Another September issue: fashion is in trouble

New York is busy this week. President Obama is setting out his plans to overhaul the financial system and Boris Johnson has arrived to knock about with Mayor Bloomberg and Rupert Murdoch. The city will soon fill up with diplomats for the opening of the UN General Assembly. But are New Yorkers paying attention? Not  necessarily.

It's fashion week. The streets are full of impossibly slender women. Anna Wintour, editor of US Vogue, has been promoting The September Issue, the documentary about creative tension at her magazine. She's even been shopping in Queens, an unlikely locale, to encourage women to spend. It is not clear if her efforts have paid off. For as pretty as they appear, the businesses of fashion and luxury are still singing a plaintive song.

The New York Times fashion critic Cathy Horyn threw a bucket of cold water over fashion week arrivals in the city when she reported "a business built on fantasy and aspiration is in trouble, as consumers seem unwilling to spend at any price level".

It's true fashion companies are struggling, and those with highest overhead are struggling the most. Some are reporting sales down by more than half from a year earlier. Department stores are struggling and many in the $191bn clothing business are ruing the advent of the 75 per cent mark-down that consumers now see as the cue even to start shopping.

Horyn says household names of American fashion - Ralph, Calvin and Donna - have lost face with consumers by making their wares too expensive and helplessly pandering after celebrities. The Washington Post, too, says: "The fashion industry is in crisis - both financial and existential."

The lean times are being keenly felt at the great New York glossy publishers. Magazine fashionistas, of course, do not like the idea of budgets at all, even less the idea of budget cuts. But that is exactly the calamity about to befall the women of Conde Nast.

In July, the firm called in the consulting giant McKinsey and Co to look over the operation and identify savings. Since then the company's Times Square tower has been rife with rumours of new closings and cuts because revenue across Conde Nast is off as much as 45 per cent.

Now, anxiety is starting to peak: the bean counters are said to be about to deliver their report. McKinsey is rumoured to recommend spending reductions of 25 per cent - far deeper and more painful than the five per cent reductions ordered in January. "This round is going to suck," said one executive.

The big question is where will the cuts be made. In production and distribution costs, certainly. But McKinsey is thought likely to look for savings in staff editorial costs as well as from the cost of writers and photographers under generous contract that were once the stuff of legend (and fiercely protected by chairman SI Newhouse.)

Conde Nast has found that far from reducing expenditure, technology advances that were expected to cut costs - digital photography for instance - actually ends up costing far more. The US company's photo-retouching bill alone is $4m (some celebrities are now asked to contribute to costs or risk appearing au naturel.)

Of equal or greater concern are signs that McKinsey's recommendations are being made without expectation that advertising will rebound. "You're going to have to make your business work the way things are now," one exec was told. To many that sounds suspiciously like making-do.

But if fashion is looking to retreat from an era when, as the Washington Post puts it, it "became a business focused on entertainment, stock options, smoke and mirrors" they may wish to review what happened. The designer Diane von Furstenberg,  president of the Council of Fashion Designers in America, has a simple answer: "You get carried away with your own BS." ·