Most Recent Articles In Financial
Latest Financial Articles
- Japanese Stocks Suffer as Yen Rises
- European Markets Mixed
- AmorePacific Sees Q1 Profit, Sales Growth
More Articles By
As New York Fashion Week kicks into high gear, everyone from the designers in their ateliers to the retail executives in the front row and perhaps even the models on the runways has one word on their minds beginning with the letter “r” — and it isn’t the color red. It’s recession.
This story first appeared in the February 4, 2008 issue of WWD. Subscribe Today.
Suddenly consumers, that engine of the American economy, think it’s unfashionable to spend money. The credit markets are tight; the stock market is dyspeptic; major U.S. financial institutions are having to turn to China and the Middle East for
financial lifelines; oil prices continue to flirt with $100 a barrel, and the once-mighty dollar now looks like a 99-pound weakling against the euro and the pound.
No wonder retailers and industry executives are nervous. And since a presidential election is in nine months, many are questioning whether America is headed back to the boom times of Bill Clinton and Ronald Reagan or the “malaise” of Jimmy Carter.
And since the last major recession was 20 years ago — when Erin Fetherston and Rodarte’s Laura Mulleavy were age seven, Lazaro Hernandez and Jack McCollough were each eight, and Rachel Roy was 13 — WWD decided to do an informal survey of leading (and older) American industry executives who have weathered prior downturns for their tips on how to get through the tough times ahead.
Here are some of their strategies and suggestions:
Leonard Lauder, chairman of the Estée Lauder Cos.
“This is the fourth recession I’ve been through — and each previous recession was unique in its own way. I think this is as much as recession of economics as it is a recession of confidence. The root cause is that most people saw their nest eggs — the value of their homes — decrease and in many cases evaporate. They still have money, but they don’t have the house money to fall back on and give them confidence in the future. The only advice I can give is be confident, and follow Mrs. Estée Lauder’s advice, which she gave at the end of the Great Depression: ‘There is no such thing as bad business. Business is there if you go after it.'”
Michael Gould, chairman and chief executive officer, Bloomingdale’s
“Bloomingdale’s will continue to take prudent risks, continue to explore new merchandise, new resources, and continue to ratchet up our desire to have new receipts on a regular basis. What this climate says to us is that there is a ton of business to be done. If you look at our conversion rates, we have such enormous opportunities. We have many new programs rolling out this spring — new loyalty programs, intensified clienteling. In this climate, you can not win by playing a defensive game. We have pushed our business more upscale and will continue to do that. The climate says you may not treat all your children [businesses] equally, but treat them all fairly. There are a number of businesses we will continue to intensify. We had a terrific ’07. We will stay the course with our brand strategy — to be more upscale, less promotional, and provide a better in-store experience and more Bloomingdale’s DNA for excitement.”
Elie Tahari, chairman and ceo of Elie Tahari Ltd.
“I’ve been in this industry for over 30 years and I’ve seen the market fluctuate many times. In a challenging business environment, it’s not enough for the customer to simply just ‘want’ something — she needs to get more out of her clothing in order to truly justify the spending. She also needs to feel emotionally compelled to buy a certain piece — to feel the overwhelming desire that she has to have it.
“For the Elie Tahari brand, we’ve always designed special pieces that are also versatile and timeless. This has helped us sustain our customer through economic downturns as she knows that what she is getting will last, but also that it will make her look and feel her best. Survival is about staying true to your customer and your brand even in the face of financial uncertainty. Cultivating brand loyalty from the beginning is the key to maintaining a thriving business in any market situation.”
Andrew Rosen, ceo, Theory Ltd.
“The retail business will continue to grow in 2008, but less so then what we have seen in previous years. We can still expect for the consumer to buy clothing; however, their purchases will be focused on products that are worth spending or even splurging for.
Companies will need to operate more strategically and avoid excess. We won’t be able to navigate these times by just making clothes to fill up racks in stores, but by creating clothes that have a sense of urgency- either by trend or by necessity.”
Jack Mitchell, chairman and ceo of Mitchells/Richards/Marshs
“For us, it remains the same as we always do. We have to intensify and focus on execution, even better than in the past. We have to be with our customer. As the new collections come in, we’re still in the middle of the winter sale, but you learn that the woman is going to a special event in the middle of March…you have to personalize the relationship even more. Buyers need to be on the floor more often. How do we service the customer even better? For us, the luxury business is still doing very well. It’s knowing what new collection, or part of the collection, is for each customer. Women are not going to settle, but they may buy less. I think we’ll be in for a challenging period for a while. We can’t control the economy. We can work as a team to service the customer. Fortunately, we have three stores that are in a market where the customers are affluent. Many have lost quite a lot of money in the stock market, but they still have a strong economic base.”
Peter J. Solomon, chairman of investment bank Peter J. Solomon Co.
“[Retail] boards will be well advised to take advantage of the Fed’s easing [of interest rates] to recapitalize balance sheets. Cash flows remain strong and will become stronger as a result of fewer new store opportunities. Even in this period of tight credit, functioning retailers can borrow the equivalent of at least 2.5 times EBITDA and recapitalize. Prior to the current credit crisis, many retailers had let their operational and financial strategies diverge. It’s time the two strategies were consistent. Shareholder activism has subsided but has not vanished. Waging proxy contests is easier. Leveraged buyout groups will find ways to finance at lower multiple levels. Thus, pressure will resume on boards and managements.
“Managements might want to use excess cash flow to experiment — build or acquire new concepts, etc. Retailers are slow to acknowledge the inevitable end of their growth periods. There is no such animal as a growth company — only companies with growth periods.
“There are ample opportunities to consolidate positions within and across industry segments. Managements are discouraged. Change is inevitable. There was some merit to the structure of a retail conglomerate though the name disappeared from fashion in the 1980s. Still, buying power, private labels, shared administrative costs and the value of store-based Internet and international combinations are powerful. The trend toward consolidation that we are now seeing in apparel, shoes and department stores will continue.”
Wesley R. Card, ceo of Jones Apparel Group
Although there can be a temptation in tough times to be more conservative, Card argues this is the time to take risks. “You need to take chances with marketing and product, and not just focus on cutting. Product has to really shine — stand out — not be too conservative. We are going a little edgier in advertising to stand out.
“You want to cut expenses that are less productive, but you don’t want to cut back on the things that add value. For example, we have increased our marketing budget on Anne Klein, because we believe in the product. Make sure you get rid of the marginal projects that don’t relate directly to your product. For example, in promotional budgets, focus more on in-store items and less on tertiary advertising.
“The little companies don’t necessarily have the resources to weather a downturn — it is a good time to be a large well-financed company,” Card said, noting that he wasn’t worried about stock price pressure, because slumps can be attributed to the general market behavior. “I hope we’re not in survival mode — we are bigger and stronger than that.”
Bud Konheim, president and ceo of Nicole Miller
Every week for the past 25 years, Konheim has written in a spiral notebook his company’s weekly tally for forward bookings and daily shipments, and he suggests others do the same. “It gives me a real feeling for the business. Computers are great, but they don’t give you the same sense.”
Another pointer would be to ensure that pricing is consistent with the fabric, labor and quality of a garment, and is not marked up so that consumers bear the brunt of escalating business costs. Having retailers in a variety of distribution channels, not just in major chains, is another must, Konheim said. “The point is these little boutiques come into buy without [the red tape] of executive management. They come to buy through hell and high water.”
Josie Natori, ceo of the Natori Co.
“I think you have to be sharper about the product you have, but at the same time you can’t be basic. I do feel you have to work more closely with your retailers. For us, product is number one and you have to keep working on marketing. I always say whatever we make has to seduce the customer.
“No one is recession proof, but I feel the category we are in, lingerie, may be insulated a little bit because it’s affordable. It doesn’t break the bank. It’s going to be interesting to see what [President} Bush’s stimulus plan does. But the $600 rebate won’t help our customer.”
Mark Werts, founder and ceo of American Rag Cie
He delivered blunt advice for companies striving to survive in an economic downturn: “Don’t freak out.” Werts has weathered tumultuous economic cycles before. He ran a boutique in Amsterdam before opening his first American Rag shop in San Francisco in 1984. In the past 24 years, he added units in Los Angeles and Newport Beach, Calif., as well as the jean-centric World Denim Bar.
As retailers face strong headwinds from a cooling economy, Werts recommended moving full speed ahead while managing costs and inventory. After all, Werts said, a 10 percent unemployment rate means that 90 percent of people are working. In an e-mail sent from Europe, where he attended Bread & Butter in Barcelona, among other trade and fashion shows in Milan and Paris, he noted there was hardly an American to be found because of the strong euro. As a result, American Rag gained the upper hand in procuring new labels — including Christian Lacroix, Comme des Garçons, Rick Owens and Raf Simons — to complement the California casual sportswear that forms its core offerings. “We got more new lines than ever before, better terms and conditions of sales,” Werts said. “As the business gets more difficult, we will only be more carefully aggressive and make our stores only more exciting.”
Joe Gromek, president and ceo of The Warnaco Group Inc.
Gromek offered eight tips he is using at Warnaco:
1. “Stay on your strategy. It’s not the time to veer off strategy and try something unusual.”
2. “Focus on product when times get tough.”
3. “Focus on operational execution and strategy execution.”
4. “Control your expenses. Look hard at your SG&A [selling, general and administrative expenses] and establish contingencies: what can be curtailed, delayed or done without?”
5. “Control inventory. Be conservative.”
6. “Maintain liquidity on the balance sheet. Monitor your cash position.”
7. “Watch your capital expenditures. Again, reduce, delay or do without what can be done without.”
8. “Stay close to your customer. Micromanage.”
Gromek hopes the second half of the year will improve, if the government passes a stimulus package, but he’s not too worried about Warnaco regardless. “Great brands may see a slowdown, but they don’t disappear,” he said.
Paul Charron, former chairman and ceo of Liz Claiborne Inc., and currently a senior adviser at private equity firm Warburg Pincus
“It’s pretty simple: The companies that will succeed in this environment have winning strategies, stay on course and execute with precision. Companies attempting to make a fundamental change in the way they are doing business will find this situation particularly rocky. This is not the time to take undue chances. This not the time to invest willy-nilly in new ideas. This is the time to batten down the hatches, rely on the most experienced members of your management team and have a firm hand on the helm.”
To Charron, a good strategy is one that is responsive to the marketplace, provides differentiation from your competitors, is understood by your constituency, and has a track record of success.
“The consistency of execution is a function of the quality of communication. If you have new leadership and a new strategy and aren’t communicating, you are in trouble.”
It could sound like Charron was talking about Liz Claiborne Inc., where he served in the top role for more than a decade, until the last year when William L. McComb came in and drastically changed the $4.99 billion vendor’s strategy, dividing the company between power brands and partnered brands and then publicly put 16 of the partnered brands up for sale — but Charron said he is not talking about his alma mater. Instead, he pointed to VF Corp. and Ralph Lauren as companies with successful formulas.
“This is not a unique situation — I saw several ups and downs in the 12 years I was leading Liz. Your shareholders pay you to successfully navigate through difficult and stormy waters. They don’t pay you to rise with the tide that lifts all boats.”
Freddie Stollmack, president and ceo of Weatherproof Garment Co.
There are two key areas to focus on in an economic downturn — the price-value relationship of a product and increasing advertising to heighten brand awareness when others are shying away from it, Stollmack said.
“An economic downturn affects the low end and the very high end. The low end is worried about the increasing price of heating their homes and their subprime mortgage rates and the high end is nervous about the stock market. Consumers don’t want to think you are taking things out on them. They are a lot more sophisticated today and they recognize quality and price.”
Victor Lee, president of NAP Inc.
“The fashion business is cyclical. We have always and will continue to experience highs and lows. We have been able to minimize the suffering by diversifying our brand and product offering over the years. We now have 11 brands and continue to do private label. We market and sell our brands to all different tiers of retailers, from the highest-priced department and specialty stores to the mass merchants. This has enabled us to maximize our sales to the tiers of retailers that are doing relatively better. Private label continues to be challenging given the competitive pricing that we come across.
“One of the most critical strategies is to develop product that is different from competitors. The product must be designed well and be reasonably priced for what it is. Differentiation in this marketplace is crucial because when the economy turns down, consumers are still spending but they want products that stand out, either by way of design or value, or ideally, both. When we seek out new collections and create new designs, we keep this in mind. When the economy turns up later, these differentiated products and collections sell even better.”
Lee added, “Another critical strategy is to keep expenses down. This is very challenging as you don’t want to reduce expenses so much that your design and sales suffer. It is difficult to find the equilibrium point so this should be done gradually in phases.
Chantal Bacon, partner, Betsey Johnson
While Bacon called the Betsey Johnson business “great,” she is mindful that it could turn at any moment. “I’m just waiting for the other shoe to drop. I really hope it doesn’t. In times like these, more than ever, it’s all about the product. You have to make sure that what you have speaks to people and makes them feel better. This is not a time to come out with more basics, no one needs more fashion, so we have to give them a real reason to buy our fashion.”
Survival Tips For A Slowdown:
Key Advice from Industry Executives
– Stay the course, but consider taking marketing chances.
– Focus on customer service, and offer compelling merchandise.
– Cultivate brand loyalty.
– Control inventory and costs. Reduce costs where needed.
– Get used to fluctuating stock prices.