Whatever economic recovery is out there just might pass the fashion world by — for now.
A handful of new reports Tuesday painted a dim picture for retail and apparel after the nadir of the recession. Consumer confidence dipped unexpectedly this month, and 60 percent of retail finance chiefs said they feel excess inventory will pose a bigger risk to sales than stock shortfalls this holiday season.
Policy makers and economists have generally agreed the recession is over, but the apparel world isn’t expected to see any significant upturn until spring at the earliest — which, for some firms struggling with losses and high debt, might be too late. The recent rally in retail stocks notwithstanding, stores can only cut expenses to extract better profits from weaker sales for so long.
“We don’t see consumers leading us out of this recession,” said Maggie Taylor, senior credit officer at Moody’s Investors Service. “There’s been this fundamental shift of people going back to saving and repaying debt. Some of what drove retail growth four or five years ago was really just a bubble of readily available consumer credit.”
Nonetheless, conditions for retailers have stabilized, albeit at a weakened level, and Moody’s on Tuesday switched its outlook on the sector to “stable” from “negative.” Credit conditions are not expected to erode or improve over the next year to 18 months.
But it is the mass merchants such as Wal-Mart and drug stores that have made progress. Department stores and specialty retailers are expected to be laggards and, as a result, Moody’s vice president and senior analyst Scott Tuhy Tuesday reiterated his “negative” outlook for apparel vendors. “The lackluster back-to-school season will not give retailers or vendors a high level of confidence as they now begin to negotiate orders for the spring 2010 season,” he said.
Companies are seeking to shore up their financial bases as shoppers hibernate. Perhaps in a further sign conditions have stabilized, Saks Inc. on Tuesday said it would sell $100 million in shares of its common stock under a shelf registration, and use the proceeds to pay down its revolving credit facility and for general corporate purposes. As of Aug. 1, the company had $12.5 million in cash on hand and $85 million in direct outstanding borrowings under its revolving credit facility.
Shares of Saks rose 1.9 percent to $7.17 ahead of the news of the shelf offering Tuesday afternoon. The overall S&P Retail Index dipped 0.2 percent, or 0.67 points, for the day to 378.12 — not far from its 52-week high of 389.09. (For more on stocks, see page 14.)
Saks has the benefit of strong name recognition and extremely valuable real estate assets should it get into too much of a financial squeeze, but not all retailers can say the same, and sales might not rebound quickly enough for some.
“It’s been a tough year and it’s going to take another year for things to come back to normal,” predicted Fariborz Ghadar, director of the Center for Global Business Studies at Pennsylvania State University. “You wouldn’t be surprised if some [retailers] would be acquired or closed down. You’re seeing a shift away from the premium brands to the economy brands, but you’re gradually going to see a shift back. It’s not like the industry’s going away. It’s just that the ones that…have a lot of debt may not be able to pull it off. We’re seeing a very slow, gradual pickup in the economy.”
Two-thirds of the economy relies on spending by consumers, who are rebalancing their finances, worrying over their jobs and prioritizing their spending — and, judging by the latest figures, aren’t in a rush to start spending wildly again.
The Conference Board reported Tuesday that its Consumer Confidence Index slid to 53.1 for September, down from 54.5 in August. Economists had the index pegged for a rise to 57. Even with the dip, consumers are feeling better than they did in July when the index stood at 47.4 and much better than in February, when the index hit a low of 25.3. The Present Situation Index fell to 22.7 from 25.4 in August, and even the Expectations Index declined, to 73.3 from 73.8 last month.
Shoppers are still facing a mass of troubles, from decreasing home values and weakened equity portfolios to tight credit conditions and a weakening job market. Consumers claiming jobs were “hard to get” increased to 47 percent from 44.3 percent last month.
“Consumers remain quite apprehensive about the short-term outlook and their incomes,” said Lynn Franco, director of The Conference Board’s Consumer Research Center. “With the holiday season quickly approaching, this is not very encouraging news.”
Results from the Conference Board’s survey contradict last week’s Reuters/University of Michigan Index of Consumer Sentiment, which rose to 73.5 this month from 65.7 in August. Even so, the general spending trend is not in dispute. Richard Curtin, director of the Surveys of Consumers, which puts the index together, estimated that personal consumption expenditures would rise just 1.6 percent next year, well below what is typical for the first year following a recession.
The Business Roundtable’s third-quarter 2009 CEO Economic Outlook Survey found that America’s leading companies expect sales to increase over the next six months, but not enough to entice the firms to invest more in their businesses.
“Right now, we’re beginning to see sales trending up, but not to the level that translates into meaningful gains in capital spending or jobs,” said Ivan Seidenberg, chairman of the association and chairman and chief executive officer of Verizon Communications.
With a stronger employment market, not only will more people have jobs, but there would be a greater sense of stability among consumers, allowing them to spend more on goods and services and, in turn, support further job growth as companies ramp up capacity.
But the unemployment rate is at a 26-year high of 9.7 percent and is expected to keep rising, which could dampen shoppers’ spirits.
Fifty-one percent of retail chief financial officers said an economic rebound would depend on an uptick in consumer confidence, according to The BDO Seidman Retail Compass Survey of cfo’s.
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“Azzedine has been one of the biggest influences in my life. He has always been such a strong, loving, fatherly figure to me. I call him Papa. His designs are indescribably unique, they are pieces of art. He knew how to make the female form look its loveliest. I have so many memories of him; my favorite might be during my first show with him in Paris. He liked me and he wanted to help me get more work. He called all his friends at Kenzo and Comme des Garcons, and asked them to book me. They said, ‘But she can’t walk!’ And he said, ‘but she has such a great ass!' His friendship and support has been the great privilege of my career. I can't imagine life without him. Repose en paix mon Papa.” - @stephanieseymour tells @wwd. #wwdfashion (📷: @steveeichner) #alaia #azzedinealaia
Azzedine Alaïa, flanked by two of his closest friends, models Stephanie Seymour and Naomi Campbell.
He designed Seymour’s dress for her 1995 wedding to Peter Brant, and treated Campbell (who famously called him Papa), like a daughter. For more on the legendary designer, tap the link in bio. #wwdfashion #alaia #azzedinealaia