A Fashionable Strategy for Tough Times

Small boutiques and specialty retailers use up-and-coming designers and the latest trends to cut costs and attract customers

by Susan Yara

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As New York City heads into Fashion Week, Khajak Keledjian, chief executive of Intermix, a privately held chain of boutiques, isn't worried about the current economic crunch. In fact, despite reports of consumers tightening their designer belts, he projects his clothing and accessory sales will climb to about $100 million for 2008. He also is adding four stores to the 20 he already operates in cities such as New York, Miami, and Los Angeles. Recently he expanded his flagship store on Madison Avenue and 77th Street in Manhattan by about 1,500 square feet.

At a time when well-known designers such as Tommy Hilfiger have delayed taking their companies public (BusinessWeek.com, 1/25/08) because of economic concerns and sales are down at retailers such as Saks (SKS), Coach (COH), and Nordstrom (JWN), Keledjian's confidence is even more noteworthy. Unlike these larger players, Intermix's operations remain both relatively small and highly localized. His stores are situated in hip neighborhoods, and his price tags aren't too outrageous: While it is possible to find a dress that costs $1,200 at an Intermix store, there also are plenty of $175 jeans and $58 T-shirts. And, unlike bigger stores, he doesn't sell big-name designers, preferring smaller, hipper labels—such as Yigal Azrouel, Imitation of Christ, Catherine Malandrino, and Theory—many of which got their first real exposure through Intermix.

"We're a fashion-forward company, and each season we try to please customers with new trends," says Keledjian, who founded the company in 1993. "They don't come in because they need new clothes; they just want to buy what they love."

Specifically selling trends may not be a novel concept, but it is one that seems to work well for retailers in the $196 billion U.S. apparel industry, according to Port Washington (N.Y.) NPD Group. Other mini-chains that have profited from this approach include Calypso, Scoop, and Fred Segal in Santa Monica, where celebrities such as the Olsen Twins and Lindsay Lohan are known to shop.

Slipping Sales

When credit was easy to come by, many established labels such as Salvatore Ferragamo and Hermès (HRMS) were able to expand their base to include consumers who may not previously have had the access or the money to buy their products. As luxury designers began building more stores and retail locations, sales exploded.

But the concern is that those shoppers who were giddily paying for a $6,000 Birkin bag using money from their home equity loan have now had to cut up their credit cards. If sales slip as much as many analysts predict, these retailers will need to pull in their horns and close up their less profitable stores. Hermès, to use just one example, has 24 stores in the U.S., many of which were added only in the past decade, and more than 40 in Japan. Smaller retailers such as Intermix won't feel the downturn quite so acutely because they aren't as exposed.

Skewing Younger

But it's not just small boutique chains that advocate selling less well-known brands. Don't go to Henri Bendel looking for the latest from Chanel or Giorgio Armani. The whole point of the Fifth Avenue department store, which is owned by Limited Brands (LTD), is to skew younger, fresher, and, frankly, cheaper. The ability to connect with its clientele is the reason the store's vice-president and fashion director, Ann Watson, says Henri Bendel was highly productive during the 2007 holiday season, while other retailers were not. "We have established ourselves as a store that is constantly looking at the new and next in fashion and accessories, so our customer has come to view us as a reliable source in merchandise that reflects the current trend," she says.