How big brands found fresh faith

STANLEY MARCUS, the legendary founder of luxury American retailer Neiman-Marcus, had a cardinal rule of retailing - a brand name is important but the service and product must be equal to the hype.

'You can sell an awful lot of camel dung to an awful lot of people if you put it in a pretty enough package, but you can only sell it once,' he told San Francisco retail consultant Harry Bernard. Those words, uttered several decades ago, are even more poignant in today's highly competitive world of clothes retailing.

Companies that rely on brand dominance - as opposed to what is in the package - inevitably fail. Economic cyclical dips, such as the current consumer global slowdown, take their toll on sales and profits but what really hurts retailers is when they give into a culture of complacency.

This hard truth seems obvious but companies as diverse as Gap, Levi Strauss, Marks & Spencer, Sears, Top Shop, Gucci and Tommy Hilfiger have at one time or another failed to keep up with changing tastes, neglected core customers and felt the lash of consumer and shareholder disfavour.

Some, such as Laura Ashley, have never recovered. Others managed unexpectedly quick turnarounds. Marks & Spencer's restructuring began to show results after less than two years. Tommy Hilfiger is recovering after a similarly short sales slump.

Gucci's makeover took longer but analysts consider it a case study in riches, rags and back to riches again. A battered and bruised accessories maker in the mid-1990s, Gucci was a multi-line luxury apparel brand by the turn of the century.

Gap and Levi Strauss are still trying desperately to right themselves. Levi's sales, though improving, are just more than half what they were in the jeans maker's hey-day and it recently announced plans to close plants in Britain and the US. Its sales in Europe are rising and there are other signs of recovery but Levi's still has to regain ground lost over a decline that was five years in the making.

By contrast, Gap's sudden departure from retail stardom caught most analysts off guard. The global brand, also the owner of Old Navy and Banana Republic, was the envy of rivals on the High Street in the late 1990s. Then Gap began to neglect its core professional young adult shoppers to attract a younger, hipper audience. Sales began to fall.

Last month, Gap's same-store sales were off 12% from a weak year-ago period. Chief executive Millard Drexler, who received no bonus in 2001 and took a pay cut, has a restructuring plan to revive merchandise assortment in the second half of the year. That has helped stabilise the shares from a nine-month descent, but some analysts remain sceptical.

'Gap's problems are far from over and the company will need to show some signs of firm turnaround before the stock takes off,' Wells Fargo analyst Jennifer Black has told clients.

The yawning gulf with its core customers will be hard to bridge, analysts say. It takes more than a creative advertising-campaign to win back oncefaithful shoppers.

'Today's retailers have to work twice as hard and be twice as clever,' said Bernard, a partner at California consultants Colton Bernard. 'Having the right product means the company must be willing to find out on a day-by-day basis what people want. If you look at the successful companies - Armani, Polo Ralph Lauren, Gucci - -they spend enormous time and energy keeping their fingers on the pulse of the public.'

Ironically, one of the first responses of a company with slumping sales - to cut prices - can backfire. When Tommy Hilfiger's slide began, rampant discounting moved excess stocks but undercut the brand image, analysts believe. Gucci, in the early 1990s, licensed its once-prestigious brand to less-expensive merchandise.

'If a person is a dedicated Wal-Mart or Costco shopper, yes, they are motivated by price,' said Bernard. 'But mainstream to couture, what drives people to purchase a brand is trust it will deliver a level of quality, a level of fashion, innovation and image. The minute you break that trust - as Tommy did initially - you have to fight your way back in to the market.'

Tommy is back on top, at least on Wall Street. The Hong Kong-based company's decision to use cash reserves to pay off $125m (£87m) in debt has encouraged analysts and shareholders, who see it as a vote of confidence by management.

Given the weak economic environment, Tommy is expected to produce flat revenue and earnings in the 2003 financial year but once the economy rebounds the company, known for its flag-adorned labels, is expected to return to its former glory. Earlier this month, Tommy shares jumped to their highest in more than a year.