ning to spend and what they want for the holidays in its 2006 NRF Holiday Consumer Intentions & Actions Survey, which will be released Oct. 17.

NEW YORK — Olympus is out and Mercedes-Benz USA is in as the title spon-sor of what appears to be IMG’s siteless New York Fashion Week.

Mercedes-Benz executives declined to comment Monday on where things stand in terms of IMG’s negotiations to keep fashion week in Bryant Park. But an IMG spokesman said, “We are continuing to work with the city to arrive at a positive solution for all parties.”

Dan Biederman, president of the Bryant Park Corp., said, “It’s no secret IMG has brought their cause to the mayor.”

Apparently, incoming Council of Fashion Designers of America presi-dent Diane von Furstenberg isn’t the only one who has appealed to Mayor Michael Bloomberg. Vogue editor in chief Anna Wintour has also written to the mayor, reportedly telling him New York runs its fashion shows bet-ter than any other city and asking for his support in the matter.

The Bryant Park Corp. has no legal agreements with IMG, which owns 7th on Sixth. However, Bryant Park executives are continuing to talk with IMG through the mayor’s offi ce, Biederman said. IMG has “a very viable option at Lincoln Center,” but IMG executives “changed their minds,” he claimed. Biederman said he thought Lincoln Center would be the new location of fashion week until he read newspaper reports to the contrary on Friday.

“Year after year we wanted them to sign a long-term contract,” he as-serted. “We wanted to do things so the shows would not have such an im-pact on the neighborhood. But they didn’t want to.”

An IMG spokesman said IMG has never been offered a long-term con-tract for the time period in question.

Wherever the February shows wind up, Mercedes-Benz will be the lead sponsor. As part of its three-year deal with IMG, the luxury carmaker is also the title sponsor of IMG’s fashion venues in Los Angeles and Miami. This marks the fi rst time all three of these IMG fashion entities have fallen under one sponsor. Mercedes has been the chief sponsor at Los Angeles Fashion Week at Smashbox Studios since its 2003 inaugural event.

As part of the deal, Mercedes-Benz will launch several marketing initiatives, including 52 weeks of dedicated fashion programming on the Internet, partner-ship marketing, related consumer shows and philanthropic endeavors.

— Rosemary Feitelberg

Mercedes-Benz Back in N.Y. FashionNRF Sees 5% Hike in Yule Sales

By Denise Power

Former executives of Lands’ End launched apparel company Fair Indigo

on Monday, scoring a virtual hat trick in multichannel retailing while aspiring to something loftier: fair worker wages.

The online and catalogue businesses sell men’s and women’s apparel, foot-wear and accessories made in 23 facto-ries where pay exceeds local minimum wage and workers enjoy perks like on-site health care and free trips home for Chinese New Year. Opening on Nov. 1 is the third channel, a store at Hilldale Mall, Madison, Wis., the future home of Robert Redford’s fi rst Sundance Cinema Center.

“This is a new market we are going to be creating,” Fair Indigo chief execu-tive offi cer Bill Bass told WWD. He said there is pent-up demand for quality, eth-ically made apparel and it doesn’t have to be pricy.

Silk chiffon skirts made in Shenzhen, China, go for $79. Jeans priced at $59 are made in Costa Rica, where workers get four hours extra pay each week plus free jeans for life. The Cashmere With a Conscience collection ranges in price from $129 to $169.

The Middleton, Wis., company wants to take “fair trade” practices to main-stream apparel. Although there are fair

trade wages established for coffee, loose tea and chocolate, no such standards exist for apparel.

“Traditionally, fair trade is [confi ned to] mom-and-pop shops selling indig-enous designs, or people selling hemp clothes,” Bass said. “What we wanted to say is, we can have really nice fabric and still have it be fair trade — so you’re talking cashmere, silk, nice things that you wear to work.”

While Los Angeles’ “sweatshop-free” American Apparel targets teens, Fair Indigo is focused on 30- to 50-year-olds.

Wage rates are the top priority for sourcing decisions, he said, citing a fac-tory in Dongguan, China, that makes Fair Indigo’s cashmere. Workers there are paid 40 percent above minimum wage. Fair Indigo subsidizes that pay with a bonus for all employees, even if they are not working on its sweaters.

Moderate price points are possible despite the higher cost of goods because Fair Indigo limits outlays for advertising and electronic commerce.

The Web site, fairindigo.com, was developed internally with the help of Berbee Information Networks, Madison, Wis., at a cost of $70,000, well below the $1.5 million estimate one analyst prof-fered upon viewing the site. Bass esti-mates 75 percent of revenue will come

from the Web; 15 percent from phone catalogue business, and 10 percent from stores. He would not disclose projected annual sales, but said up to four stores per year may open beginning in 2008.

Launching all three channels to-gether affords the start-up an edge that eludes many retailers. Fair Indigo’s single, integrated order management system will provide a holistic, reliable view of all channels. Retailers that add a channel often pieces together technol-ogies, resulting in an inconsistent shop-per experience across channels.

“These guys are launching all three pretty much at once. It’s a great thing because they are building synergies — from a technological standpoint and from an operational perspective — into the foundation of their company,” said Patti Freeman Evans, senior analyst at Jupiter Research.

Fair Indigo’s principals are fi nancing the business and there are no outside investors, said Bass. Other co-founders include Don Hughes, chief operating offi cer; Rob Behnke, vice president of merchandising, and Elizabeth Ragone, style director. All four hail from Lands’ End, where Hughes was chief fi nancial offi cer; Bass was senior vice president of e-commerce for Lands’ End and vice president and general manager of Sears’ customer direct; Ragone was manager of Internet merchandising, and Behnke was international merchant at Lands’

End Japan.Fair Indigo is working with the

University of Wisconsin to determine fair wages in different parts of the world based on the cost of housing, health care and other living expenses. Although Fair Indigo pressed TransFair USA to work toward standards, the cer-tifying agency deemed the task too com-plex and said it would take years. “For us to put our seal on something, we want to make sure every level of pro-duction — from cultivation to process-ing and fabrication — has been certi-fi ed,” a spokesman said.

Bass said Fair Indigo didn’t want to wait for that “perfect world” and will defi ne fair wages for cutting and sewing fi rst, and move deeper into the supply chain later on.

Fair Indigo Takes Multipronged Strategy

Fair Indigo’s zoom tool shows embellishment details.

WWD.COM

WWD.COM

NEW YORK — With fashion week winding down last Friday, more than 800 people seeking jobs in the industry got down to business at WWD Fashion Career Expo, just blocks from the Bryant Park tents.

Human resources representatives from 70 brands, including L’Oréal, Coach, Gap, H&M, Loro Piana, Phillips-Van Heusen and Movado, took booths at the event in Gotham Hall for the fi fth edi-tion of the job fair, the fi rst sponsored by WWD. Job seekers with two years of industry experience and a college degree were in-vited to meet with companies and distribute résumés.

Firms were primarily looking for part-time and full-time retail sales associates and retail management po-sitions.

“This is an opportu-nity to take six months of interviews and com-press them into one day,” said Bradford Rand, president and chief executive offi-cer of Fashion Career Expo. “It’s great expo-sure for fashion indus-try recruitment.”

Tourneau represen-tative Scott Alijan said the one-day show was a success.

“We met with 50 people and we have 10 prospects for various positions,” he said.

Laura Bonilla, human resources assistant manager for Zara, was looking to fi ll retail sales associate positions and manage-ment roles.

“We’ve had 100 people come by and there are about 20 to 30 possibilities,” Bonilla said.

Abercrombie & Fitch was not trying to fi ll any specifi c posi-tions, but wanted to have a presence at the fair, said Joe Medved, senior director of recruitment for the fi rm.

Tiffany & Co. touted its new Web site, tiffanycareers.com, and was searching for candidates to fi ll full-time and seasonal sales jobs at its Manhattan fl agship.

Nancy Spruiell, a former production manager seeking employ-ment, said the fair was encouraging.

“I would never have had the chance to approach cosmetic com-panies like Bare Escentuals, because I don’t have a background in it….but they told me that going into the cosmetics industry wasn’t so far-fetched,” she said.

— Sophia Chabbott

WWD, TUESDAY, SEPTEMBER 19, 2006 15

PARIS — Let them eat cake — or no cake at all.The organizer of Paris Fashion Week, Oct. 1 through

8, said Monday it has no plans, nor does it have author-ity, to enforce a ban on too-skinny models like the one in effect at Madrid’s government-subsidized runway shows this week. “Every designer is free to do what he or she wishes and every model is free to be who she is,” said Didier Grumbach, head of the French Fashion Federation. “Frankly, it’s not an issue.”

Meanwhile, agencies and designers in London and Milan voiced opposition Monday to any efforts to impose rules on the aesthetics of the semiannual runway outings.

“I think it’s aggressive and repulsive to do this to young people. They are under so much pressure anyway — and now people want to add to it by criticizing them about their weight,” said Bella Freud, who will be staging the fi rst runway show of Biba in London today. “Sometimes young girls are just skinny. That’s all. And there’s a big difference between being skinny and having an eating disorder. Why should they be penalized for being skinny? We have to remember to cherish young people — and not to criticize them so much.”

In Milan, where shows get under way on Saturday, the general consensus is that nothing will change.

“The Camera della Moda does not believe runways today are an aesthetic model and, in any case, the market now fa-vors healthy models,” said Mario Boselli, head of the Italian Chamber of Fashion. “We work with serious, professional agencies and fashion houses that would not even consider [working with models with eating disorders]. We do not want to follow Spain’s example as we don’t believe these matters can be regulated and we would rather use our judgment.”

Italian designers concurred intervention isn’t needed.Stefano Gabbana said people should understand that

models are models because they are naturally built differ-ently than the societal norm. “Models have always been a certain body type — tall and thin. That’s why it’s called runway size,” he said. “In the 23 years I’ve worked in this industry, I’ve never known any model to be anorexic, sin-cerely. Backstage we have food and I always see models eating — sometimes more than me.

“If this ban is some kind of anorexia awareness cam-paign, I think it’s the wrong way to go about it,” he contin-

ued. “I don’t think this ban is really going to change anyone’s point of view — designers or editors.”

“The house of Versace has always used women as op-posed to girls or girly models in our fashion shows and ad campaigns,” agreed Donatella Versace. “I have always pre-ferred to work with models that have feminine curves over too-thin models. It’s part of our aesthetic and what we con-sider beautiful.”

Walter Donnini, who manages female models at Milan-based model agency Fashion, said he hasn’t seen any change in demand for girls for either print media or the shows in Milan in the wake of the Madrid decision. As for whether the thin model issue could affect magazine editorials or ad-vertising, Donnini said: “We need to see how much editors and politicians manipulate the issue.”

In Paris, agencies and casting directors chalked the hoopla up to media sensationalism, but stressed it was business as usual.

“What about Twiggy? Nobody ever said she was anorex-ic,” quipped Marilyn Agency’s Robert Ferrell. “A lot of young models are still kids and have the high metabolism that comes with that.”

In fact, many considered the body-mass index guidelines imposed by Spanish authorities unrealistic.

“I was talking with Claudia [Schiffer] the other day and she said that her metabolism is such that she would never be able to eat enough to fi t with those standards,” said Gavin Myall, managing director of ICM Models in Paris, adding that anything that raises the light on health issues in the industry is nonetheless a good thing. “Any girl who’s modeling should be healthy and that should be monitored by the agency.”

Indeed, some applauded the move to clamp down on the rise of underweight models. “It does become a social issue because a lot of girls can see skinny models and think that’s the way they should be,” said Dan Caten, who with his broth-er Dean, designs the Dsquared collection in Milan. “I think it’s weird that the government wants to intervene and de-cide what is too thin. For me, it’s important that an agency takes care of its models. Too skinny or not, it’s important that these models are healthy and eating properly and not falling over.”

— Miles Socha and Katya Foreman, Paris, and Amanda Kaiser and Courtney Colavita, Milan

European Designers Blast Models-by-Weight

Big Brands Give Lift to Job Fair

The WWD Fashion Career Expo.

Two models on the New

York runway last week.

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Continued from page one

Exclusively Oscar: Federated to come February. The spring 2007 launch will reach about 150 doors across Macy’s seven divisions, as well as macys.com. Senior Federated executives project ex-panding the collection to 350 to 450 doors — about half of Macy’s units.

And de la Renta’s commitment to Federated comes with a sweet payback — preferential fl oor treatment with special shop-in-shops. The terms of the agreement were not dis-closed, though the exclusive is expected to be long-term.

“I have always been reluctant with exclusives,” de la Renta told WWD at the O Oscar showroom Monday. “But with the amount of stores [Federated] has, it makes total sense.”

Since Federated bought May Department Stores in a $17 billion deal last year, the transformed Macy’s is large enough to coax such exclusive relationships. Earlier this month, Federated transformed about 400 May-owned stores, including Marshall Field’s, into Macy’s, bringing the number of Macy’s units to more than 800.

Terry Lundgren, Federated’s chairman, president and chief executive offi cer, said the O Oscar agreement is part of the retail giant’s larger strat-egy to give Macy’s shoppers destination brands they can-not fi nd at the competition.

“We will have more ex-clusivity coming across the board,” he said at the O Oscar showroom. “With the size that we have today, we can be the unique supplier and all three of us can have a fi nancially successful busi-ness. Think about it — 450 stores is as much distribution as many brands ever have.”

While Federated and de la Renta executives declined to project sales volumes, one industry source estimated that when O Oscar reaches 400 doors, it could easily rake in $100 million a year.

In his 40-plus year ca-reer, de la Renta has often expressed a desire to widen his customer base, but he maintained now could be the best time to reach that goal. “Today’s woman shops everywhere,” he said. “You see a woman with a $5,000 jacket with $20 jeans.”

Kellwood and de la Renta launched the O Oscar line for fall 2004 as a moderate line targeting 600 to 700 doors at such retail conglomerates as Federated, May Co., Belk and Saks Inc. At that time, the designer said the better market was just too saturated.

“There is a consumer in moderate who wants to buy designer product as well, and I want to be the fi rst to do it,” he said in February 2004. But the line was pulled from department stores last year after disappointing re-sults, with plans to relaunch it as a better line.

According to an industry observer, the problem with O Oscar’s fi rst attempt was that it had little connection to the designer’s aesthetic and wasn’t marketed that well.

“I am not a minimalist designer and there’s only so much you can do in terms of ornamentation,” said de la Renta of his choice to up the ante from moderate to bet-ter. “We had explored the moderate idea, and realized that we could not do so many of the great details and you would lose the identity. Here, we can afford to offer

the great product at a great price.”Robert C. Skinner, Kellwood chairman, president and

ceo, conceded that, “We had a very high-minded goal of bringing Oscar’s aesthetic to the moderate fl oor. We needed to be in the better arena.”

Kellwood, whose portfolio largely consists of moderate brands, plans to recruit more designers to do second-ary lines, bring additional better lines to its largely moderate portfolio, and perhaps even join in more exclusive agreements. Deals such as the O Oscar one with Federated could lift the image of the ap-parel manufacturer, which may have a $2 billion business but is largely viewed as lacking exciting brands to generate growth.

“Our association with Oscar is as important as anything we do as a company,” Skinner said. “We have a number of initiatives that will meaningfully increase the profi tability of Kellwood, and this is one of them.”

Initially, Kellwood’s plan to relaunch

O Oscar was slated for spring 2006, but was pushed back by a year. “The delay was because we wanted to get it right,” Skinner said. “It’s always better to be right than to be fast.”

O Oscar sportswear will retail from $199 to $229 for jackets, $79 to $99 for pants, $99 to $139 for skirts, $99 to $129 for sweaters, and about $169 for skirts, $49 for knit underpinnings, and $79 for shirts. By contrast, the initial moderate O launch had price points from $36 to $86 at retail.

The collection is as pretty and feminine as the main designer line, with much attention to detail, from ruffl ed blouses to eyelet and em-broidered dresses. Looks include a cotton voile ruffl e blouse with a contrast trim, a daisy em-broidered shirtdress, a black-and-white cot-ton voile dress with lace insets, and a ruffl e neck sweater jacket.

De la Renta said he designs with one mind and similar threads will often run through his designer and better lines. “I think I cannot de-sign in two ways,” he said. “There’s always a re-fl ection of everything we do. It is just a question of

price range. This I consider for an aspirational customer, who knows the brand and who in the future might be able to afford Oscar [the main collection].”

Lundgren said the line fi lls a void on better fl oors, ex-plaining its offerings are more feminine. “It is fashion. It’s not just basic clothing and it’s not a jeans line.”

In fact, Lundgren called the better area the fast-est-growing division at Federated.

“Our better business is getting stronger and stronger,” he said. “It’s getting stronger because we have more choices today.”

When de la Renta was dabbling in moderate sportswear, other designers were charging onto better fl oors, with mixed results. Calvin Klein

white label and Michael Michael Kors had chal-lenging beginnings, and both have since tinkered

with their formulas to infuse the lines with more of the designers’ fashion aesthetic.

Last year, Federated and Tommy Hilfi ger decided to drop their exclusive H better collection.

O Oscar will be another designer line vying for success in this diffi cult environment. O Oscar will now sit with T Tahari, also exclusive to Federated; Lauren by Ralph Lauren; Michael Michael Kors, and Calvin Klein white label, also made by Kellwood and just relaunched.

De la Renta said he picked up the phone and called Lundgren, his friend from the retail magnate’s Neiman Marcus days. Lundgren didn’t miss a beat and suggested the exclusive relationship.

“This was a real collaboration among Kellwood, Federated and Oscar’s team,” Lundgren said. “Everybody came together to make sure the product looks like Oscar, helps us fi ll a void on our fl oor, and Kellwood fi guring out how we are going to do this with the fabrics and

detailing at the right price point.“We are starting with 150 doors,

which is no small commitment,” he added. “You have to be able to com-mit to volume to get the pricing.”

De la Renta’s main business has grown immensely in the past few

years. The designer has been able to widen his recognition by opening Collection

units on Madison Avenue; at the Americana in Manhasset, N.Y.; in Bal Harbour, Fla., and in Las Vegas. His company also launched a bridal col-lection in-house in May, and entered the e-com-merce business earlier this month.

O Oscar already has licenses for sunglasses, handbags, shoes and bedding. Alex Bolen, Oscar de la Renta’s president and ceo, said O Oscar could lend itself to a fragrance, and he even dropped a hint that men’s wear was on the horizon.

Skinner said Kellwood and Federated are still working out the marketing details, though they are planning to stage special events to draw attention to O Oscar. De la Renta’s fi rst appearance will be at Macy’s Herald Square in late February.

“Oscar agreed to go to 150 Macy’s stores,” Lundgren joked.

Robert C. Skinner, Oscar de la Renta and Terry Lundgren in the O Oscar showroom.

16 WWD, TUESDAY, SEPTEMBER 19, 2006

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WWD.COM18 WWD, TUESDAY, SEPTEMBER 19, 2006

By Koji Hirano

TOKYO — Japan is committed to taking a more prominent role on the international fashion scene, and to that end, the nation staged its fashion week Sept. 4 to 8, preceding fashion seasons in New York, London, Milan and Paris.

Japan Fashion Week showcased 44 brands presenting their spring 2007 lines here. It was the fi rst time in more than 20 years — since the fi rst collections here were or-ganized by the Council of Fashion Designers, Tokyo — that it kicked off ahead of other fashion capitals’ weeks.

Japan Fashion Week was held mainly at the Tokyo International Forum. The group’s aim in holding col-lections even before New York was to focus “more at-tention on the Japanese fashion industry from foreign buyers and media, for higher recognition in worldwide fashion and eventually more opportunities for business,” said Nobuyuki Ota, public relations director for JFW Executive Committee, the organizing body. He pointed to the success New York’s fashion community experienced when the American collections were rescheduled ahead of the European runways, starting in 1999.

“It was a big success,” said Masahiko Miyake, chair-man of JFW Executive Committee, referring to Tokyo’s event, noting that foreign attendance increased from the last round of collections and that reaction from overseas, especially Asia, was strong.

JFW said 50 foreign buyers attended, up from 20 last season, and, perhaps more importantly, 130 members of overseas media came, up from 90 last time. About 440 Japanese buyers and 650 domestic media people at-tended.

Miyake said JFW had stepped up promotional and advertising efforts overseas to attract more foreigners.

Last year, show week here ran from Oct. 31 to Nov. 9. Despite the typical anxieties about being ready and getting fabrics in time for the earlier dates, key brands such as Mihara Yasuhiro, Theater Products, Mint Designs and DressCamp joined the new schedule.

Designer Han Ahn Soon said, “Under the new schedule, I can buy imported fabrics after the show. Previously, I had to go right before my show. Also, thanks to the promotion by JFW, I saw some buyers from over-seas as well as had inquiries for our invitation.”

Industry sources said younger designers responded positively to the earlier dates, while some of the more established designers with stable domestic businesses, such as Jun Ashida, Yuki Torri, Yukiko Hanai and Miss Ashida, opted not to go early. Sources said these houses, which concentrate on the domestic market in terms of fashion preferences, sizing, textile selection, logistics and other factors, elected to hold their shows in a cou-ple of months — the more traditional time slot. Those will be organized by CFD, Tokyo.

Though two decades have passed since the fi rst Tokyo collections were held by CFD, Tokyo, “the time has come

for Japan’s fashion industry to compete, or collaborate, with overseas industries,” said Ota, explaining the motiva-tion for changing the schedule.

Buyers’ reactions to the new timing varied.“I can picture a rough blueprint of buying by seeing

the September shows in Tokyo, based on our own theme and buying plan,” said Yasuyo Kasahara, buying direc-tor of the trendy retailer Aquagirl here.

“It is diffi cult to see collections back in Tokyo when they take place after a monthlong buying trip overseas. So I agreed to the September show in Tokyo,” added Miyako Sekimoto, fashion director for Matsuya, a lead-ing retailer here.

Cindy Ho, commercial director of resources and de-velopment for Villa Moda Lifestyle, saw collections from Objetstandard, Mihara Yasuhiro, Ato, Mint Designs, Ylang Ylang, Hisui, Ne Net, Mercibeaucoup, Sunao Kunihara and Ohya at JFW. She said she especially liked Mercibeaucoup, calling it “very young, dynamite and fresh to me among all the collections.

“We are also interested in Mint Designs, Mihara Yasuhiro and Sunao Kunihara. However, the Tokyo col-lections are not fi nished yet and we are still looking into some other brands,” she added.

Ho has attended JFW several times, and Villa Moda Lifestyle already has bought Mint Designs and Sacai, among

others. She said she intended to return next season.But another buyer lamented, “We cannot decide on

our budget for the Japanese brands because it’s still too early.”

For the fall 2007 runway collections, JFW has chosen to host the week March 12 to 16, against its original idea of holding it in January before New York collections get under way in early February. These dates are after Paris shows conclude. Some presentations will be held before and after this period, JFW noted.

“We asked designers and most of them said they pre-ferred March due to the short lead time for preparing tex-tiles [in time for shows in] January,” explained Miyake. “Setting the Tokyo show schedule in September and March [allows makers half a year] of preparation time.

“For the next collections, for fall 2007, we will see more collaboration among the industries, including the materials manufacturers,” he added.

Last year, JFW was started with the intention of bringing the nation’s fashion industries together, to pro-mote the advantages of Japan fashion within the frame-work supported by the government. JFW comprises run-way shows, exhibitions and other fashion events.

— With contributions from Yukari Oe

Japan Aims to Take Fashion Lead A look from DressCamp.

Mercibeaucoup

TENTS ONLINE: Both Style.com and New York’s nymag.com added a number of blogs, video diaries and special contributors to beef up fashion week coverage, but whose online investments paid off most? While close on a percentage basis, judging by sheer numbers points to Style.com.

According to a New York spokeswoman, its fashion week coverage from bloggers, its video Look Book, Interactive Approval Matrix and party reports helped draw 20 million page views and over one million unique visitors to the site from Sept. 8 to Sept. 15. That compares with 12 million page views and 700,000 uniques during last spring’s fashion week, or 60 percent and 43 percent respective increases over the same period last year. During a normal week, nymag.com attracts 6 million page views and 650,000 unique visitors.

Granted, nymag.com’s numbers include visitors going to other areas of its Web site, such as restaurant reviews, but its new Fashion Search tool that allowed visitors to search shows by designer and the Interactive Approval Matrix gave the Style section of the site more play.

However, Style.com reported 54.5

million page views and 535,000 unique visitors from Sept. 11-17 — which was specifi cally fashion week. That’s a 59 percent growth from the 34.3 million, page views last year, though the number of unique views could not be learned at press time. The Condé Nast fashion portal gathers on average 361,000 unique visitors and 18 million page views during an average week. Dirk Standen, editor in chief of Style.com/Mens.style.com, said the site’s popular Sartorialist photo column and style blog will continue during the Paris and Milan shows. — Stephanie D. Smith

READING — AND WATCHING: The latest edition of the Annual Mendelsohn Affl uent Survey claims wealthier Americans are reading more magazines more often than ever. The 30-year-old survey measures the top quarter of Americans, with a current household income fl oor of $85,000, giving the survey’s subscribers (among them, 119 magazines) an encyclopedia-like tome on what the affl uent are reading, watching, and buying. Perhaps unsurprisingly, survey head Mitch Lurin saw in the results the salvation of magazines. “In this day and age, all we hear about is doom and gloom, ad pages down and circulation being clobbered, and we only hear that the Internet is going to save the world,” he said. “But our data are saying that magazines are healthier than

they’ve ever been.” Which, of course, raises the question

that if magazines are healthier than ever, why are publishers fl ocking to launch, update, reconfi gure, expand, redesign, or otherwise change their Web sites — and also selling them off or closing them?

The news wasn’t good for only magazines among media — the survey found that cable viewership was also up. Who knows — maybe the rich read magazines while they watch “Weeds.”

This year, the magazines with the biggest gains in overall average issue audience — a composite fi gure suggesting how many eyeballs a magazine advertiser can expect to reach in print — were People, House & Garden, Time, Sports Illustrated, and Southern Living, in that order (Time Inc. titles except for Condé Nast’s House & Garden). As for the biggest losers, Lurin declined to elaborate: “I take the attitude that they’re all my children,” he said. — Irin Carmon

PAGING THE CONCORDE: The new owners of Forbes admit the company’s future is all about the Web, so it isn’t wasting any time broadening its reach. Adding a second subsite to Forbes.com, the company on Monday night launched forbestraveler.com, which will offer both over-the-top editorial content and a way to make online travel reservations.

Unlike other travel Web sites such as Expedia, Travelocity and Orbitz, forbestraveler.com will not accept money from hotels and other locations when users book reservations. Instead, it wants to serve as the conduit to expensive vacations — from surf lessons in Bali to renting a Ferrari in Italy.

“We really don’t have a primary competitor,” claimed Jim Spanfeller, chief executive offi cer and president of Forbes.com. Spanfeller declined to provide any monetary estimates on the launch, but said it’s been in the works for a year.

To get the word out to its target audience — those in their early 40s with an average household income of approximately $150,000 — ads will begin appearing in Forbes properties and via radio and TV. “The Web site is only going to be about the upper one-third of market destinations,” Spanfeller added. “We plan to add business material later on.” Barry Golson, editor in chief, is heading up the edit staff but forbestraveler.com will also include contributions from travel agents, tour guides and hotel concierges.

Of course, forbestraveler.com also will help drive traffi c to Forbes.com — although there have been questions raised about the quality of visitors to the main site who happen to be searching for Paris Hilton and land up on the Capitalist’s tool. — Amy Wicks

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WWDSourcingHorizonsSECTION II

European and U.S. retailers and vendors, as well as Hong Kong trading companies, are learning to live with the changing rules of global trade. Apparel and textile quotas are in place on

China through 2008 and a Doha Round deal on lowering tariffs is in limbo, so sourcing executives have adjusted their strategies to be more diverse and flexible.

ADAPTING TO SHIFTING

TRADE WINDS

A police offi cer directs traffi c at the Yangshan deep water port in Shanghai.

By Robert Murphy

PARIS — WHEN MILLIONS OF SWEATERS, BRAS, TROUSERS AND BLOUSES were seized and held hostage in European customs warehouses last August, it hardly resembled the end of the quota regime everyone had imagined.

But it did serve as a wake-up call to an industry already heavily dependent on imports from Asia, particularly China, that had hoped the abolition of quotas earlier that year would be an invitation to unfettered cheap production.

Executives said it behooved them to reevaluate their sourcing strategies and redistribute the mix, moving away from an overdependence on China and balanc-ing it by bulking up in countries such as Bangladesh and India.

“We were all incited to recalibrate our sourcing,” said Richard Simonin, presi-dent of France’s Etam fast-fashion chain.

“It taught us that we needed to have a more balanced and diversifi ed sourcing strat-egy,” added Glenda Wee, senior vice president of global sourcing at French cataloguer Redcats Group. “We didn’t want to be stuck with all of our eggs in one basket.”

Companies likewise worried a drawn-out snafu would dent margins consid-erably or, worse, result in empty shelves. Others saw it as an ominous sign that politics in the socially volatile European Union is always just one small step away from impeding business.

Yet, after a whirlwind of high-profi le negotiations between Chinese and EU trade ministers, which ended the reintroduction of quotas on certain sensitive categories, the situation blew over. When the dust settled, there seemed to be surprisingly little impact or lasting ramifi cations. It was — politics aside — a return to the status quo, albeit with different semantics.

“There has been very little impact since the small one in August 2005,” said Simonin. “It hit margins a bit last year, but the new quo-tas are so high that no one has a problem producing to his heart’s content in China. Really, [what happened] was a false debate be-cause those that suffered from the end of quotas were China’s real competitors, as Morocco and India. We haven’t been sourc-ing in France for years. To reinstate quotas wasn’t going to move us back into France.”

Nils Vinge, head of investor relations at Hennes & Mauritz, also minimized the effect of last year’s trouble, saying that the Swedish fast-fashion giant may have been forced to move production of some sweaters from China to Bangladesh, but with minimal impact on margins.

Since the end of the trade dispute, he said it was back to business as usual.

“We have been able to produce in China this year because the quotas haven’t been utilized,” he explained. “The value for money has been favorable to place orders in China.”

Vinge noted that H&M sources roughly 60 percent of its merchandise in Asia, with 30 percent of that coming from China. Vinge said that, last year, when import quotas fi rst were abolished, H&M improved its gross margins.

“Instead of lowering our prices even more [prices were lowered about 10 percent between 2002 and 2004], we added some details to the garments and used more expensive fabrics, giving our customers even more value for their money,” he said. “When the quotas were reimposed, we did not increase our prices. But we have almost man-aged to keep our margins at the same level.”

Vinge said that, while China has not always made the best in terms of quality, the country has made strides recently, a senti-ment echoed by many fi rms.

Meanwhile, he added that H&M was working on improving its lead times — a leitmotif in sourcing — but even if China can produce higher fashion garments, often it remains more advantageous to have those garments made in Europe for proximity’s sake.

“From Turkey, we can have garments trucked to Austria in a day,” he said. “It’s longer shipping to Europe from China. We can, or course, fl y them, but that has an environmental aspect and is very costly.”

Nonetheless, he noted the dynamic is changing as H&M expands internationally.“It’s not faster to ship from Turkey to the United States,” he said. “And we are

opening in China now, too. It puts things in a different perspective.”Risks always exist in sourcing, companies acknowledged. Limiting risk

while courting the best price and quality is the key to a successful sourc-ing strategy today.

“Social and environmental problems can play a roll,” said a spokeswoman for Adidas, the German sports giant that manufac-tures 96 percent of its shoes and 78 percent of its apparel in Asia. “Political unrest and illnesses such as SARS or bird fl u must also be taken into account.”

“Natural catastrophes or political instability can also pres-ent a risk,” added a spokesman at Puma, which has increased its Asian sourcing from 81 to 89 percent of its whole. “We want to increase the number of Asian countries where we manufacture. This diversifi cation is meant to decrease dependence on any one

individual supplier.”Countries from India and Bangladesh to Vietnam and Thailand

are sure to profi t.“Indians are faster [than China], they are more fl exible and

have a better fashion sensibility,” said Franca Mocali, woman’s apparel manger for Italy’s Upim department store chain.

Other Italian manufacturers increasingly are turning to sourcing partners closer to home, including North Africa and Eastern Europe.For instance, denim label Meltin’ Pot has focused much of its pro-

duction in the Mediterranean region, namely Italy, Tunisia, Egypt and Albania. Augusto Romano, Meltin’ Pot’s general manager, said quality can be better controlled at those closer-to-home countries.

Accelerating lead times also has prompted some companies to search for so-called proximity partners.

Italy’s Coin SpA, which owns the Coin and Oviesse retail chains, sources about 60 percent of its private label apparel in Asia. But the retailer currently is evaluating the possibil-ity of boosting production in Turkey, North Africa and other Mediterranean countries.

“We are working hard to speed up all aspects of the [production] process,” said Antonio Margotti, Coin’s manager for sourcing and supply.

Nonetheless, some companies are moving to consolidate their sourcing in Asia.Germany’s KarstadtQuelle department store and mail-order group is working

on an agreement with Li & Fung Ltd. in Hong Kong to serve as a procurement pro-vider for all global imports.

The partnership is expected to save Germany’s largest textiles retailer up to 10 percent in purchase prices, improve payment conditions from 20 days to 120 days and thus reduce working capital by 500 million euros.

At present, the group imports about 60 percent from Asia, the remainder from Europe.

KarstadtQuelle previously worked with midsized importers in Germany as well as KarstadtQuelle International Services AG, based in St. Gallen, Switzerland. The Swiss company employs 1,100 people on location in factories all over the world and will be sold to Li & Fung as part of the deal.

The group’s import volume is on the rise, and the goal is to expand it to 3 bil-lion euros, or $3.82 billion, spokesman Jörg Howe said. Industry sources placed KarstadtQuelle’s current imports at well under 2 billion euros, or about $2.5 billion.

“It’s just much more effi cient,” Howe said of the link with Li Fung, which, as a procurement partner for international operations such as Marks & Spencer and Abercrombie & Fitch, brings KarstadtQuelle greater buying power.

Besides more competitive pricing, the partnership offers greater fl exibility in procurement processes and will make it possible to offer up to 12 collections a year in the future, the group said.

While KarstadtQuelle’s key decision-makers will remain at headquarters in Essen, Germany, design centers to set collection specifi cations will be set up in Europe and Asia over the coming months.

— With contributions from Melissa Drier and Damien McGuinness, Berlin, and Amanda Kaiser, Milan

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2 WWD, TUESDAY, SEPTEMBER 19, 2006

Europe’s Embargo Crisis Brings Balance

An Adidas factory in Germany.

A look from Italy’s Oviesse, owned by Coin SpA, which sources 60 percent

of its private label in Asia.

H&M has changed its sourcing strategy as it expands internationally.

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4 WWD, TUESDAY, SEPTEMBER 19, 2006

By Kristi Ellis

WASHINGTON — THE CONGRESSIONAL TRADE agenda is being stymied by election-year pressures, a fi erce partisan atmosphere and dwindling days in the legislative session, which could leave a lot of loose ends for the fashion industry.

With just seven weeks until the midterm elections, with the entire House and one-third of the Senate at stake, Republican leaders in Congress are playing their trade cards close to the vest.

Senate Majority Leader Bill Frist (R., Tenn.) made no mention of trade legislation in laying out his priorities when the Senate reconvened Sept. 5 after a monthlong recess, and House Majority Leader John Boehner (R., Ohio) chose his words carefully in re-sponse to reporters’ questions on trade.

Trade policy — set by the White House, but shaped by Congress in approving and amend-ing legislation — is high profi le for the industry, and pending bills and expiring trade-preferences programs are propelling the debate between retailers and im-porters, and domestic textile and apparel producers.

The House and Senate have less than two weeks be-fore they are scheduled to adjourn to campaign for the elections. The House is expected to return on Nov. 13.

The only consensus among trade veterans is that it’s unlikely any major trade bills will move before the elections on Nov. 7. Some attribute the skeletal trade agenda to election-year pressures — GOP leaders want to avoid forcing their members to make a diffi -cult trade vote before they face their constituents at the polls — while others attribute it to a truncated leg-islative agenda and several unfi nished spending bills.

“As I see it, the election period strategy is just to keep trade on the far, far back burner,” said Gary Hufbauer, a senior fellow at the Institute for International Economics. “Republicans are obviously for it, but they don’t see it as useful in an election year. They don’t think it will get additional votes, but it will stir up opposition.”

The outcome of the Congressional elections will shape the trade agenda for the next two years, as will the expiration on June 30 of President Bush’s trade promotion authority, which requires Congress to vote for or against trade deals without amendment. That authority is not expected to be renewed.

If Democrats regain the majority or narrow the margin by picking up seats in either the House or Senate — many political pundits have said Democrats are more likely to take control of the House — the priorities will change and the bulk of trade legisla-tion could stall, with a few exceptions.

Some experts contend that many Democrats are pro-trade and a change in power in the House will shift priorities but not stifl e free trade deals, while oth-ers maintain Democratic control could have a chilling effect on the trade protocol and continue the gridlock.

“If Democrats take over one chamber of Congress, you will have a lot more measured discussion on trade issues,” said Tim Kane, director of the Center for International Trade & Economics at the Heritage Foundation, a conservative think tank in Washington. “[Former president] Bill Clinton made it OK for Democrats to be pro-trade, but a lot of those voices have been quiet because they are not in power.”

One of the biggest wild cards this fall is a bill that would grant permanent normal trade relations status to Vietnam. It is a bill that has broad bipartisan sup-port in both the House and Senate and appears to have the most traction, but it faces opposition from textile-state senators and the domestic textile industry.

Vietnam already has reached a bilateral trade pact with the U.S. as a precursor for its joining the World Trade Organization, and Congress must pass a bill giving Vietnam PNTR in order for the U.S. to enjoy the benefi ts of Vietnam’s membership in the WTO, such as looser restrictions on distribution and services in Vietnam.

Retailer and importer groups, poised to take ad-vantage of the elimination of quotas on Vietnamese apparel and textile exports to the U.S., which comes with Vietnam’s WTO membership, are lobbying mem-

bers of Congress aggressively this month to vote for the bill before the President travels to Hanoi for the Asian Pacifi c Economic Cooperation summit in November.

Domestic textile associations are lobbying against the bill and Vietnam’s entry into the WTO because that would effectively eliminate quotas on apparel and tex-tile imports from Vietnam, potentially leading to import surges and further job losses in the U.S, they argue.

Sens. Elizabeth Dole (R., N.C.) and Lindsey Graham (R., S.C.) have placed holds on the legislation in the Senate because of concerns about the impact of poten-tial import surges on domestic textile fi rms. Offi cials in the U.S. Trade Representative’s offi ce are discuss-ing ways to resolve the issues with the senators. Dole has said she is seeking an extension of existing quotas on apparel and textiles, among other remedies.

“We hoped to get this done in September, but that doesn’t appear to be in the cards,” said Erik Autor, vice president and international trade counsel at the National Retail Federation. “This is an amendable trade bill and even if the House and Senate vote, the question is whether there will be a conference this year and then votes on the conference report.”

Autor said neither party would have a mandate after the elections.

“It will still be a very, very small majority, which-ever party is in control,” he said.

Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, said he expect-ed trade agreements to be “pushed off because there is nothing demanding any level of action.”

AMTAC has been lobbying the Bush administration for a China-like quota safeguard or an extension of existing quotas on Vietnamese apparel and textile im-ports, and maintains the safeguard mechanism the U.S. negotiated with Vietnam in its WTO accession package is inadequate.

“It is easy to push off trade agreements and do them early next year or in a lame duck session, but Vietnam is an odd one” because of Bush’s trip, Tantillo said.

If the Democrats take control of the House, they would be very “uncooperative,” he said, although Vietnam might be an exception because there is broad bipartisan support.

Boehner, who controls the legislative agenda in the House, said earlier this month that the bill would be on the House calendar before the President goes to Vietnam, but he declined to say whether the House would try to move the bill before Election Day.

Another top trade issue for the industry is a pend-ing free trade agreement with Peru and the expira-tion of a trade preference program known as the Andean Trade Promotion & Drug Eradication Act,

with Peru, Colombia, Bolivia and Ecuador.Importers and retailers are concerned about los-

ing existing duty free benefi ts under the trade-pref-erence program because it expires at the end of the year and the FTAs, which would make the program permanent, have run into election-year snags.

The White House has not yet sent the Peru trade deal to Congress, so key committees in the Senate and House cannot vote on the bill. In addition, many Democrats are strongly opposed to the trade pact be-cause of what they claim are weak labor provisions.

The American Apparel & Footwear Association brought in several executives last week to lobby mem-bers on Capitol Hill about the importance of protect-ing duty free benefi ts in the Andean region between the expiration of the trade-preference program at the end of the year and the Congressional passage and implementation of FTAs with Peru and Colombia.

“The priority for us is to keep the Andean region sta-ble,” said Stephen Lamar, senior vice president of the American Apparel & Footwear Association. “We would like to see both the Peru and Colombia deals completed and done, but at the same time we would like to make sure there is no gap in coverage between the expiration of the Andean program and the entry into force of the Peru and Colombian free trade agreements.”

Julia Hughes, vice president of international trade at the U.S. Association of Importers of Textiles & Apparel, said, “That is a very diffi cult issue [in Congress], but it is a very high priority for our compa-nies. Companies are starting to shift orders because the preference program expires on Dec. 31 and a free trade agreement won’t be implemented at that time.”

Hughes said USA-ITA would press members of Congress this fall to get a temporary extension of the trade-preference benefi ts for Peru and Columbia, which is where the bulk of existing apparel production is.

“House members feel Peru is a ‘Why does it have to be done issue?’” said Tantillo. “Republicans in the House feel fairly confi dent if they make a big enough stink on trade, it will not happen prior to the elec-tion, whether it’s Peru or Vietnam.”

Rep. Bill Thomas, (R., Calif.) chairman of the House Ways & Means Committee, indicated to reporters two weeks ago that he might try to assemble an omnibus trade package of items that are “expiring” this year.

Thomas, who is retiring at the end of this term, said he would consider such trade items as the Generalized System of Preferences program and expiring provisions in the African Growth & Opportunity Act, which allow importers to use fabrics and yarns from anywhere in the world in apparel pro-duction in eligible sub-Saharan African countries.

Congress Leaves Trade Issues in FluxWater taxis motor, both by engine and by hand, past cargo ships in Ho Chi Minh City’s port. Inset: Senator Elizabeth Dole (R., N.C.).

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6 WWD, TUESDAY, SEPTEMBER 19, 2006

By Evan Clark

WASHINGTON — U.S. CUSTOMS AND BORDER Protection offi cials have been holding shipments of shirts and sports jerseys from a particular brand, near-ly a million in all and supposedly made somewhere other than China, at the Savannah Port in Georgia since June.

Enforcement offi cials chose to strike late last month, uncovering what they allege is a scheme to circumvent quotas on certain Chinese apparel products by claiming the goods were made in another country. The brand was not identifi ed as the case is still pending.

The seizures, with a retail value of more than $14 million, were small potatoes in the grand scheme of Chinese apparel and textile shipments to the U.S., which rose 3.7 percent for the fi rst seven months of this year, to 9.8 billion square meter equivalents, worth $13.2 billion.

But the pressures of the system of quotas on 34 types of apparel and textiles from China, which, in this case, might have tempted some nefarious types to illegally transship goods, are being felt throughout the industry. Most are paying to bring in goods under the quota system or buying goods produced in other, mostly Asian, countries.

The quotas, which cover goods ranging from knit fabric and polyester fi laments to cotton trousers and sweaters, run through 2008 and are the product of sev-eral months of wrangling last year between the Bush administration and the Chinese government.

In general, the trade pact has had a calming effect in sourcing circles because, at least for now, it has brought a halt to the unpredictable safeguard quotas the U.S. began imposing on China in mid-2005. China agreed to the safeguard provision when it joined the World Trade Organization in 2001.

However, the Chinese government’s application of the new quotas has been spotty, said producers, and an auction process apparently has increased costs and resulted in some of the quota going unused.

“It’s a lack of transparency of the quota system in China,” said Tom Haugen, president of sourcing fi rm Li & Fung USA. “Nobody wants to take a chance. There are no reliable numbers. There’s essentially not much control in China, or not transparent control in China on the quota process, so fear makes people think, ‘Let’s go somewhere else.’”

As of the middle of last week, only the quotas on a few categories, such as trousers made of silk and veg-etable fi bers, were more than 50 percent fi lled, an un-expectedly low turnout, given that those quotas expire at the end of the year.

The system of restraint was designed to help the staggering U.S. textile industry adjust to the rise of China as a manufacturing powerhouse and has infl u-enced where goods are made.

“You could argue that quotas are working,” said a spokesman for the American Manufacturing Trade Action Coalition. “The growth from China has slowed. It has forced the importers to source from countries other than China. They’re going to other Asian coun-tries to some extent, but on the other hand, if you didn’t have the quotas in place, you would see the Western Hemisphere producers losing more market share.”

Comparing this July with last, and thanks in part to declines in goods covered under the China deal, imported Mexican apparel and textiles were down 9.7 percent and shipments of Canadian goods were off 14 percent by volume. Imports of apparel and textiles from a group of 24 countries in the Caribbean Basin inched up 1.2 percent.

With growth in categories covered under the China deal, South Korean apparel and textile imports rose 19.6 percent, while goods from Pakistan increased 8.3 percent, shipments from India gained 11.5 percent and Indonesian imports advanced 17.6 percent.

Even with the diffi culties surrounding the imple-mentation of the quotas, China has remained an at-tractive manufacturing base for apparel.

“China’s got a lot of problems right now,” said Li & Fung’s Haugen. “It’s still probably the best place to make things.”

Companies across the industry seem wary of the quotas, but still drawn to the possibilities of China.

Joe McConnell, senior vice president of opera-tions for Bifl ex, a $65 million innerwear and sleep-wear resource, said a signifi cant amount of the fi rm’s production is done in Indonesia, in part because the country already has standing relationships with its factories there.

“We’re also doing it because we’re avoiding any kinds of issues with quotas in China,” said McConnell.

Even so, Bifl ex does have production in China and is expanding its business there because of the raw materials and processes, such as embroidery, Chinese producers can offer.

“China is important for Bifl ex and is increasingly more important for us as we’re looking for more fash-ion-forward product,” he said. “If you’re looking for basic production…going to Sri Lanka, to Indonesia, you’re going to fi nd very competitive pricing. If we’re looking for novelty fabrics or technical fabrics and pos-sibly a fashion item, we’d be looking probably more to-ward China.”

Importers increasingly point out that the primary draw of the country is not price.

“China’s no longer the low-cost producer,” said Thomas Travis, chairman of Sandler & Travis Trade Advisory Services. “They have the most integrated system and varied offerings that one can imagine, but they’re not always the lowest-cost producer.”

In addition to benefi ting from infrastructure invest-ments that have improved roads and ports, Chinese producers have ready access to many of the necessary raw materials.

On balance, the apparel sourcing scene since the implementation of quotas is how it has always been, in a state of constant change.

“Nothing is static,” said Travis. “We’ve never been really static.”

China is certainly no exception.“There are still issues out there, constantly, that

plague traders, whether its the defi nition of what sweaters are subject to quotas…or just entry issues and allegations of illegal transshipments,” he said. “These issues are still present and traders are having to grapple with and resolve these issues.”

With Quotas Back, Firms Diversify

Here and below: Chinese workers sew dresses and garments at a factory in

Huaibei in the Anhui province.

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7WWD, TUESDAY, SEPTEMBER 19, 2006

By Vicki Rothrock

HONG KONG — IT ISN’T ENOUGH FOR SOURCING COMPANIES SIMPLY TO RELY on the core business anymore.

For Linmark, a major sourcing fi rm based here, that means shifting the business to be driven by product and development rather than price.

When the company added design and fashion to its sourcing expertise, quota price was less important and Linmark was able to maintain the focus in China, said Peter Solomon, chief executive offi cer. He said buyers were looking for more, such as range-building and assistance in direction.

To that end, Linmark has 41 designers, six in India and the rest based here.If Linmark had not changed its model, it could have lost a lot of clients, Solomon

said. The sourcing and supply-chain management fi rm reported a more than 200 percent jump in volume, to $288.3 million, for the year ended April 30. The increase was attributed to acquisitions.

As part of its shift, the company is consolidating its offi ce space here under one roof; it now has around 30,000 square feet of showroom space, about four times the amount it had before.

The space resembles a department store more than a showroom, with trendy display racks and individual rooms for showcasing the company’s design and collec-tion-building capabilities. There are individual areas where clients can show their goods that can be entered only using fi ngerprint technology.

This model gives customers what they want, Solomon said.

With the confusion surrounding quotas last year fi -nally settled, businesses can better plan their futures, at least until 2009, when restraints are to be removed from China’s apparel and textile exports.

“China is still getting shares, but because of the ex-isting quota in place — the categories announced in November — the shift hasn’t been as dramatic as ex-pected because there are still restrictions,” said Peter Liu, chairman of the textile and apparel committee at the American Chamber of Commerce.

But even for sensitive categories, fi rms can still do Outward Processing Arrangements here and in Macau, which are special administrative districts of China, and have the bulk of the work done on the mainland, he added.

While there might have been a scramble for quota in the past, there seems to be plenty to go around now.

“For people who want to export, quota is available,” Liu said.He explained that quota available for this year was based on the

performance of 2005, but since the fi rst half of that year had unre-stricted trade, the performance base went up and, as a result, more quota is available.

He gave an example of cotton knit shirts (categories 338 and 339): In 2004, with quota in place, 2.8 million dozens of quota was avail-able from China. In 2006, that number jumped to 20.8 million dozens and it will continue to increase through 2008, when 26.9 million doz-ens will be available.

“That’s why this agreement [in November] was celebrated.…Everyone can claim victory,” he said. It “creates a stable environ-ment.”

And while the agreement might mean that there’s been a shift to China, that doesn’t mean companies are giving up other countries.

Linmark upped its stake in Greater China to 56 percent of its sourcing portfolio from 45 percent. It also increased its business in the Indian subcontinent (Bangladesh, India, Pakistan, Sri Lanka) to 36 percent from 25 percent. Southeast Asia was the big loser, with a drop to 8 percent from 23 percent, and sourcing from Africa was shut down.

“We certainly have consolidated our sourcing base…into areas of the future,” Solomon said.

India will always be important because it has skilled workers and is closer to Europe, which gives it an edge over China, Liu said.

But China remains the front-runner for a number of reasons: labor productivity and a competitive supply chain, to name two. But

the country is under pressure from rising worker wages, textile quotas and the strengthening of the yuan.

Those pressures might give other countries a window of competitiveness in the short term. However, countries that don’t have vertical manufacturing capabili-ties, such as the Philippines, Indonesia and Cambodia, will struggle because they need to ship in raw materials at a time when quick turnaround schedules are key, Solomon said.

Faster turnaround is easier when a company has 22 offi ces worldwide, as Linmark does. It allows the fi rm to support a much wider sourcing base, as well as move production rapidly among markets, he said. Technology also is key: Such movement wouldn’t be possible without video conferencing and e-mail capabilities, he added.

For some companies, Southeast Asia fi ts the bill.Because China is an “extreme big-volume business,” it makes more sense for

Italy’s Diadora to source from Southeast Asia, said Doug Sheridan, director of re-tail and licensing for Asia and South America, adding that this is because there’s greater fl exibility with smaller volume runs.

Price points are also fairly steady among Diadora’s sourcing bases because facto-ries are run by the same groups of people across the board and the company uses a lot of external fabrics, said Sheridan, who coordinates sourcing for licensees, which all have the right to source and manufacture Diadora goods.

Nevertheless, Diadora also has noticed a shift in sourcing.Three years ago, China might have manufactured 70 to 75 percent of Diadora’s

apparel, Sheridan said. Now, about 50 percent is done in China, and the rest in Indonesia and Vietnam.

Hong Kong Firms Adapt to China Restraints

Linmark has quadrupled its showroom space to give clients more design and product-driven services.

Peter Solomon

“China is still getting shares, but because of the existing quota in place — the categories announced in November — the shift hasn’t been as dramatic as expected because there are still

restrictions.” — Peter Liu, American Chamber of Commerce

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SOURCING HORIZONS

8 WWD, TUESDAY, SEPTEMBER 19, 2006

By Kristi Ellis

WASHINGTON — CONGESTION ON U.S. HIGHWAYS AND RAILROADS AND AT ports is getting worse and the impact of an impending freight capacity shortage could be substantial for companies like Wal-Mart that depend on “just in time” inventory strategies and an effi cient global supply chain.

Congress, which passed a multibillion-dollar highway bill last year for a criti-cal upgrade of the U.S. transportation system, is tapping the private sector for ideas on how it can fund the expansion of the nation’s highways, railways and ports, and mitigate the impact on commercial users.

At a House subcommittee hearing this month, executives from Wal-Mart, FedEx and Schneider National Inc. testifi ed about their concerns and strategies in navigating the complex web of highways, railways and seaports, as the volume of imports and freight threatens to overburden the network.

More than 19 billion tons of freight, valued at $13 trillion, was carried over 4.4 trillion ton miles in the U.S. in 2002, according to the U.S. Department of Transportation. In less than 20 years, the nation’s freight tonnage is projected to increase 70 percent. Since 1980, interstate highway lane miles have risen 16 percent, while vehicle miles traveled on roads increased 123 percent.

Transportation experts say that is a recipe for a freight-capacity crisis, since highway capacity is expanding too slowly to keep up with demand. Bottlenecks lead to signifi cant shipping delays, totaling about 243 million hours annually, costing direct users $7.8 billion annually, according to the Federal Highway Administration’s Highway Economic Requirements System model.

“I think the reality is the congestion and bottlenecks in today’s infrastructure is creating a bigger challenge every day to make those on-time deliveries,” said Douglas G. Duncan, president and chief executive offi cer of FedEx Freight. “If we are going to see continued improvement in logistics that have made our American companies much more competitive, we’ve got to fi gure out a way to continue sup-porting this on-time transportation network.

Duncan said he doesn’t believe the highway bill, which Congress passed last year, will help expand existing highways. He said, “It will probably just barely maintain our existing highways. So we’ve got to fi nd new ways to raise revenue for infrastructure and we’ve been an advocate of the fuel tax because it’s already in place and it is an effi cient way to raise dollars.”

Wal-Mart, which owns one of the largest private truck fl eets in the country, has one of the most extensive logistics and supply chain networks. It includes 117 dis-tribution centers, ranging from 800,000 square feet to 4 million square feet, said Tim Yatsko, senior vice president of transportation for Wal-Mart.

The company has 39 general merchandise distribution centers, including seven centers that handle the company’s fashion shipments exclusively. In all, the company’s distribution centers ship about 1.6 billion cartons a year.

Wal-Mart moves 1.3 million loads on its own truck fl eet inbound to its distribu-tion centers annually; 69 percent of its total loads is moved by truck, 20 percent by LTL motor carrier, 7 percent by small package carriers, 2 percent by ocean freight and 1 percent by consolidators.

“We avoid transportation congestion risks by maintaining multiple channels or distribution points,” said Yatsko, adding that the retail giant works around congestion, despite extra costs in some cases.

To mitigate congestion and maintain driver productivity, the company uses consolidation facilities, trailer pools that enable “drop and hook” delivery versus live loading and unloading, driver and delivery schedule changes such as night versus day, truck versus rail decisions and multiple port strategies.

Yatsko said the best example of its “port-split” strategy arose from an increase in congestion at the twin ports of Los Angeles and Long Beach in the late 1990s. Wal-Mart responded by splitting its shipments to fl ow through ports on the East Coast and Gulf Coast to avoid congestion in Los Angeles.

Even with these effi ciency strategies, Yatsko and Wal-Mart still see problems on the horizon. Among the “freight challenges” the company expects to face in the

short term are more highway congestion, less rail network capacity, driver short-ages, problems of fuel effi ciency and sustainability, and security, he said.

Rep. John Boozman, (R., Ark.) asked how companies such as Wal-Mart and FedEx are conserving energy in the midst of an energy crisis.

“We are attacking fuel effi ciency in our truck fl eets by going after some pretty aggressive goals,” said Yatsko.

He said Wal-Mart has a goal of improving fuel effi ciency by 25 percent next year and has already improved the effi ciency rate by 18 percent.

“We are also going after one of our big dream goals, which is 100 percent fuel effi ciency improvement by 2015, and we are doing that by engaging everyone in-volved [from the maker of the trucks to the Environmental Protection Agency] to produce a truck that uses hybrid technology,” he said.

Funding an expansion of the transportation network was a key topic of the subcommittee hearing. Rep. Thomas Petri, (R,, Wis.), chairman of the Highways, Transit & Pipelines subcommittee, asked how Congress could fund an expansion in the nation’s transportation network and specifi cally pointed to the question of toll roads.

“Do you go off roads, drive the back roads or just pay the tolls?” asked Petri. “Is this really going to work, all of this tolling?”

Christopher Lofgren, president and ceo of Schneider National, which spe-cializes in premium truckload and intermodal services, said, “In the short term, there is freight we simply won’t haul any longer because of what is required in tolling.”

When Wal-Mart’s truckers face toll roads they can’t go around, “it is a direct cost hit to our company and to the consumer, in some cases,” said Yatsko. But he said Wal-Mart supported toll revenues that were properly allocated to infrastruc-ture improvements.

Duncan of FedEx said tolls are “counterproductive” and “create congestion and choke points.” He said the best way to raise revenue is by increasing the fuel tax, which he acknowledged is politically attractive.

Looking for Ways to Ease Congestion

A Wal-Mart truck sits on the side of the highway near Springer, N.M. The company is seeking to improve fuel effi ciency by 25 percent in 2007.

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SECTION II

SOURCING HORIZONS

10 WWD, TUESDAY, SEPTEMBER 19, 2006

By John Zarocostas

BURGENSTOCK, Switzerland — FINANCIAL MARKET EXPERTS ARE DIVIDED OVER WHETHER the weak dollar could experience a sharp devaluation, and they doubt that increased pressure by Washington on China to revalue its currency, the yuan, will deliver concrete results.

China’s rapid accumulation of foreign exchange reserves, which is expected to soon reach $1 trillion, coupled with its large trade surplus with the U.S., has intensifi ed calls by U.S. Treasury Secretary Henry Paulson Jr. for China to revalue the yuan and accelerate a move toward a fully convertible currency.

The infl ated U.S. trade defi cit, fanned by high oil prices, has heightened fears that the dollar might be susceptible to a sharp depreciation that could have wide-ranging implications for the global economy.

However, Patrick Catania, chairman of Chicago-based Asia West Group, said that, while the risk has been out there since the Reagan era (1981-89), when U.S. debt started to soar, he doubts whether a precipitous decline of the dollar is a likely outcome.

“I don’t know that I would expect that. We’ve been through all these phases where it’s been called for before and it hasn’t materialized,” Catania, a former executive vice president at the Chicago Board of Trade, said in an interview on the sidelines of an international fi nance confer-ence sponsored by the Swiss Futures & Options Association.

Asked what gives the dollar this resilience, Catania said: “Maybe we’re crazy here with all that debt, but crazy as a fox. It’s been distributed so well globally that many foreign banks have an inter-est in making sure the dollar doesn’t decline.”

Urs Schneider, professor of fi nance at the Swiss Finance Institute, said he was concerned that if there was a sharp decline in the dollar, the world economy would be in trouble.

“If there’s a sharp slide of the dollar, it’s not just a matter of the national banks,” he said. “The sharp slide of the dollar means the U.S. economy becomes very competitive in terms of exports.”

But he added that, if it’s not a sharp decline, then other major economies such as those in Western Europe, as well as in Japan, would be able to adapt.

Catania, a 30-year veteran of global markets, said the U.S. economy is still in a healthy situation.“I think, for our economy in the U.S., the debt is still being absorbed by global investors,” he said.

“In fact, there’s adamant interest for more long debt. The treasury will issue more 30-year paper as we go forward, and I suppose with that vote of confi dence, I don’t expect the pressure to build.”

In a straw poll of global fi nancial experts, there was a broad view that China needs to do more to revalue its currency and that a move toward a fully convertible currency would contribute to global stability.

However, they also pointed out that strong-arm tactics by Washington were not the best way to extract a positive response from Beijing.

“I don’t think this is going to drive their decision-making,” said Sharon Brown-Hruska, vice pres-ident of NERA economic consulting, based in Washington.

“I think they have to make their decisions based on the underlying economics,” said Brown-Hruska, a former commissioner at the U.S. Commodities Futures Trading Commission, adding that, if China wants to become a modern economy, it “must carefully evaluate the levels [of its currency] and ease it up in a responsible fashion.”

Catania said the concerns of Washington are legitimate, but emphasized that “markets tend to bring themselves into balance over time.”

“If they’re allowed to do that, the Chinese could take steps toward this liberalization that could alleviate a lot of the fears,” he said.

The latest quarterly report by the Bank for International Settlements published this month high-lights that China’s foreign exchange reserves at the end of July reached $941 billion.

Catania believes the lack of convertibility of the Chinese currency “keeps all of these reserves building up in China, instead of contributing to the rest of the global economy in terms of China increasing imports for foreign goods.”

He pointed out that, if China wants to be the “good citizen” and a good global trade partner, it has to realize it’s a two-way street.

But, he cautioned, “the more people are trying to force it down their throats, the more resistant they’re going to be to that change.”

Beijing understands the potential consequences, Catania said, and believes Washington should back off and give it nine to 12 months to make some changes.

If by then nothing happens, then the U.S. could “increase global awareness of the issue and put it on the front burner,” he said.

When China decides to move to a fully convertible currency, experts said, the move will have widespread implications on global markets.

“China is one of the best-performing economies in the world and obviously, if it were to become convertible, it will have a major impact on many of the other currencies across the globe,” said Framroze Pochara, chief executive offi cer at the Dubai Gold & Commodities Exchange.

On the outlook for crude oil prices, commodity experts said prices had eased from the record-high $70-plus a barrel, but noted continued strong demand in emerging markets was not likely to see prices drop to below $50 a barrel.

However, some cautioned oil prices are heavily infl uenced by geopolitical developments, and did not rule out new price spikes if the U.S.-Iran nuclear showdown took a turn for the worst or political crisis or industrial unrest led to a decline or cutoff in supplies from key oil-exporting countries.

Debating the Dollar’s DynamicAnd China’s Currency Policy

“If there’s a sharp slide of the dollar, it’s not just a matter of the national banks. The sharp slide of the dollar means the U.S. economy becomes very competitive in terms of exports.” — Urs Schneider, Swiss Finance Institute

By Evan Clark

WASHINGTON — AMERICANS SHOPPING IN WAL-MART OR MACY’S OR JUST about any store fi nd themselves in a sea of foreign-made clothing and accessories.

These imports are no longer considered cheaper or inferior in quality to mer-chandise manufactured in the U.S. — the prevailing belief 20 or so years ago — and now represent more than 90 percent of apparel sold at retail.

The consumer’s full acceptance of products made abroad has put aside protectionist senti-ment or the feeling that “Made in the USA” is bet-ter. However, combined with the penchant for buy-ing on credit, this evolutionary shift in sourcing and buying habits has changed the country’s eco-nomic profi le, resulting in potentially serious con-sequences for the U.S. and the global economy.

“We’re increasingly the customer of fi rst, last and middle resort,” said Charles McMillion, president and chief economist at MBG Information Services. “We are a driver for the economies of most of the countries in the world outside of the U.S.”

This has led to an imbalance in the global economy.

“The rest of the world is producing about $2 billion a day more in goods and services than they themselves are consuming,” said McMillion. “That adds to their economic growth, adds to their job growth and adds to their tax receipts.”

But the U.S. loses out in all those areas, he said.The U.S. had a current account defi cit with the world of $726 billion last year.

That means, basically, that the U.S. bought more from other countries than it sold to them, to the tune of about 6 percent of gross domestic product.

Many see the defi cit as a function of a low savings rate in the U.S. and high sav-ings rates abroad. The Chinese, for instance, tend to save a lot of their earnings, since they don’t have a strong social safety net to turn to in times of trouble.

Others see the imbalance more as a result of unfair trading practices in other countries, such as an undervalued currency in China, which wracked up a record defi cit of $202 billion with the U.S. last year, and poor labor conditions in many Third World countries.

Regardless of the cause, the defi cit creates an unusual situation. Other coun-tries take the extra dollars they hold and invest them in U.S. Treasury bonds or

other assets. In effect, that means much poorer countries like China are lending the U.S. money, and the U.S. uses the funds to buy more goods and services on the global market.

“The great risk is that there’s no fundamen-tal reason why all these things need to contin-ue,” said Peter Rodriguez, professor of econom-ics at the University of Virginia’s Darden School of Business.

“It is possible to see a quick reversal or back-slide, and that’s why we worry about imbalances. Suppose one day China has a real change of heart with its appetite for our investments. That does portend at least meaningful swings in currency values and a spike in the U.S. interest rates.”

Given the size of the current defi cit, he said, “we’re in uncharted waters.”

Robert Kennedy, executive director of the William Davidson Institute at the University of Michigan, pointed out, however, that the cur-rent account defi cit has a corresponding capital

account surplus that also brings benefi ts with it.“The fact that we have a capital account surplus means interest rates are

lower than they would be otherwise and asset prices are higher than they would be otherwise,” he said.

Kennedy said the defi cit will sort itself out.“It’s a self-correcting process,” he said. “One of two things is going to happen:

Either the dollar’s going to get weaker…or Americans at some point are going to start saving more.”

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U.S. Trade Deficit Impacts Global Economy

The container terminal at the Port of Newark.

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Hard Road Ahead for Stalled WTO Doha TalksBy John Zarocostas

GENEVA — THE CHANCES OF GETTING THE DERAILED DOHA ROUND GLOBAL trade talks back on track after their dramatic meltdown in July will require a com-bination of effective diplomacy and an the political will of key countries to drop entrenched positions, senior diplomats and industry executives said.

The talks were suspended because rich and advanced developing countries could not bridge their differences over cutting subsidies and tariffs for agricultural products, and lowering duties for industrial goods, including textiles and apparel.

There have been few signs since then of a radical policy shift among vital play-ers such as the U.S., the European Union and the Brazilian-led G20, which includes India and China, that could turn things around.

A ministerial meeting of the G20 in Rio de Janeiro on Sept. 9, which was also attended by World Trade Organization director-general Pascal Lamy, U.S. Trade Representative Susan Schwab and EU Trade Commissioner Peter Mandelson, failed to achieve anything that can be interpreted as positive.

Lamy, who is taking what some WTO ambassadors consider “a quiet, cautious” approach in light of the July debacle, underscored in a keynote speech at the meet-ing that WTO members “need to rethink” their positions on agriculture so that ex-isting differences can be worked out.

Schwab has said she is seeking “a new way forward,” but the sour state of trade relations between the EU and U.S. over agriculture is not helping things, said a senior trade diplomat close to both camps who did not want to be identifi ed.

In a statement, the G20 said the current positions of rich countries “do not pro-vide an adequate basis for leading the negotiations to a successful conclusion.”

“I think the probabilities of closing the round in the next 12 months are low,” said Michael Samuels, president of Washington trade consultant Samuels International Associates.

Samuels, a former U.S. ambassador to the General Agreement on Tariffs and Trade, the WTO’s predecessor, said in a phone interview, “I don’t see the dynamics in the negotiations moving forward quickly.”

There is also a growing awareness that the alternative to a global deal is increased protectionist pressures, a possible escalation in trade litigation and discriminatory

“It is hard to believe that the world can let the time and effort already invested in the Doha negotiations go to waste, especially when it is universally recognized that the alternative of regional or bilateral liberalization is a poor substitute for market opening on a multilateral basis.”— Munir Ahmad, International Textiles & Clothing Bureau

Celso Amorim, foreign minister of Brazil and leader of the G20.

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WWD.COM

13WWD, TUESDAY, SEPTEMBER 19, 2006

bilateral or regional trade agreements.“It is hard to believe that the world can let the time and effort already invested

in the Doha negotiations go to waste, especially when it is universally recognized that the alternative of regional or bilateral liberalization is a poor substitute for market opening on a multilateral basis,” said Munir Ahmad, executive director of the International Textiles & Clothing Bureau.

Ahmad said he’s convinced the Doha negotiations “are bound to succeed” in the long run.

Despite a batch of high-level international meetings, WTO trade diplomats say there is little prospect of the talks seriously picking up until after the U.S. Congressional elections in November.

In the meantime, there is widespread concern in trade circles that if the politi-cal desire cannot be mustered to salvage the talks, the round could drift aimlessly.

But some senior Western WTO trade envoys believe a window of opportunity exists to advance the talks between November and the end of March, which, if taken advan-tage of, could enhance the prospects of the Bush administration’s securing approval from Congress for an extension of Trade Promotion Authority, which expires at the end of June. Most experts said Bush would need TPA, which allows him to negotiate trade pacts without the prospect of congressional amendments, to reach a Doha deal.

Frank Vargo, vice president for international affairs at the National Association of Manufacturers, said in a phone interview, “If we don’t see signifi cant progress by March, there is a risk of seeing slippage in the Doha Round for a number of years.”

However, Vargo said until there is movement by the EU on market access for farm products, the U.S. on domestic agricultural subsidies and developing countries on lowering barriers for industrial goods, “there’s little point in going back to the table.”

“We can’t agree to an outcome that does not include substantial liberalization for industrial goods,” he said.

Asked if a fi nal deal could be hammered out by the end of 2007, Vargo said, “If there is political will to reach deep into pockets, yes.”

The position of manufacturing dynamo China has come in for some heavy criticism.“China has been dragging its feet,” Vargo said. “They have not been part of the

solution. Now, they have to contribute.”Schwab said in an interview in WWD this week that China needs to step up to

the plate on Doha.A senior Western trade diplomat, who spoke on the condition of anonymity, said

the outcome in the November U.S. congressional elections and the presidential election in France next spring could pose some serious problems.

“A change in the balance of power in the U.S. House of Representatives could make things more complicated,” said the envoy, adding that a legitimate worry is that a shift in political power could result in “new strings attached.”

Vargo said NAM intends to “push hard” for the extension of TPA. He stressed

that an extension is needed in case there is progress in Doha or the U.S. is left to negotiate free trade agreements with its major trading partners.

Consultant Samuels said of a possible extension of TPA, “It’s diffi cult to know what the administration does until it knows the shape of Congress.”

On the textiles and apparel front, any future debate could focus on the idea of al-lowing poor African and Central American countries, which will likely lose market share from an erosion of their preferential trade status in key markets such as the U.S. under a Doha deal, to keep these advantages for a longer period.

At the heart of this concept is to phase in the reduction in tariffs over a longer period than would be agreed to under a formula cut. This is what happened under GATT, where global quotas were phased out over 10 years and the WTO was created.

Some developing countries that are not benefi ciaries of preferences in the U.S. market, but are heavily dependent on textile and apparel exports to the U.S., want to be included in such a deal.

“We can agree to such a solution if some consideration is given to our demands to be included in the level of access for these products,” said Gomi Senadhira, Sri Lanka’s ambassador to the WTO.

The alternative is a reduction in tariffs without a longer phaseout, something the poorest countries cannot accept, envoys said.

U.S. Secretary of Agriculture Mike Johanns and USTR Susan Schwab.

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By Bambina Wise

JOHANNESBURG — THE SOUTH AFRICAN GOVERN-ment, supported by the textile manufacturing sector, and the country’s top retailers have been heading for a showdown since June, when the Department of Trade & Industry said it had drafted an agreement with China’s Ministry of Commerce for quota restrictions on Chinese textile imports.

On Sept. 1, the government announced that the Memorandum of Understanding on bilateral trade and economic cooperation between the two countries, one that Chinese Premier Wen Jiabao said during his state visit in June was “based on the principles of coopera-tion on an equal footing, mutual benefi t and win-win,” had been signed. The MOU stipulated import restric-tions in 31 categories for 200 items, effective Sept. 28 and running through Dec. 31, 2008.

On Wednesday, the government, taking into account retailers’ concerns over the potential loss of business during the busy holiday period, announced it would delay the implementation of the new quota restrictions to the beginning of next year. Until the end of the year, only 5 million units will be allowed in, anything over that amount will be confi scated or destroyed. Retailers are concerned that with holiday stock coming in, that number will be reached easily within the next month.

Percentages for next year and 2008 have yet to be determined and will be done in consultation with the industry.

The latest fi gures from the DTI show that South Africa’s year-on-year trade defi cit with China rose to 27 billion rand, or about $3.6 billion, in June. This is 43 percent higher than the same period last year and 19 percent higher than at the end of last year. According to the latest trade balance statistics, South Africa im-ported goods worth 36.5 billion rand, or $4.86 billion, in the 12 months through June 30, while exporting only 9.6 billion rand, or $1.86 billion, in goods to China.

On the other hand, clothing and textile products imported from China during this period amounted to 5.7 billion rand, or $760 million, representing about 20 percent of South Africa’s total imports from China.

Domestic retailers — notably the top seven retail giants Woolworths, Edcon, Truworths, Queenspark, Pepkor, Mr. Price and Foschini — were up in arms about the quota deal, complaining that they had not been consulted at all during the negotiation stage and

yet were given a mere seven days to respond to the DTI’s proposals.

Far from being a “win-win” situation, Simon Susman, chief executive offi cer of Woolworths, said, “It is a lose-lose situation.”

He said, “Had the DTI been able to set aside due time to do a full impact study, they would reconsider this an ill-advised measure. The impact will be sig-nifi cant. Customers will see higher prices, particularly in sensitive areas like children’s clothing, which could go up by 20 to 25 per-cent. Shelves will be empty over the holiday season, and ultimate-ly there will be damage to South Africa’s textile industry, the indus-try to which these quotas are add-ing even further protection.”

Susman and the other key retailers in the mar-ket warned that they could lose up to 5 billion rand, or about $667 mil-lion, in the next three months due to the quotas.

“It’s completely un-workable,” said Martin Deall, merchandise logis-tics executive at the Edcon group. “We do not support quotas in any form, as they are the worst form of protection from a retail perspective and this view has been re-peatedly made known to the DTI.”

The DTI dismissed the retailers’ fears as exaggerated and alarmist, and stressed that the quotas were being introduced “in re-sponse to an offi cial application launched by labor and supported by manufacturers.”

It pointed out that the government’s eco-nomic liberalization policies have been “in-strumental in the signifi cant growth seen in

our international trade,” which allowed the retail sec-tor to fl ourish. Aggregate published profi ts of the top fi ve clothing retailers, said the DTI, grew from 1.7 mil-lion rand, or about $227,000, in 2002 to 6.6 billion rand, or about $880 million, in 2006, “partly attributable to direct sourcing from markets such as China.”

“During the same period, though, our domestic manufacturers have seen substantial decline and ex-

perienced severe job losses,” the agency said.

“Some 67,000 jobs have been lost in the sector since 2003,” said Ebrahim Patel, general secretary of the South African Clothing & Textile Workers Union. “In the same period of time, there was a 480 percent in-crease in imports from China in dollar terms. The retail sector has made a killing. The quotas are an appropriate response.”

Patel admitted that the South African textile industry had taken a severe beating since the worldwide quotas were scrapped at the begin-ning of 2005, and that recovery will be a gradual, evolving process. The new quota restrictions on Chinese imports are more than “mere pro-tectionism,” he said, and that, as the

substantial domestic manufacturing capacity had been eroded by the infl ux of Chinese clothing, it was impera-tive that the industry work on “a new competitive plan.”

There was less vertical integration in the industry than in the past, he conceded, and said: “Spinning ca-pacity, for instance, has decreased.” But he said the industry was more than capable of taking up the slack in supply that the retailers were bemoaning.

“We have a workforce of 160,000 people that are willing, able and available,” Patel added. “This num-ber can increase by 50,000 to 60,000 workers with the necessary skills who are currently employed.”

Brian Brink of the Textile Federation of South Africa would like to share Patel’s optimism.

“Hopefully, some business comes back to our shores,” he said. “It’s a complicated issue. I would guess that importers will now try to scramble to source else-where. India and Vietnam are two countries that come to mind. I am not sure they will be able to fi nd locally similar rock-bottom, bar-gain-basement prices as in China, and with the same quality.”

Deputy President Phumzile

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14 WWD, TUESDAY, SEPTEMBER 19, 2006

South Africa Reaches Deal on

South African Deputy President

Phumzile Mlambo-Ngcuka met with Japanese Prime

Minister Junichiro Koizumi in April.

Retailers such as Woolworths were unhappy over the government’s quota deal with China.

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Mlambo-Ngcuka cautioned against retailers sourcing cheap clothing from other countries in an attempt to get around the new quotas. She called it tantamount to “treason,” adding that it would be grossly unjust to the poor and unem-ployed of South Africa.

However, Deall maintained that “the imposition of quotas will not save jobs in manufacturing.”

“It may very well cost more jobs and this job loss will probably spread across many other sec-tors,” he said. “The only way to save the local industry is through initiatives that promote col-laboration across the entire supply chain and provide win-win opportunities for all players.”

In a surprise move, the Clothing Trade Council, known as Clotrade, which represents the clothing industry in South Africa, fi rmly sided with the retailers and rejected the govern-ment’s planned measures. In a joint statement, Clotrade warned the quota plan would cause “chaos and enormous disruption.”

It claimed that the government, in its haste to address the concerns of the manufacturing indus-try without thorough and proper consultation and investigation, failed to take into consideration sev-eral factors. These included “the lack of capacity of the local industry to meet demand, given the massive downsizing and restructuring that has taken place in recent years; the negative impact on the consumer in general terms, and particularly in relation to the welfare of poorer and unemployed consumers in South Africa who are desperate for cheaper clothing, and the impact of not taking lead

times and committed orders into account.”Patel nevertheless believed the quotas would

revitalize the manufacturing sector.“There has been an explosion of design inno-

vation in South Africa in recent years, which has witnessed a growth in domestic brands,” he said. “Moreover, we have made fantastic progress in our manufacturing capability and technology. South Africa remains very strong in weaving and fi nishing, and we’re talking high-quality fi bers, not cheap yarn.”

Susman stated that Woolworths always has been a supporter of the local clothing industry. Some 65 percent of Woolworths clothing for the next season, he said, “will be produced in South Africa by local manufacturers who have worked closely with Woolworths to produce high-quality product at competitive values using the latest technology. These producers, too, will be affected by both the fabric quota and the product quota.”

Clotrade also pointed out that quotas would “open the way for unscrupulous dealers and en-courage a culture of dishonesty.”

Brink said, “The diffi culty with this proposal is its actual implementation. Will it really stop illegal imports from China coming into the mar-ket? Will our customs and revenue departments be able to adequately police this situation and monitor all goods coming in? That’s the real challenge.”

Industry analysts estimated that there were around 2,000 to 2,500 operators engaged in the illegal importation of Chinese goods.

WWD.COM

15WWD, TUESDAY, SEPTEMBER 19, 2006

Quotas With China

The men’s department at Woolworths.

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16 WWD, TUESDAY, SEPTEMBER 19, 2006

By John Zarocostas

BURGENSTOCK, Switzerland — THE LIFTING of global quotas on textiles and apparel has spurred Indian exports, and is sharply increas-ing the demand for cotton and putting pressure on prices, a top Indian executive said.

“The Indian textile industry has ben-efited enormously from the World Trade Organization’s dismantling of the quotas, and particularly from the freedom Indian producers now enjoy for their exports,” said PH Ravikumar, managing director and chief executive offi cer at National Commodity & Derivatives Exchange, based in Mumbai.

Ravikumar said the modernization of the textiles industry in the last seven years also has helped Indian producers.

Interviewed at the international fi nance conference here sponsored by the Swiss Futures & Options Association, Ravikumar said the concern is that with such demand for cotton, “prices will go up,” which “will benefi t the farmers, but hurt the consumers.”

The ceo noted that India is an exporter and importer, but said the sector has some barriers.

“There are restrictions for exports of cotton from India because the textiles industry needs cotton,” he said. “We export medium and lower grades of cotton, and we import high grades of cotton from Sudan, Egypt…mostly from Africa.”

However, India is liberalizing its economy and removing decades of regula-tory restrictions, a move international economists say has helped spur an annual growth rate of 8 percent.

“The lid has been lifted from the pots,” said Lamon Rutten, joint managing director at the Multi Commodity Exchange of India, also in Mumbai. “The potential has been there, but the restrictions of governments have been keeping growth low and they’re

still keeping growth low. Growth could be much faster if the government liberalized faster.”

Earlier this month, it was announced that an expert group from the Reserve Bank of India had recommended convertibility of the rupee in three phases over a fi ve-year period ending in 2010-11.

Last year, India’s exports increased by 19 percent to $90 billion and its imports ex-panded by 35 percent to $132 billion, accord-ing to WTO data.

Expectations are that the economy, Asia’s best-performing after China’s, will continue to surge ahead at this robust rate for years, adding to the demand for quality cotton fabrics and apparel in both the Indian and global markets.

A global outlook report the International Cotton Advisory Committee published last week concludes that, fueled by the growth in exports of cotton products, “mill consumption

of cotton in India increased by 6 percent to reach 3.4 million tons in 2005-06.”The ICAC forecasts mill consumption in India to increase to 3.6 million tons

in 2006-07.India, China and Pakistan together in 2005-06 accounted for 73 percent of glob-

al mill consumption of cotton, up from 47 percent in 1998-99, according to ICAC estimates.

Vinay Kotak, a director of Kotak Ginning & Pressing Industries Ltd., in a pre-sentation to the annual ICAC meeting in Goiânia, Brazil, this week, said that in addition to the post-WTO development of rising exports of cotton yarn, fabric, apparel and home furnishings, growing income is spurring consumption. He said India’s burgeoning middle class wants “status-symbol cotton.”

India’s domestic market, he said, was growing to $45 billion in 2006-07 from $25 billion in 2002-03.

Dropping Quotas Fuels Indian Apparel Sector

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The removal of quotas has spurred strong demand for cotton in India.

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