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Friday, May 8, 2020

Gold Prices Soar, Pushing Jewelry Industry Into New Uncertainty

New gold futures predict the safe haven metal could reach $3,000 per ounce over the next 18 months.

Gold prices are spiking 

The fine jewelry industry was put on high alarm earlier this week when Bank of America released a new gold forecast, predicting the metal could surpass $3,000 an ounce over the next 18 months. The quickly escalating price of gold — which stood around $1,400 at the beginning of the year — is tied to global and political uncertainties, plummeting oil prices and massive cash injections from governments looking to stave off the economic impact of the pandemic. On Thursday, the safe haven metal’s price stood at more than $1,700.
Soaring unemployment and waning consumer confidence are not the only bad news the jewelry sector now faces. If gold nearly doubles in value, designers say it will change the trajectory of business and design as they currently know it. Many have set $2,000 an ounce as the benchmark for when they will need to seriously reconsider pricing and approach. The last historical high for gold was around $1,900 an ounce in 2011.

“I was hoping to wait this out and take lower margins in the meantime since everyone’s income levels are lower. Now is not the time to get too high on prices because people won’t be able to afford it. But if the gold price continues to climb, we will have to change our prices,” said Beth Bugdaycay, founder of the New York-based fine jewelry line Foundrae, which heavily relies on 18-karat gold in its designs.

Related Article:  How Covid-19 Changed the Resale Market
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“As the designer and ceo of a company that manufactures and retails, the increase in the cost of gold is a small but significant factor as we navigate the impact of COVID-19,” said David Yurman, cofounder and chief executive officer of his brand. “Through creative design, ingenuity and technology, we can adapt to a changing environment and manage increased costs. As a retailer, we may shorten our margins to remain attractive and competitive. That is our plan. We have been here before and have successfully navigated challenging circumstances.”
Jean Prounis’ namesake line Prounis is based in 22-karat recycled gold — a sustainable practice growing in popularity that follows the same market value as metals that are newly mined. When her label was established in 2017, gold hovered around $1,100 an ounce. Last year it escalated to around $1,500, forcing her to reevaluate pricing and explore goldsmithing techniques that allow for volume while requiring less metal weight. “That’s when we had to evaluate and shift to adapt to this market. We are working in more hollowware and repoussé, using thinner sheets of metal,” Prounis said.
The designer, whose line is carried at Bergdorf Goodman and multiple Dover Street Market locations, thinks that the industry’s outlook on producing collections will change as a result of drastic gold price increases. “Chunkier pieces may move to more private order, it’s not something a designer will make for a collection just to have in their inventory,” Prounis said.
While fine jewelry has been pushing a more minimal aesthetic that relies on precious metals, rising costs may force some designers to incorporate heavier stones to build a sense of drama instead. The result could be a new period aesthetic for jewelry, much like pieces designed around World War Two when precious metals were not readily available and design houses like Cartier relied on semiprecious stones such as amethyst and citrine to comprise the majority of their pieces.

“I am a big lover of stones, they can make a big impact,” said Jesse Lazowski, founder of Marlo Laz. She cautioned, however, that the addition of many small stones to a design requires more settings, thus piling on labor fees. “I think we will see a move into bigger stones all around,” she said.
Diamonds, which have been steadily decreasing in value due to a decline in demand, may appear a better value than gold if the metal’s price continues to increase. “[Diamonds] will feel a lot lower than gold because they are not surging like gold is. Engagement rings should be really interesting,” said Alison Chemla, founder of Alison Lou. She, like others, is now looking into a more direct-to-consumer model to buoy margins.
Tacori’s senior vice president of marketing Michelle Chila said that “if this continues, we would be happy to design with more diamonds honestly, because diamonds have seen a price drop and something with more diamonds in the design has a high appeal anyway.”
Chemla was early to what could become a trend for diffusion lines. Her contemporary collection Loucite peddles seasonal merchandise like lucite hoop earrings and bangles that often sell out in the summer months. Chemla is looking into expanding this category while gold reaches historical highs. Prounis is also looking into a lower-priced line.
Reinstein Ross, which hired Greek designer Ileana Makri as its creative director in November, will release an 18-karat line this summer as a response to escalating gold prices. Previously the jeweler worked in a minimum of 20-karat gold. “We will not compromise on quality, so we will make a switch to more delicate pieces,” Makri said.
While Bugdaycay’s Foundrae label cannot waver from 18-karat gold, as the brand’s enamel technique requires an 18-karat minimum to adhere correctly, some other labels are considering reducing their gold purity.
“Jewelry was always based in 18 karat and so many of us have moved to 14 karat and some people have already moved to 10 karat. I’m not sure what will happen, but I’m interested to see if this will have more of the 18 karat group go to 14 karat and maybe even more people to 10 karat,” said Lazowski. “Karat changes are interesting, chunkiness and big statement pieces are a core part of what we do. I am not going to suddenly make dainty pieces of jewelry,” she added.
Mejuri’s founder Noura Sakkijha, said the company will strengthen its focus on classic styles. “People want to buy products that stand the test of time now more than ever. Everyday jewelry, rather than occasion-based jewelry, will become the thing you want to buy, especially given the increase in price. If people want to buy gold, they will go to more classic designs. Getting too trendy with solid gold pieces might not be the time. There are trendy pieces with silver and vermeil that are more fashion forward,” she said.
Small labels do not have the luxury of stocking up on gold reserves at its current price. Bigger brands or those with a huge muscle of venture capital funding have gotten to work on building their inventory of the metal.
Aurate, the direct-to-consumer jeweler founded by two former finance executives in 2017, revealed a $13 million Series A funding round last June. Cofounder Sophie Kahn said, “One of the things [our production] offers us is to produce with current gold prices and pay when it is sold. This way, we can be smart about the increase of gold prices and how they translate to our customers.”
Aurate said if gold does increase to $3,000 an ounce, that spike “is not linear” to how their jewelry will be priced at retail. Pieces, depending on gold weight and labor involved, could see between a 5 and 50 percent price escalation.
Chila said that while Tacori is mostly focused on platinum jewelry, the brand has gold reserves to last the company between six and 12 months. “We don’t have a backlog of inventory in the vault, everything is made to measure. Price increases would be a question for retailers,” she said.
Tacori is not looking to further buy into gold, as “it’s impossible for anyone to determine demand. We don’t know what we will open up to, if there is going to be a pent-up influx or steady drip. We feel very secure with what we have and are not planning to do anything drastic. If anything it’s focusing on the more fun element of what we can do to shift designs,” Chila said.
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Sunday, May 3, 2020

The Death of the Department Store: ‘Very Few Are Likely to Survive’

Shuttered flagships. Empty malls. Canceled orders. Risks of bankruptcy. The coronavirus has hit the behemoths of the retail world.


Neiman Marcus has stopped accepting new merchandise.
Credit...Karsten Moran for The New York Times

Retailers have begun taking extreme measures to try to survive. Le Tote, a subscription clothing company that acquired Lord & Taylor last year from Hudson’s Bay, said in a memo on April 2 that the chain’s entire executive team, including the chief executive, would be let go immediately. It also suspended payments of goods to vendors for at least 90 days, citing “immense pressure on our liquidity position.”
Macy’s, which also owns Bloomingdale’s, extended payment for goods and services to 120 days from 60 days and, according to Reuters, has hired bankers from Lazard to explore new financing. Jeff Gennette, the chief executive, is forgoing any compensation for the duration of the crisis. The company was dropped from the S&P 500 last month based on its valuation.
J.C. Penney has hired Lazard, the law firm Kirkland & Ellis and the consultancy AlixPartners to explore restructuring options, according to two people familiar with the matter, and confirmed that it skipped an interest payment on its debt last week. It is expected to make a decision on what to do, including potentially filing for bankruptcy, within a few weeks, one of the people said.



But none of them were in as immediate dire straits as Neiman Marcus, which has both an enormous debt burden — about $4.8 billion, thanks in part to a leveraged buyout in 2013 by the owners Ares Management and the Canada Pension Plan Investment Board — and a raft of expensive rents in the most high-profile shopping destinations, signed during boom times.
In late March, Neiman stopped accepting new merchandise and furloughed a large portion of its approximately 14,000 employees as the rumors of bankruptcy began to swirl. Its chief executive, Geoffroy van Raemdonck, announced that he was waiving his salary for April. The brand denied to vendors and its own employees at its sister brand Bergdorf Goodman that it was engaging advisers to explore a bankruptcy filing, but on April 14, S&P downgraded Neiman’s credit rating. Last week, the retailer did not make an interest payment that was due on April 15, angering bondholders and further fueling suspicions that a bankruptcy filing was imminent. A spokesperson for Neiman Marcus declined to comment.


Barneys offered steep discounts after declaring bankruptcy last year.
Credit...Stephen Speranza for The New York Times

Even Nordstrom, widely considered the healthiest department store, said this month that it could be facing a “distressed” situation if its physical locations closed to customers for “an extended period of time.” Erik and Pete Nordstrom, chief executive and chief brand officer, are both receiving no base salary for at least six months. The chain has stunned some vendors with last-minute cancellations via email in recent days.


Across chains, prices for new merchandise sold via e-commerce have already been slashed by 40 percent in some cases. Order cancellations for the pre-fall season — which would normally have started delivering next month — have been increasing. Some brands said shipments have even been turned away upon delivery to warehouses, and extensions of payment terms are cascading through vendors, who are then forced to negotiate with their own manufacturers, marketing agencies, fulfillment centers and landlords.
“I’ve had a showroom for over 30 years, and we have always used the word ‘partnership,’ when talking about our relationship with the department stores,” said Betsee Isenberg of the showroom 10Eleven, which represents numerous brands such as Vince and ATM. “Through 9/11, through 2008, we worked hand in hand with our retailers. This is the first time the onus has been on the brands — many of which are losing millions and millions of dollars because of the canceled orders. It is just not fair that it is survival of the fittest.” In a new report, McKinsey refers to the situation as “wholesale Darwinism.”
The resort season has been canceled entirely, and fall orders have been put on hold, raising questions about what inventory will be left if and when shops reopen and consumers return to store.The Neiman Marcus store at Hudson Yards in Manhattan. With stores closed, retailers have seen sales plummet.


Credit...Mark Wickens for The New York Times

“Nobody knows what Q4 will be like, but you have to start putting the orders in now,” Sucharita Kodali, a retail analyst at Forrester, said of the holiday season, normally the most lucrative time of the year for the chains. “Some people don’t even have the money to put in Q4 orders, and may have to cancel Q4 orders anyway, and it’s a mess. There’s never been this much uncertainty.”
Robert Burke, the eponymous founder of a luxury consultancy, said he expected brands to move further away from a wholesale business, focusing on direct-to-consumer and a model with department stores where they control their own space and inventory.
Shares of J.C. Penney, which has temporarily shut its more than 800 stores, closed at 23 cents on the dollar last Wednesday after the retailer said it did not make a $12 million interest payment due that day. Brooke Buchanan, a representative, said it was a “strategic decision” in order to take advantage of a 30-day grace period before it was considered in default.


Normally bustling stores like Saks Fifth Avenue are now empty.
Credit...Haruka Sakaguchi for The New York Times

Ms. Buchanan said J.C. Penney had “been engaged in discussions with its lenders since mid-2019 to evaluate options to strengthen its balance sheet, a process that has become even more important as our stores have also closed due to the pandemic.”
Cash flow for all department stores has dropped sharply. In a note on April 13, analysts at Cowen estimated four months of liquidity at Macy’s, six months at Kohl’s and seven months for J.C. Penney. Nordstrom, they predicted, could withstand store closings for 12 months.
“The nature of the mall is if you lose a big anchor like a Macy’s, you have co-tenancy issues and you have more pressure on the mall traffic, which was already a big issue,” said Oliver Chen, an analyst at Cowen. Co-tenancy clauses typically allow other tenants to demand rent reductions if certain key chains depart. Mr. Chen said that could accelerate the ongoing divide between top-tier malls and the second- or third-choice malls in certain areas.
According to a report this month from S&P Global Market Intelligence, department stores were more likely than any other consumer industry to default on their debt in the next year. It estimated the probability at 42 percent.
Nordstrom’s new store in Manhattan. Analysts predicted that it had enough cash to withstand 12 months of stores closures.

Credit...Karsten Moran for The New York Times

In its April 2 memo, the management of Le Tote and Lord & Taylor said only “key employees” were being retained to preserve the business. A representative for Lord & Taylor and Le Tote declined to comment or disclose the number of employees who were furloughed and laid off.
“It appears to be a virtual certainty that Lord & Taylor will liquidate its business in the near future, either in or out of bankruptcy,” said James Van Horn, a partner at Barnes & Thornburg and a specialist in retail bankruptcy. “They were already one of the most challenged department stores prior to the coronavirus pandemic, and when the majority of the management team is leaving, the vast majority of employees are laid off and a minority of employees furloughed, there does not seem to be any other strategy but to liquidate the inventory.”
Mr. Van Horn said he expected that other chains might strategically employ Chapter 11 reorganizations to legally shed stores, lightening their rent burden.
“It will likely be a domino that falls,” he said. “Whether it is first or 10th, we don’t know.”

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How Covid-19 Changed the Resale Market

Secondhand fashion platforms like Poshmark, Depop and Thredup are seeing high demand during the pandemic. But will it last?

Louis Shapero was a casual user of the resale platform Depop before the pandemic. But with retail shut down across Europe and North America, his once-sleepy online storefront is suddenly buzzing.
The 22-year-old British university student says he’s handled dozens of sales for Stone Island sweatshirts, Van X  Supreme sneakers and other streetwear items in the last three weeks, more than he logged in the previous six months. He’s doing some shopping as well on the platform, which targets Gen Z with its Instagram-like feed of used clothes and accessories.
Shapero isn’t the only Depop seller who’s red hot right now. The platform says US sales are up 150 percent from the same time last year in mid-April, and have doubled in the UK. At Poshmark, a rival resale site where sellers tend to list low-price fashion from brands like Anthropologie and Kate Spade, the third week of April was the company’s best ever in terms of sales.
Resale sites are coming out big winners as the pandemic plunges the economy into a deep recession. They will have their pick of inventory, as brands look to shift clothes that went unsold during lockdowns. Soaring unemployment is good for the secondhand market too: analysts predict the newly jobless will turn to sites like Thredup and Rebag to clean out their closets for extra cash. And consumers, stuck at home and worried about their finances, may have stopped buying new clothes, but they’re still hunting for bargains online.
“We aren’t going out drinking or clubbing but still have leisure time,” said Shapero. “People are now just spending money on clothes instead of going out.”
People are now just spending money on clothes instead of going out.
Shoppers aren’t quite as eager to splurge on used luxury goods, even at a discount. The RealReal, which sells $700 Louis Vuitton bags and $350 Prada pumps, saw sales plunge 40 percent the week of April 8, according to data compiled by Earnest Research, which monitors consumer spending habits. The company’s stock is down 22 percent since late February.
Some expect secondhand luxury to take off as well, particularly if a deep recession forces even wealthy consumers to watch their spending. Vestiaire Collective, a luxury reseller with a mostly European clientele, saw sales jump 20 percent in late April, and Rebag sold more handbags in late April than it did over Black Friday. At StockX, which sells sneakers that can cost thousands of dollars, sales were up 75 percent the week of April 15 compared with last year, according to Earnest, though the average price of sneakers sold decreased.
“[Resale sites] are better off than retail, and they are way better off than department stores,” said Sonia Lapinsky, a managing director in AlixPartners’ retail practice. “This crisis will completely change shopping behaviours, and when every dollar counts, resale will be far more attractive.”
New Opportunities
Before the pandemic hit, the resale market was on track to double from $24 billion in 2019 to $51 billion by 2024, according to a report from Thredup and GlobalData, a retail analytics firm.
This growth may very well accelerate. The 2008 financial crisis paved the way for “flash sale” sites like Gilt and Rue La La, where the pairing of discounts and a ticking clock proved irresistible to shoppers. Resale sites, with their ever-changing assortment, offer that same combination, said Chris Ventry, vice president of business solutions firm SSA & Company and a former Gilt Groupe executive.
Resale sites also add a feeling of community to the equation. Platforms like Poshmark and Depop allow buyers and sellers to comment on each other’s listings and send direct messages (though Depop has also struggled with predatory messaging aimed at younger users). Fans have created Facebook groups to talk about their secondhand finds, while sneaker resale drama fills forums on Reddit.
This crisis will completely change shopping behaviors, and when every dollar counts, resale will be far more attractive.
“These shopping platforms are social networks,” said Andrea Szasz, principal at global consulting firm Kearney. “Flash sale sites hooked consumers with scarcity and newness, but the needs of consumers today is that sense of community in the digital world.”
On April 29, Poshmark added a short video feature similar to Instagram Stories. The platform moved up the launch from later this year in response to the platform’s surging activity.

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Poshmark's new feature, Stories. | Photo: Courtesy
In the luxury market, a recession could steer fashion back toward a more muted aesthetic, analysts say. Shoppers could end up selling the ostentatious and logo-heavy items they purchased in better times.
Sasha Skoda, head of women's merchandising at The RealReal said searches for classic jewellery, such as Cartier earrings and gold necklaces, are up 40 percent and 72 percent, respectively, over the last month, as “people gravitate toward classic investment pieces.”
Sales for investment watches like the Patek Philippe Nautilus and Rolex Daytona are up on the watch resale site Chrono24, said chief executive Tim Stracke.
Resale and the Excess Inventory Problem
Many brands offload their inventory to resale sites, whether it’s luxury labels at The RealReal or Adidas dropping product on StockX. Gap, Abercrombie & Fitch, Madewell and J.C. Penney have partnered with Thredup too. Still, they often see resale as competing with new clothing in their own stores.
That attitude seems to be shifting out of necessity, with entire spring collections gathering dust in warehouses and stores. Poshmark’s Chandra said his company is in discussions with large brands about creating wholesale lines that would be sold by professional Poshmark sellers.
Depop Chief Operating Officer Dominic Rose said Depop is building a wholesale platform for brands to sell on the site too. Come mid-May, brands can start selling directly to Depop sellers.
New Challenges
As masks and social distancing become ingrained habits, consumers might become warier of allowing used clothing to be shipped to their homes.
“As the crisis goes on, concerns will be about what people touched, and this could create social resistance towards used products,” said Szasz.

Depop sales are up during Covid-19. | Source: Courtesy

Peer-to-peer platforms like Poshmark have a dedicated landing page that addresses sanitary concerns during the coronavirus pandemic, pointing them to the Centers for Disease Control and Prevention’s guidance, which says it's safe to receive packages.
Consignment sites, which store and ship sellers’ items, can sanitise products directly, a potential selling point to customers. But they risk having to shut down warehouses if workers are exposed to the coronavirus. The RealReal had to close storefronts where sellers could have items appraised in person, and cited “limited warehouse operations” as a problem in the first quarter. Thredup is about a month behind in processing inventory due to low staffing at its warehouses, said chief executive James Reinhart.
Both consignment and peer-to-peer sites also need reliable shipping methods, which have become harder to secure with hundreds of millions of people shopping more online while under lockdown.
“This specific health crisis has brought vulnerabilities in the system,” said Poshmark’s Chandra. “We’re keeping an eye on logistics.”
Some resale start-ups operate at a loss, and could struggle to take advantage of the flood of merchandise hitting the market. Warehouses and appraisers are expensive, and margins on used goods are thin. StockX laid off over 100 employees earlier in April and is shifting “from a growth-focused mentality to one rooted in operational efficiency.”
“Many don’t have the working capital to make that kind of product acquisition,” Ventry said.
Resale sites also aren’t the only ones offering deep discounts. Fashion brands and retailers are increasingly resorting to sales, and the deals will only get better if the economy worsens further. More brands are launching resale on their own, including Patagonia, Eileen Fisher and Nordstrom.
“The competitive advantage resale has will be less when we come out of this,” Ventry said. “If everything is on sale, customers will surely go to retail first.”
Editor's note: This article was revised on 30 April, 2020 to reflect that searches for Cartier earrings and gold necklaces are up on The RealReal, not sales.
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Counterfeit Fashion-Manufacturers Now Making Counterfeit Masks

Christian Dior, Chanel, Gucci, Givenchy and Prada are among some of the most well-known names temporarily pivoting away from making (some of their) high fashion garments and revenue-boosting fragrances in order to manufacture hand sanitizers and face masks, as shortages continue to plague medical professionals and other individuals across the globe. These luxury brands are not the only ones whose factories are churning out relatively out of the ordinary products in light of the continued spread of COVID-19, though. Counterfeiters are working overtime in response to the sweeping health pandemic, as well.

How To Tell If N95/KN95 Mask From China is Real or Fake - War On FluIn response to a spike in demand for protective masks as the COVID-19 virus continues to impact individuals on a worldwide basis, claiming tens of thousands of lives in the process, “hundreds of thousands of counterfeit medical masks are being peddled,” and such fake masks are being made “in unsterile sweatshops previously used to make phony handbags or designer jeans.” According to a lengthy report from the Independent, counterfeit-manufacturers are looking to bank on rising need for surgical and high-tech respirator masks and the large-scale shortage of them by saturating the market with black market alternatives that look a whole lot like the real thing.
From manufacturing products and even packaging that bears the counterfeit trademarks of “well-known medical supply companies” like Minnesota-based conglomerate 3M to carefully mimicking the certification stamps and documents that commonly come with these goods (such as the “CE” stamp that indicates that the mask is “approved by the European Economic Area for safety, health, and environmental protection standards”), these unauthorized products look perfectly legitimate. However, recent seizures by law enforcement agencies tell a different story: the global market is rife with counterfeit masks.

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The Independent’s Borzou Daragahi reports that the “fake masks may pose a threat to the wellbeing of [their wearers] because they are not made with the correct materials or in sterile environments.” Unlike their authentic counterparts, counterfeit alternatives are not being made from the National Institute for Occupational Safety and Health-approved textiles used by 3M, which are precisely what enable its respirator masks to boast a “95 percent or greater filtration efficiency” against solid and liquid particles, such as the ones that transmit the COVID-19 virus.
So, while many of these batches of counterfeit masks may be coming from factories formerly used to make fake Dior handbags or imitation Gucci sneakers, the stakes are quite a bit higher when it comes to counterfeit face masks, which is why law enforcement agencies say they are focused in cracking down on the marked proliferation of such products.
In a release dated March 11, Interpol revealed that counterfeit facemasks, substandard hand sanitizers and unauthorized antiviral medications were all seized under Operation Pangea XIII, an Interpol-led effort that saw “police, customs and health regulatory authorities from 90 countries take part in collective action against the illicit online sale of various medicines and medical products.” The Lyon, France-based organization stated that it had seized “more than 34,000 counterfeit and substandard masks,” among other products, and warned that this is merely “the tip of the iceberg for this new trend in counterfeiting.”
More recently, Turkish police seized 1 million masks and arrested five people in a raid last week on a sweatshop making unauthorized medical supplies in Istanbul, a move that comes on the heels of Chinese officials disposing of more than $1 million worth of substandard masks that had been imported from Turky, which boasts a $2 billion medical supply manufacturing sector.
All the while, U.S. Customs and Border Protection has been on high alert after its agents intercepted shipments at Los Angeles International Airport and at Chicago’s O’Hare International Airport in March containing counterfeit COVID-19 test kits, which had been shipped from the United Kingdom. Both U.S. Customs and the Federal Bureau of Investigation have issued warnings that the health care products, in particular, are at an increased potential for fraudulent activity in light of the global health pandemic.
As Jay Kennedy, an Assistant Professor of Criminal Justice at Michigan State University, wrote earlier this month, “Counterfeiters have long preyed upon consumer vulnerability in order to make a quick profit, and the current coronavirus crisis will likely be no different, except instead of the usual names – such as Louis Vuitton, Nike and Rolex – being among the hardest hit by counterfeiters, the primary targets will likely be 3M and other medical goods suppliers.
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