Wall Street’s Top Fop: David Wolfe Explains the Right Fluff to Stock Analysts

Every June, David Wolfe, a 59-year-old fashion forecaster, spends three weeks in St. Tropez. In the evenings, he stands by the quay with his point-and-shoot Minolta and takes photographs of the people dressed up for their nightly stroll. In his experience, which is vast, what he sees in St. Tropez one year often winds up driving sales in American department stores the next. So what if St. Tropez is a greasy shadow of its old stylish self? Despite the Don Cherry getup and Michel Serrault shtick, Mr. Wolfe is a pragmatist. And this is what he has observed: As goes St. Tropez, so goes the American apparel business.

Back in the States, Mr. Wolfe’s snapshots ultimately exert a surprising influence on the price investors pay for the stocks of some of the market’s most glamorous apparel companies. His annual St. Tropez show, as it is known, has become something of a hit with a new generation of equity analysts. (This year’s show debuts July 13.) These analysts, who are paid by their firms to advise clients on whether to buy or sell certain stocks, find themselves relying on his slide shows to help them make something out of the cold, hard sales figures and inventory reports that form the quantitative fiber of the rag trade.

The analysts tend to have enough trouble deciding what to wear themselves, much less figuring out what the rest of the world will want to wear in a year’s time. On top of that, they don’t know what to make of the language of fashion. So in Mr. Wolfe, they have discovered a reliable, bankable and entertaining translator who, for a fee, can decode the hyperbole that reigns supreme on Seventh Avenue.

“So many people pick his brains it’s a wonder there’s anything left,” said client Arlene Goldstein, the fashion director of Saks Inc. “David gets the subtleties of the market, but he’s not so out there that you can’t relate. With him, you can go from runway to real way.”

“There’s a lot of hype in fashion, but David’s realistic,” said Harry Ikenson, a retail market analyst at Chase H&Q, who has been consulting Mr. Wolfe since 1994.

“I think people in the fashion industry are very cynical,” Mr. Wolfe said recently, sitting in an office at the Doneger Group, the forecasting firm where he is creative director. He was dressed in a double-breasted pearl gray suit and two-toned shoes-his presentation uniform. “We don’t believe the hype, because we create it. And they [market analysts] are so naïve. They are like babes in the woods. The fashion language is spoken in superlatives. As you know, everything is fabulous and exciting and brand new . And they believe that!”

For a while, analysts suspended their disbelief quite obligingly. A host of new fashion issues came strutting down the I.P.O. runway, and the analysts cheered them on. In 1996, 23 fashion companies went public, only to stall as it became clear that one year’s fashion trend is not necessarily next year’s growing business. Look at a chart of Donna Karan, Polo Ralph Lauren, Guess or Saks Inc.-their tepid performances in recent years have been especially galling, given the gains elsewhere in the market.

Today, most of those 23 companies trade below their original I.P.O. price, and analysts complain about the versatility of fashion stocks, and about the lack of accountability on the part of fashion designers. The analysts found that they needed another source for information. “The Donna Karan fiasco made them realize they had to learn more,” Mr. Wolfe said. “They understand the numbers and the stats and that kind of thing. I do all the fluff. It’s this that they don’t get, and surprisingly enough, it’s this”-the fluff-“that drives the industry.”

“He alerts me to changes that will affect my companies. He lifts my eyes from the trees,” said Richard Jaffe, an analyst at Paine Webber Inc. “It doesn’t make our job easier. It’s easier to look at stocks from a financial perspective, and see them go up and down. But I don’t believe that’s efficient. You’re betting on consumer taste and management’s ability to adapt to this taste. And consumer taste is fickle.”

Forecasting is one of the industry’s dirty little secrets. It emerged as a consulting niche in the 1970’s after an anticipated transition from mini to maxi skirts failed to materialize, leaving retailers with too much unsold merchandise. Retailers use forecasters openly, and many designers consult them quietly to help stimulate their creative juices. They don’t like to admit that they do so, because they are, of course, geniuses.

Mr. Wolfe himself will not reveal who his designer clients are, despite the fact that analysts are always trying to get him to tell what they are up to. Although he would not discuss the fee that banks pay Doneger for the presentations, an employee of the group said the price for industry counseling can be $7,000, if not more, for one half-hour presentation. Mr. Wolfe himself makes “in the mid–six figures,” he said.

Mr. Wolfe grew up in Ashtabula, Ohio. As soon as he was 21, he wanted to get out. “I had a gorgeous younger sister, and I realized she was the key to getting us out,” he said. “So we plotted for her to become a model. I learned all about fashion. I had natural abilities for it because I’m artistic. And gay. I was a natural for fashion. When she graduated from high school, we got on a bus and went to New York and went to the Ford agency. She hated it. I loved the whole thing. So she dropped out and I stayed.”

Eventually, after a stint in London as a fashion illustrator, he came back to New York and got involved in the fledgling forecasting industry.

Mr. Wolfe has a creative background, but he empathizes with the shareholders who have to endure the costly and whimsical ways of designers. “They’re supposed to be publicly traded companies,” he said, “but when you see what they do, you think, ‘Well, if this is being responsible, excuse me, it’s not working!’ It’s that initial personality profile. The kind of thing that makes a star name designer is not the kind of thing that makes a captain of industry. So it depends on whether they are willing to listen to the people they surround themselves with. Donna Karan is a prime example of that. Obviously they’re in trouble often, and they try to solve the problem by getting the right people around them, but I feel she doesn’t listen to them. Or she drives them crazy.” This, he says, is why analysts don’t trust her.

The same goes for Tommy Hilfiger. “They’re falling out of love with Tommy, rapidly,” he said. The Gap, Calvin Klein and Ralph Lauren, on the other hand, are names the analysts follow and respect.

Here’s Mr. Wolfe on Ralph Lauren: “I worry about Ralph. He has nowhere to go. He’s at the top of the form he created. He’s ripe for reinvention, but reinvention could destroy him. He can’t be challenged creatively. Financially he could be, but that’s not what drives him.”

And on Calvin Klein: “I think he’s really smart because he really is very, very sensitive at exploiting the social mores of the moment. Unlike Ralph, he has no problem reinventing himself.”

And on Gucci creative director Tom Ford: “Business genius, but not a fashion genius. If Ford were a fashion genius, we would have seen something new at some point, some new garment. But like Miuccia Prada, he’s like a great fashion editor, who recognizes what’s good but doesn’t create what’s good.”

And here’s the long-term Wolfe forecast: The rift between high fashion and retail will grow even deeper. High fashion will be relegated to galleries; it will be performance art. Retail, on the other hand, will be driven by consumer tastes. Publicly traded companies will have to answer to shareholders who don’t care about creativity. They’ll have to sell a lot of clothes. “Fabulous” won’t matter, though taste will.

“It just amazes me that I’m getting paid for this,” Mr. Wolfe said, laughing.

Wall Street’s Top Fop: David Wolfe Explains the Right Fluff to Stock Analysts