Following our recent analysis on fashion companies’ absence from the growing wearable technology space, Credit Suisse published a new report saying that the market for wearable devices — such as Nike’s motion-tracking FuelBand, Google’s Internet-connected eyewear and Apple’s rumoured smartwatch — is set to grow by ten fold, from between $3 to $5 billion today to between $30 to $50 billion in the next five years. These are staggering figures, representing a tangible opportunity for fashion brands who are bold enough to experiment outside their comfort zone.

Elsewhere on the fashion-tech front, things are not so rosy. Is it possible that companies like Gilt Groupe, Moda Operandi, Warby Parker and Bonobos have raised too much money, creating unrealistic expectations for growth and scale? In an op-ed piece that burned up the Twittersphere this week, Lawrence Lenihan, managing director of FirstMark Capital in New York, argued that fashion technology start-ups were being overcapitalised, resulting in failed investments that ruin companies. Lenihan says that fashion-tech investors (and the entrepreneurs who they back) shouldn’t expect to create online fashion companies at the scale of Amazon or Google.

From around planet fashion, our friends at JapanConsuming wrote about the rise of ‘Geek Brands’ in Japan. There are more single or childless Japanese men than ever before, leaving plenty of time — and disposable income — for them to immerse themselves in the details and craftsmanship and materials of everything they buy. Take H Tokyo, for example, a tiny store devoted entirely to selling men’s handkerchiefs.

In a transnational tailoring trend that we have observed in cities as diverse as London, New York and Mumbai, we met with bespoke tailors serving a new generation of men, who are interested in sharp suits that fit into their urban lifestyles and have younger, cooler silhouettes.

Crossing over into China, which has been the key driver for growth the global luxury goods market, a slowdown is taking hold which Bain & Company, a consulting firm, says will put the brakes on global growth in the luxury sector in 2013. Growth in China has dropped sharply over the last 12 months, and Bain forecasted growth in China would further slow to between 6 and 8 percent in 2013, following an ongoing crackdown on expensive gift giving to government officials.

Indeed, Reuters reported that more mainland Chinese are heading to Hong Kong on ‘frugal fashion’ trips which take them to outlet shopping malls like Citygate, where products from brands like Levi’s, Coach and Burberry are available at steep discounts. This is a new type of travelling Chinese consumer, in search of bargains and value.

The Bain & Co. report also said that Chinese consumers were scaling backs on trips to Europe, and heading instead to destinations closer to home, like Australia, where I spent some time last week. While many of the Australian fashion industry professionals I spoke to noted the rising traffic from China, they lamented the state of the local fashion industry, citing recent bankruptcies, the decimation of the once-lively Paddington shopping district, and the ongoing market disruption brought about by the arrival of fast-fashion retailers and international fashion e-commerce players, who are aggressively targeting the land down under.

It’s also been a busy week in investment news, which suggests there is further consolidation to come across the fashion and luxury sector. Shares in Saks Fifth Avenue surged after reports emerged that the company had hired Goldman Sachs to explore strategic alternatives. One such alternative was a potential merger with Neiman Marcus, something that was reportedly being mooted by KKR, a private equity firm that specializes in leveraged buyouts. There were also rumours this week that Qatar Holdings was considering taking a stake in Versace, which has been turned around in recent years by chief executive Gian Giacomo Ferraris.

And it was musical chairs at Richemont, leading some observers to question the luxury group’s long-term commitment to fashion. The fashion division of Richemont, which includes Chloe, Lancel and Azzedine Alaia, reported sluggish growth, dragging down the otherwise stellar performance of the group in luxury jewelry and watches. Chairman Johann Rupert acknowledged that brands with disappointing performance should have been disposed of more quickly.

A few days later, Marty Wikstrom stepped down from her role as chief executive of fashion at Richemont. Eraldo Poletto also quietly left his post as chief executive of Dunhill, another Richemont fashion brand, last month. This week, it was announced that Mr Poletto would be replaced by Fabrizio Cardinali, formerly of Lancel.

Have a great weekend everyone and hope you enjoy diving into our weekly review of the business of fashion.

Imran Amed, Founder and Editor-in-Chief

Links:

Wearable Technology Market Set to Explode, Could Reach $50 Billion, Says Credit Suisse (Fashion 2.0)

Op-Ed | Why Are We Ruining Our Best Young Fashion Companies? (Opinion)

In Japan, the Rise of ‘Geek Brands’ (Global Currents)

From Brooklyn to Mumbai to London, Bespoke Tailoring Shows Signs of Growth (Intelligence)

Right Brain, Left Brain | Clouds Looming Over Australian Fashion (Opinion)

The post Week in Review | The Rise of Wearable Tech, Overcapitalised Start-Ups, Geek Brands in Japan, Transnational Tailoring Trend, Clouds in Australia appeared first on BoF - The Business of Fashion.

“3D printing represents a paradigm shift in the way some forms of production take place,” said Andy Middleton, general manager for EMAE at Stratasys, a leading US manufacturer of 3D printers and 3D production systems. “Traditional production takes an existing material, shapes it using cutting tools and then assembles the parts — what we call ‘subtractive’ manufacturing. 3D printing on the other hand, creates an item essentially from nothing, from the ground up, through an ‘additive’ process.

In the fashion and luxury space, 3D printing technologies, which can currently create objects in plastic, rubber, metal and ceramic, have been used to make dresses, notably by Dutch designer Iris van Herpen, who has shown in Paris as a guest member of the Chambre syndicale de la Haute Couture. But it’s the entry-level category of designer eyewear — a strategically important area of business, where brands make a sizable chunk of revenue through highly lucrative licensing deals with companies like Luxottica, Safilo and Marcolin — that may be the first to feel the impact of 3D printing in a significant way.

Rapid prototyping

On the one hand, the 3D printing is not new. “As futuristic as it seems, 3D printing is a mature technology that has been around for nearly 30 years. It’s used daily across countless industries from automotive and aerospace, right through to consumer goods and electronics,” said Middleton.

But for the most part, large manufacturers have, thus far, used the technology for rapid prototyping. Indeed, in the designer eyewear market, the largest licensing player of all has been using 3D printing to create prototypes for some time. “Luxottica uses 3D printing technologies to speed up the process of product development in the prototyping phase,” said Antonio Miyakawa, executive vice president of marketing, creative direction and product at Luxottica, which, along with eyewear licenses for luxury brands like Chanel, Prada, Armani and Ralph Lauren, owns Ray-Ban, Oakley and Oliver Peoples, as well as powerful retail outlets including LensCrafters, Sunglass Hut and others.

“Using unique multi-material technology, customers can now even print the rigid plastic frame along with the clear transparent lens all in a single build — requiring no assembly — in just a matter of hours,” added Middleton. “When it comes to product design, this is revolutionary. The days of producing a single, low quality prototype over a number of days or weeks are gone.”

Direct digital manufacturing

But as 3D printing systems become better and cheaper, the technology is being used for the manufacturing of finished products as well. “We’re also seeing an increase in manufacturers using 3D printing to produce short-run production parts that can be used directly in the final product, which is a big step forward from the world of prototyping to direct digital manufacturing,” observed Middleton.

Marc Levinson is the CEO of Protos, a start-up based in San Francisco that makes 3D-printed eyewear. “When studying industrial design in college, I was looking to start a venture that combined my specialised interest and knowledge in 3D printing with the skills of some of my classmates,” said Levinson. “With all of the interesting implications behind 3D printing, it was still very much a process meant for prototyping. We’ve spent the last few years developing a proprietary material and workflow that yields a product we are very proud to sell directly to customers.”

Importantly, digital fabrication processes like 3D printing make the per item cost of producing one of something the same as the per item cost of producing 10,000. And while, at high volumes, 3D printing systems are not as cost-efficient as traditional mass production techniques, like metal cutting or plastic injection moulding, they are set to become better and cheaper over time, radically lowering barriers to entry for start-ups like Protos, no matter how small their production runs.

“With traditional methods of manufacturing, eyewear companies need to mass produce thousands of the same exact frame. With 3D printing, we are not constrained by the same rules or properties, so each pair of glasses can be unique,” said Levinson.

This means two things. Firstly, it frees companies to manufacture a much broader spectrum of designs, including those that may not have been previously selected for mass production. And secondly, it means consumers can have their very own custom-made glasses based on their aesthetic sensibilities and the specific dimensions and contours of their faces, which is exactly what Protos has in mind.

“We resolved to make a truly consumer grade product through the process of 3D printing and decided that customisable eyewear was the perfect thing to start with,” explained Levinson. “I think 3D printing will flip the process of buying eyewear on it’s head. Instead of you searching endlessly to find a frame that kind of fits, the perfect frames will come to you.”

The opportunity is not lost on large players like Luxottica, however. “These technologies will allow us to create products that would not otherwise be produced following the normal process of industrialisation,” said Miyakawa. “There are huge opportunities which consist in constantly refining the materials used, giving rise to products that are more and more unique and tailor-made.”

At the moment, sales of 3D printing systems remain a tiny fraction of comparable sales of traditional ‘subtractive’ manufacturing tools. But that may be set to change. “3D printing has been supported by governments as the technology to revolutionise manufacturing. US president Obama’s administration has already pledged funding of up to $60 million to a National Additive Manufacturing Innovation Institute. The EU have mirrored such backing with the release of a report detailing how the continent plans to prioritise 3D printing for the purpose of reviving their manufacturing sector,” said Middleton. “We envisage a scenario where every workstation, office or department — involved in design, engineering and production — has this technology.”

3D printing is also finding its way into the hands of small-time ‘kitchen-table’ producers, hobbyists and end consumers in the form of accessibly-priced machines made by companies like Brooklyn-based Makerbot, as well as online 3D printing marketplaces and communities like the venture-backed Shapeways, which lets users share 3D product design files and make, buy and sell their own products, turning design and manufacturing into another cloud computing service, available at the click of a mouse.

Professional grade 3D printers are also starting to appear on the local high street. Last week, global office supply giant Staples announced the opening of their first 3D printing ‘Experience Centre,’ offering 3D printing services to end consumers. “This is the first time a major mainstream retailer has provided 3D printing to the public,” said Dr Conor MacCormack, CEO of Mcor Technologies, which is providing Staples with the 3D printers it needs to power the new centres.

Counterfeiting

For the eyewear industry, all this raises important questions for intellectual property and brand copyright. When digital design files are as easily exchanged as mp3s and access to 3D printers is available at the click of a mouse or a stroll to the local print shop, what’s to stop people from simply downloading and printing off a pair of designer sunglasses, all for a fraction of the retail price (which can often be in the region of $400)?

The answer is, not much.

A team at Virginia Tech University is experimenting with embedding quantum dots into 3D printed materials to help companies tag products with identifying markers in order to help prevent counterfeiting, but it may be years before the technology is widespread. Eyewear manufacturers could also start to differentiate their products by using non-plastic materials that can’t yet be 3D-printed, but this would, of course, cut into profit margins.

Lawsuits are another option, but here lessons from the music industry — where the Internet, mp3s and digital audio players have had dramatic consequences for copyright — are instructive. Indeed, aggressive lawsuits may only alienate consumers and ultimately fail to prevent piracy, anyway. Which begs the ultimate question: should forward-thinking eyewear manufacturers get ahead of the change that new digital fabrication technologies will inevitably bring and negotiate iTunes- or Spotify-like deals with companies like Shapeways, for example, that make it easy for consumers to access and pay for designer eyewear that they can print out?

Stay tuned.

The post Could 3D Printing Disrupt the Designer Eyewear Market? appeared first on BoF - The Business of Fashion.

Looking into the future, Bertelli confirmed 70 to 80 new store openings, including 10 to 12 in China and, “probably,” a store in Angola — he believes Africa “is starting to give the first signs in our sector.” But with regards to acquisitions, the chief executive unequivocally stated the company did not want “any distraction.”

On China, where the group currently has 20 stores, “there is a lot of room to grow, we are halfway compared with others that started there earlier, but we’ve avoided mistakes,” said Bertelli. “We’ll be at the level of our competitors in three years.” Prada’s product mix is the reason it “did not suffer” at the brunt of the country’s recent anti-extravagance legislation, continued Bertelli, stating that “this affects more those companies that make jewels and watches.”

In response to Giorgio Armani’s call for Italian designers to show in Milan, Miuccia Prada concurred with her husband’s statement that “temporal issues” and the material impossibility of staging “two shows a couple of days apart,” precluded any possibility of showing Miu Miu, as well as Prada, in the city. “It’s the way we work, it’s impossible, nobody does it,” she said.

The designer and chairwoman also weighed in on the Internet and the company’s e-commerce position. “It’s a very powerful and delicate issue. You promote the company, rather than selling products, you have the entire world looking at you but you know nothing of them. And if it’s too sophisticated, people don’t appreciate it. It seems that more basic things are appreciated more.” Bertelli declared the Internet “strong,” especially in the US, and was confident that it would be “fruitful” over time.

“No, we are not going to launch an initial public offering on a European bourse,” said Bertelli. “We want a streamlined company that brings advantages to shareholders and this would complicate its management. Hong Kong has different regulations — operating profit is what counts there, not EBITDA, and operating profit is the real result, it’s the bottom line that matters. A mental change would be needed here.”

No 1st quarter results were announced by the company as it is presently in a blackout period. However, Carlo Mazzi, executive director and deputy chairman, stated he was “confident the strategy consistently deployed will be a key success factor in 2013 despite the business environment.” Shareholders shared his cautious optimism, approving a dividend of 0.9 euros, or $1.10, to be paid on June 20, for a total upwards of 230 million euros, or $296.8 million that day.

In the fiscal year, ended January 31, Prada’s net profit increased 44.9 percent, to 625.7 million euros ($800.9 million) on a 29 percent gain in revenues, to 3.29 billion euros ($4.34 billion). As of January 31, 79.98 percent of the company’s share capital was owned by Prada Holding BV, a Dutch company, with the remaining shares listed in Hong Kong.

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Gap slid 1.6 percent to $40.70 at 4:04 p.m. in New York after dropping as low as $39.31. The San Francisco-based company’s shares had gained 33 percent this year through the close of regular trading today, the best performance for an apparel company in the Standard & Poor’s 500 Retailing Index.

Chief Executive Officer Glenn Murphy is working to keep sales rising with discounts meant to draw shoppers that still are holding back amid elevated unemployment and slower economic growth. While Gap said first-quarter profit rose to 71 cents a share, exceeding the 69-cent top end of its forecast, the company maintained its projection that profit this year would be $2.52 to $2.60. Analysts estimated $2.72, on average.

“Gap is executing better than it has for years,” Erika Maschmeyer, an analyst at Robert W. Baird & Co. in Chicago with a neutral rating on the stock, wrote in a note before results were announced. “However, we believe risk and reward is balanced at current levels given the choppy macro-environment and competitive promotional landscape.”

Net income for the quarter ended May 4 rose 43 percent to $333 million, or 71 cents a share, from $233 million, or 47 cents, a year earlier, the company said today in a statement. Analysts projected 69 cents, the average of 24 estimates compiled by Bloomberg.

Same-store sales at the Banana Republic brand were little changed in the first quarter while the Gap and Old Navy brands gained 3 percent each.

By: Lindsey Rupp; Editors: Kevin Orland, James Callan

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The purchase price of $42 a share will be paid in cash, the companies said today in a statement. That represents a 23 percent premium to Rue21’s closing price in New York yesterday. The deal has been approved by Rue21’s board and the company has 40 days to find a superior offer.

Rue21 has been expanding, with plans to open its 1,000th store by the January and eventually boost its presence to more than 1,700 locations. The chain, based in Warrendale, Pennsylvania, is projected to more than triple its free cash flow this year, according to data compiled by Bloomberg.

“That price is pretty fair,” said Amy Hu Sunderland, a Hong Kong-based analyst at Grandeur Peak Global Advisors LLC, which oversees $950 million and owns shares of Rue21. “They can get a lot of cash flow out of it. These guys are not levered at all, they should be able to get much higher return because they can lever it up.”

Rue21 shares climbed 23 percent to $41.95 at 10:25 a.m. in New York, after earlier reaching $42, for the biggest intraday gain since November 2009. The stock has advanced 20 percent this year through yesterday compared to a 21 percent gain for the Standard & Poor’s SmallCap Consumer Discretionary Index.

Deal Valuation

Apax is paying about 9.2 times earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. That compares with the median of 8.4 in a survey of about 30 comparable deals, the data show.

Funds advised by Apax have invested about $6.3 billion of equity in retail and consumer businesses, with current and previous investments including Tommy Hilfiger Corp. and Calvin Klein Inc.

The SKM II funds, which have been associated with Apax since 2005 and own about 30 percent of Rue21’s outstanding shares, have agreed to vote in favor of the transaction. The deal also will require the approval of investors holding more than half of Rue21’s shares that aren’t owned by those funds, the company said.

The SKM fund was formerly managed by Saunders Karp & Megrue, a middle-market U.S. buyout shop that Apax acquired in 2005. London-based Apax has raised more than $35 billion in committed capital since it was founded in the early 1980s.

The acquisition follows 38 private-equity deals last year for apparel and shoe retailers that reached $5.7 billion, the highest volume since the onset of the U.S. recession in December 2007, data compiled by Bloomberg show.

Rue21, whose stores in regional malls and strip centers compete with low-priced clothing at Wal-Mart Stores Inc. and Target Corp., is the industry’s latest target after the $835 million buyout of True Religion Apparel Inc. earlier this month and the $600 million deal for retailer Hot Topic Inc. in March.

By: Kevin Orland, James Callan; Editors: James Callan, John Lear

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Shares, which hit a 52-week high on Wednesday, fell 4 percent to $181.00 from $188.06 in premarket trading.

The fashion company, known for its namesake brand as well as others such as Club Monaco, said net revenue, including licensing revenue in the fourth quarter that ended March 31, rose 1.3 percent to $1.64 billion, a bit below Wall Street projections for $1.7 billion.

In February, Ralph Lauren had forecast revenue would be up by a mid single-digit percentage.

Ralph Lauren gets about half of its business from wholesale orders to retailers such as department store chain Macy’s Inc . Wholesale sales fell 4 percent in part because of fewer orders to Europe and the discontinuation of its American Living brand, which J.C. Penney Co Inc used to sell.

At Ralph Lauren’s own stores open at least a year, which generate about half of sales, revenue was up 7 percent.

For the fiscal year that began last month, Ralph Lauren forecast company-wide revenue will rise 4 percent to 7 percent in the new fiscal year.

Net income rose to $127.2 million, or $1.37 per share, from $94.4 million, or 99 cents per share a year earlier. Excluding charges associated to its discontinuation of its Rugby brand, Ralph Lauren had a profit of $1.41 per share, better than the $1.30 Wall Street had expected, as the company benefited from lower cotton costs.

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Significantly, the growth is being driven by young men, often in their 20’s and 30’s, many of whom who were not previously able to afford or particularly interested in custom suiting — not all of them in professions like financial services or law that normally require them to wear suits to work. It’s a well-documented fact that American television programmes like “Mad Men” and “Boardwalk Empire” have prompted a generation of men that grew up on video games and baggy pants to adopt a more formal, buttoned-up style of dress, more often associated with their grandfathers. On top of this, in certain geographies and sectors, the challenging job market has made proper, more ‘grown-up’ personal presentation more important than it once was.

But bespoke tailoring businesses are not easy to run profitably. Indeed, because of the intensive labour requirements, they are notoriously difficult businesses to scale. Whether a tailor makes one, ten or a hundred handmade suits, each unit costs the same to produce. And yet bespoke tailoring businesses seems to be alive and kicking.

Earlier this month, Alexander McQueen launched both bespoke and made-to-measure services at its Savile Row men’s store. And when Berluti, the LVMH-owned brand, helmed by Antoine Arnault, decided to expand into clothing, bespoke and made-to-measure lines were integral to the label’s new positioning. But perhaps a more telling indicator of the resurgence of bespoke and made-to-measure suiting are the small tailors, who, without the advantage of a powerful brand name, are nonetheless building successful businesses.

In New York, husband-and-wife team Daniel and Brenna Lewis’ bespoke tailoring business, Brooklyn Tailors, has doubled in size every year since they launched it, in 2007, from their 600-square-foot studio in Clinton Hill. Having outgrown the retail store they opened, in 2011, in Williamsburg, Brooklyn — which also served as their base of operations — last week, Brooklyn Tailors moved into a new, large studio that will serve as both office and space for fittings.

“We carved out a niche for a completely different customer. Most of our customers are in their late twenties to late thirties and many are in creative professions — writers, photographers, ad agency creatives, musicians. They don’t have a ton of extra money, but they want to make an investment in something that they love and will wear for a long time,” Brenna Lewis told BoF.

Brooklyn Tailors aims to take some of the stuffiness out of the bespoke tailoring experience and if their store space feels unassuming and welcoming, it’s not incidental. They have also placed emphasis on affordability. “We aren’t just catering to a super wealthy clientele. From the beginning, we wanted our clothes to be affordable enough that our friends — artists, musicians, creative types — could afford them.”

In practice, that often means advising customer against the most luxurious fabric choices. “Instead of pushing the customer to go for the Super 200′s wool or the pure cashmere, we’re steering him towards a well-made Super 120s cloth or a Japanese cotton. These are things that we love aesthetically, are going to last longer than the uber-luxury fabrics, and are quite a bit more affordable.”

“Because we’ve made it a priority to offer a better level of quality at an accessible price, we’ve also been careful to develop a lean, efficient business infrastructure, putting more money into the product, and less into other extraneous expenses such as advertising, PR, retail space and trade shows,” added Lewis.

“Diversity is also key for scale. Having a store, a web shop and a wholesale business allows us to continue growing in other ways at times when we have maxed out our bespoke calendar,” she continued, referring to the company’s ready-to-wear collection.

On the other side of the world, in Mumbai, Govinda Mehta is considered one of the city’s best-kept tailoring secrets amongst fashion-conscious young men, who flock to his tiny, four-year-old tailoring shop, in the burgeoning Parel neighbourhood, for bespoke Western-style suits in fashionable cuts.

Mehta’s success reflects the rise of a new generation of affluent young men in India — a country with a long and rich relationship with tailoring — who are increasingly turned onto style and fashion, a function of the increased availability and popularity of international brands and style magazines. Mehta also notes “the increase in the number of the undergraduates going overseas to study, something that used to be reserved for the privileged few.”

Mehta, who has no formal training as a tailor, founded his small tailoring enterprise, Raisson D’Être (the spelling relates to numerology), in 2009, after his family’s home textile manufacturing business was struck by bad fortune. As many of his friends already asked him for style advice because of his own, sharp taste in clothes — influenced by subscriptions to a dozen European and American men’s fashion magazines — Mehta saw an opportunity.

Today, he employs two master cutters, a team of up to ten tailors (depending on demand), a finishing and packing team of two and a production and quality control supervisor and has made over 2500 suits for more than 1500 clients, who range from young entrepreneurs and IT professionals to Bollywood actors and a few politicians. While Mehta declined to reveal an exact figure, the company’s revenues are in the six digits, in dollar terms, he said, and estimated to be growing at 30 percent per year. He also runs a consulting service, managing wardobes for clients who tend to be young, foreign-educated members of India’s great industrialist families.

“There couldn’t be a better time for people like me to exist today. With the advent of number of international brands coming into India — from Gucci and Zegna to Hugo Boss — that have been hugely successful, more and more men want to carve out a more individualised sense of style as opposed to what’s available to every other person,” said Mehta.

In London, Thom Sweeney, the bespoke tailoring atelier launched in 2007 by Luke Sweeney and Thom Whiddett, are taking their business to the next level based primarily on two factors: America and a younger, more fashionable customer.

The company started going to New York for fittings in 2002, making five trips per year. But seeing increased demand from US customers, the label is planning to launch an American pop-up showroom for 6 weeks, starting this year. For a long time, a healthy American business has been an important source of revenues for Savile Row tailors, but for Thom Sweeney, their customers have been getting younger and younger.

Luke Sweeney attributes the phenomenon to the influence of magazines and journalists that have advocated modern-looking suits, as well as to influential men in the public eye — athletes, musicians, actors — who began dressing up around 2008. Clients include men in “finance and property, party planners and even fashion designers,” said Sweeney.

“More than ever, tailors have to be more accessible and knowledgeable about what’s going on in fashion. Today, a customer may come in who tried on a designer jacket he loved, but it wasn’t quite right for his body. So they come to us and say I like these elements from this designer. We have to be in tune with what’s going in department stores and translate it into something made by hand,” he continued.

In the end, it “makes people want to go back for more,” said Sweeney, who said over 9 in 10 customers come back for another suit. “It’s an addictive thing, because people do take notice. Guys who thought they would never dress up, suddenly discover they love wearing suits. All it takes is for them to own their first good suit.”

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The appointment represents further managerial change at Compagnie Financière Richemont SA, the Swiss parent company that owns Dunhill, Chloé, Azzedine Alaїa and Lancel, as well as jewellery brands Cartier, Piaget and Jaeger-LeCoultre.

On May 16, Richemont’s chairman Johann Rupert announced that he would be taking a year’s sabbatical. During Rupert’s absence Yves-André Istel, deputy chairman, will chair meetings of the board, whilst co-CEO’s Bernard Fornas and Richard Lepeu, appointed on April 1st, will run the company.

Changes at Richemont continued when Martha ‘Marty’ Wikstrom resigned from her post as the group’s head of fashion and accessories on May 21. Her successor has yet to be named. Wikstrom’s resignation may have impacted Poletto’s exit, which market sources claim has already taken place. Poletto was one of three CEOs appointed by Wikstrom as part of a plan to redevelop six of the group’s high-end fashion brands, including Dunhill, Chloé, Azzedine Alaїa and Lancel, some of which were loss-making businesses just a few years ago.

Compared to the company’s jewellery brands — which have experienced extraordinary growth, leading to a 30.2 percent increase in net profits, to $2.59 billion, for the year ended 31 March, 2013 — growth at the group’s fashion brands has remained tentative. Annual results for the 12 months preceding March 31 show “single-digit sales growth, [and] operating profits [that] were lower than the prior year.”

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The deliberations may not lead to a transaction, said one of the people, who asked not to be named as the process is private. It wasn’t immediately clear whether KKR had approached New York-based Saks.

Merging the two would create an upscale department-store chain with more than $7 billion in annual sales, second only to Nordstrom Inc. in the U.S. Both Saks and Neiman recently hired advisers to explore strategic options including sales, people with knowledge of the matter said this month. If combined, the two could cut costs by closing stores, one person said.

Saks shares rose as much as 18 percent following Bloomberg’s report. They traded at $16.11 as of 12:55 p.m. in New York.

KKR, which had more than $78 billion in assets under management at the end of March, has a long history of buying retail and consumer companies. In 2005 and 2007, the firm snapped up Toys “R” Us Inc. and Dollar General Corp. for $7.5 billion and $7.3 billion, respectively, according to data compiled by Bloomberg.

Saks earlier hired Goldman Sachs Group Inc. for advice on its options, two people with knowledge of the matter said. The department-store operator may be exploring a sale now because its shares had increased by almost one-third this year before today and interest rates are low, giving potential buyers cheap financing, one of the people said.

Neiman’s Strategy

Neiman Marcus is working with Credit Suisse Group AG on exploring an initial public offering or sale, according to people familiar with the matter. Its owners may seek about $8 billion for the company, which has about 40 namesake department stores and owns Bergdorf Goodman’s two stores in New York, the people said. TPG Capital and Warburg Pincus LLC bought Neiman Marcus in 2005 for about $5 billion, data compiled by Bloomberg show.

Saks generated revenue of $3.15 billion in the year ended Feb. 2. That compares with $4.35 billion in Neiman Marcus’s latest fiscal year, which ended in July. Luxury retailers have fared better during the economic recovery than some of their lower-end counterparts as surging stock markets gave the wealthy the confidence to shop.

By: Cristina Alesci, David Welch with assistance from Mohammed Hadi; Editors: Julie Alnwick, Daniel Hauck

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The team tasked with stepping up sales growth in Russia, Latin America and China has reached 140 employees and may increase by about 60 more people by the end of 2013, said Wendy Jones, who oversees geographic expansion and cross-border trade at San Jose, California-based EBay. The effort is “incredibly well-funded” and plans to focus first on Russia, she said.

EBay Chief Executive Officer John Donahoe is betting on regions of the world where consumers and merchants are starting buy and sell more over the Internet. The company predicts that 25 percent of its users will be in developing countries at the end of 2015, up from about 5 percent in 2012, as EBay works to narrow Amazon.com Inc.’s lead in global e-commerce.

“There is still a significant, untapped opportunity out there,” said Dan Kurnos, an analyst at Benchmark Co., who recommends buying EBay shares. “If EBay doesn’t address it, someone else will.”

EBay ended 2012 with 6 million active users in Brazil, Russia, India and China, with $3.2 billion in sales to consumers there. It had more than 112 million active users worldwide.

Language Barriers

EBay is reaching into developing countries as the company competes with Amazon.com for the loyalty of merchants selling on its online store. Amazon is increasingly shifting to a marketplace model similar to EBay’s, with 40 percent of units on the site sold by outside vendors in the first quarter.

“We are sparing no expense,” Jones said in an interview, referring to staff dedicated to developing countries.

Donahoe’s biggest hurdle will be fostering trust in markets where fraud abounds, couriers such as FedEx Corp. don’t exist, and most consumers don’t rely on credit cards or PayPal, instead using cash to pay for online purchases upon delivery.

“The challenges involved are significant,” said Michael DeSimone, CEO of Borderfree, which helps companies adapt e- commerce sites for new countries. “Culture is so different. Language is so different. To really do business in those countries, you need to be on the ground.”

Rapid Growth

E-commerce revenue in China, India and Latin America were estimated to exceed $185 billion in 2012, increasing at rates as fast as 44 percent a year, compared with 14 percent growth in the U.S. in the same period, according to Forrester Research. Russia’s online retail industry expanded 25 percent in 2011 to $10.5 billion, according to a report by East-West Digital News. Combined, Internet commerce in emerging regions approached the value of the U.S. market, where sales reached $231 billion in 2012.

Gaining ground abroad could help EBay close sales-growth and share-price gaps with Amazon. Shares of Seattle-based Amazon have more than tripled in the past five years, while EBay has increased 78 percent. Amazon’s sales tripled from 2008 to 2012, and EBay’s rose 65 percent.

There are reasons these emerging regions are under served. Shipping, translation, Internet search and payments all pose obstacles for companies. EBay itself closed its unprofitable Web-auction unit in China in 2006 and formed a venture with billionaire Li Ka-shing’s Tom Online Inc.

New Approach

This time, the company is trying to take a smarter approach. EBay debuted a Russian-language site earlier this year, following the release of a mobile application focused on fashion in the country in 2012. EBay saw users in Russia surge by 75 percent in 2012.

To support its efforts in Russia last year, EBay began building a team charged with forging partnerships with local companies, improving shipping times and making payments easier. The company hired Vladimir Dolgov, who most recently oversaw Google Inc.’s efforts in Russia and was previously CEO of that country’s online retailer Ozon.ru.

Dolgov’s team of less than 10 people is working to learn how to best service a country where there is no clear road map to success for non-native e-commerce sellers.

EBay focused first on smartphones and tablets, releasing its mobile application before the desktop website — an approach it may also take in Latin America, Jones said. The company is trying to reach consumers who are still in the nascent stages of online buying. While most have mobile phones, not all have laptops or desktop computers, which tend to be more expensive.

Native Content

One shortfall EBay is seeking to fill is a lack of home- grown content in emerging markets. Consumers outside the U.S. are used to to sub-par experiences because offshoots of U.S. sites tend to be badly translated, sporadically updated and prone to showing out-of-date merchandise.

Products displayed on such pages are often tailored to U.S. customer interests – a football game on the display of a flat- screen television, for instance. This can turn off users and ruin brand trust, said Chuck Whiteman, senior vice president at MotionPoint Corp., which works with U.S. retailers to help them improve their international sites.

“It’s the world wide web — it’s a global consumer,” Whiteman said in an interview. “As soon as that consumer decides they’re in an experience that isn’t the best that company has to offer, they abandon it.”

Localizing Sites

In the summer of 2012, EBay introduced its Global Buying Hub, which focuses on localizing sites for larger markets outside the U.S., according to Sylvie de Wever, senior director of geographic expansion. Russian visitors on EBay’s site last spring saw merchandising for U.S. college basketball’s March Madness, she said.

Shipping has also long been a nightmare for retailers in new markets. Merchandise can take weeks or months to arrive because of delays when crossing country borders. Certain wildlife products – an ostrich-skin purse with feather detailing, for example – have to be accompanied by extra documentation. If they aren’t, they stay put in customs until the correct papers arrive.

In Russia, the delivery network is made up of local companies that service small areas within the country and are often loyal to local retailers. Theft and fraud are common, and consumers tend to pay with cash upon delivery, rather than with credit cards ahead of time.

Paying Later

“Most people think you can stick it in a FedEx box and everything will work out perfectly,” Borderfree’s DeSimone said. “It just isn’t like that.”

Jones’s team is discussing a payment-on-delivery technology that doesn’t involve cash – an attempt to stay loyal to Russian consumers, who tend to open boxes and then decide whether they’re satisfied with the products before they pay.

“If the way people shop is an environment where I physically want to see and touch and feel the goods before I pay, that’s great,” Jones said. “But we don’t necessarily want rubles handed over to a delivery person. We’re partnering with PayPal – we’re partnering with others in the market – to continue to learn and figure out how do we solve that in a uniquely EBay way.”

Because U.S. retailers have had trouble breaking into markets like Russia, the rewards of doing so at EBay are potentially that much greater. There’s latent demand for western brands, such as Michael Kors, Tory Burch and Balenciaga.

That doesn’t extend solely to luxury-fashion items. The day EBay unveiled its Russian site, the company promoted pink baseball hats featuring the New York Yankees – a brand that’s popular globally.

Local Competitors

EBay also has to deal with different search algorithms used abroad. Most U.S. companies have become accustomed to using Google’s technology to make themselves more easily findable on the Web. In Russia and China, Google isn’t the dominant search engine, with most consumers using Yandex NV’s. To learn about the nuances, EBay has begun teaming up with companies that have been in the market longer, such as Opera Software ASA, the most popular browser in Russia with 25 percent of the market, Jones said.

There’s also the local competition. Ozon.ru describes itself as the Amazon.com of Russia, and it increased net sales by 55 percent last year, according to a statement in March. In China, EBay is going up against Alibaba Group Holding Ltd.’s Taobao, which has an estimated 90 percent share of the market, Forrester Research analyst Zia Daniell Wigder wrote in a report.

Alibaba’s billionaire founder, Jack Ma, last year said the company may go public within five years. While Alibaba already dominates in China, the company may position its initial public offering as a bet on gaining even deeper penetration in the country, according to a person familiar with the situation.

Potential Returns

Still, the potential payoff in developing regions makes the bet worthwhile for EBay. China’s online retail market is poised to reach $356.1 billion in 2016, more than tripling from $118 billion in 2011, Wigder wrote.

EBay re-entered China in November as part of partnership with luxury online seller Xiu.com. The company will probably seek additional partners as the team learns more about the market, Jones said — a similarly methodical approach to the one it’s taking in Russia.

“Will they be the only people that we potentially will work with? Probably not,” she said of Xiu.com. “We’re now in the process to start to ramp that up and spend a little bit more behind it, as we continue to learn.”

By: Danielle Kucera; Editors: Jillian Ward, Tom Giles, Rick Schine

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