NEW YORK — Following an unpredictable second half of the year, innerwear executives aren’t looking for a cakewalk in 2003.
Instead, there’s a lot of fingernail biting over which companies will be fortunate enough — those with the clout, brand equity and retail partnerships — to secure shrinking open-to-buy dollars in the year ahead.
Intimate apparel business, boosted by the fashion-and-comfort formula, has proven to be a formidable sector, with sales doubling to $14 billion over the past decade. Overall, retail sales of intimates grew $1.5 billion from 2001 to 2002, according to NPDFashionworld.
However, intimate apparel showed a 13 percent dip in sales and a drop of 17 percent in units the first nine months of this year, according to NPDFashionworld. As reported, the decline has generally impacted the majority of overall women’s apparel sales.
Looking at the future of lingerie business, key areas of growth are expected to include:
Fashion products in all classifications, for which retailers are reportedly expanding real estate in 2003.
Expansion of seamless underwear and related products for girls.
A wider range of bras that serve various functions, from lacy and whimsical to seamless and tailored and novelty treatments in fashion colors.
Comfortwear items in cuddly fabrics such as softly brushed cotton knits, butter-soft Lycra-blend microfibers and sleek silks.
Home accessories that make a statement with at-homewear, robes and sleepwear.
Thongs, G-strings and boy-cut briefs that leave little to the imagination.
Historically, lingerie has proven to be a Teflon-like category during times of economic uncertainty, mainly because of its feel-good image and reasonable prices that are accessible to consumers with the least or most discretionary incomes.
Despite the cautious outlook, which a number of manufacturers believe has not been as pessimistic or guarded since the oil recession of the early Seventies or the post-9/11 ramifications in the financial community, a number of small to midsized vendors and large corporations are banking on history repeating itself.
Chuck Nesbit, president and chief executive officer of the Sara Lee Intimate Apparel unit of Sara Lee Corp., said: "My outlook for the calendar year 2003 is cautiously optimistic. I’m hopeful that once some of the concerns about political and social instability are resolved, consumers will return to the stores in the spring to buy apparel. I’m very positive on the prospects for Sara Lee’s spring product introductions and our core basic programs, as foot traffic improves in stores."Retail sales have been sluggish and unpredictable. A week before Thanksgiving, there was no indication that holiday retail sales will be robust. Fortunately, sales of Sara Lee products are outpacing department averages at almost every retailer," said Nesbit.
Eric Wiseman, president of the Vanity Fair Intimate Apparel Coalition at VF Corp., said, "The biggest challenge will be the same challenge manufacturers have had all year: staying focused on the fundamentals of being innovative in product, responsive in service and aggressive on cost control. It’s not uncommon for people to lose sight of those fundamentals when things are tough and they’re looking for a quick fix. In the end, the businesses that deliver on the fundamentals will succeed."
Wiseman noted that VF’s intimates business has "definitely improved since mid-October."
Regardless of the weight that lingerie carries in all channels of distribution, a main concern going into 2003 will be further consolidation among retailers, thus creating bigger opportunities for public corporations to push out struggling independent firms, said innerwear executives.
"It will definitely be a significant issue," said Michael Fitzgerald, president and ceo of Delta USA, the U.S. unit of Israel-based Delta Galil.
"Financial health of suppliers, manufacturers and retailers remains a major issue for the industry," Nesbit said. "During 2003, Kmart and Warnaco will be trying to emerge from bankruptcy, traditional department stores will be trying to develop business models and a major fiber supplier, DuPont, will be reinventing itself as the textile business becomes independent of the parent company."
Warnaco filed its reorganization plan Oct. 1, outlining plans for its exit from bankruptcy by the end of January as a stand-alone firm, as reported. The plan documents Warnaco as having an enterprise value of $800 million, combining $750 million for the operations plus $50 million in cash.
Upon emergence from bankruptcy, Warnaco will hold $265 million in debt, which includes senior subordinated notes, plus its borrowings under an exit financing facility. At its peak, Warnaco’s market capitalization in June 1998 was $2.8 billion.
Victor Lee, president of NAP Inc., wondered how many manufacturers will be left in 2003."There definitely will be an economic fallout from the past two years of a tough economy," Lee said. "I think newness, design and development, and company efficiencies, will be critical for survival."
Regarding the outcome of the fourth quarter, Fitzgerald said: "Stores will underperform compared to expectations at the beginning of the year. The retailer right now is cautious and is expressing it though lower inventory levels. However, we are estimating good business for the second half. The challenge will be to ramp up production after a cautious first half when inventory must be kept thin. We cannot make firm plans until we see holiday 2002 results."
Another big question makers of bras, underwear, robes and sleepwear find most worrisome is how a potential war in the Mideast could impact sourcing, production and distribution, especially with firms that contract or own operations in Israel, Jordan, Turkey and Indonesia.
Adding to the angst, a majority of vendors said they have already suffered big-time losses because of shipment slowdowns or no deliveries due to the labor dispute that closed 29 major West Coast ports for 10 days in October. Not only did the management-union standoff, which has been settled, sequester inventory, but it caused cancellations by retailers, as well as a glut of available product in off-price channels.
"Sure, the prospect of war concerns me," said Wiseman, "but not for business reasons. If the global political scene escalates to a point where business is significantly impaired due to war or terrorism, then we have much more important problems than selling apparel."
Nesbit sized up the situation this way: "It is difficult to speculate on the impact of a war on the business given the many scenarios that could play out. Consumer psychology and its possible negative impact on retail sales may be a more important factor than any supply-chain issues."
Fitzgerald said: "Asia and the Caribbean are our major sources of supply. We do not expect disruption. But if war lasts more than a month, then prices will be subject to upward pressure."
With half of NAP’s sourcing done in Turkey, Lee said, "We are not alarmed about the continuance of our sourcing if there was a war. Turkey is in the enviable position of being able to work well with its Muslim neighbors, as well as being a strong ally to the U.S."Tom Ward, ceo of Maidenform Inc., said, "Overall, I believe retail sales will continue to be challenging. Economic performance, job security and a potential Iraq conflict have consumers concerned. War would have a definite impact on our business. Increased fuel prices and a lowering of consumer confidence would lead to reduced consumer spending."
Ward said Maidenform will "continue to focus on lean inventories, stockkeeping unit productivity, service improvement and price deflation."
Todd Demakos, ceo of St. Eve, said a war would not affect the company’s production in Asia.
"Although Turkey could be impacted by a war in Iraq, the Turkish economy is already depressed, so we wouldn’t anticipate a problem with our production there," Demakos said. "When the conflict with Afghanistan was at its peak, our production in Bangladesh didn’t suffer."
Demakos said the firm expects sales gains of about 10 percent in 2003 after a solid 2002.
"Our growth is attributable to expanding our customer base, but also growing our business with existing [sleepwear and daywear] customers," he said.
Regarding repercussions of the recent dock lockout, Richard Leeds, ceo of Richard Leeds International, said retailers and vendors have been negatively affected in three areas: loss of precious time to properly sell inventory, serious reductions or substantial cancellations of domestic and imported goods and disposal of cancelled store inventory, especially private label merchandise that must be "rehandled to be relabeled, reticketed and repacked."
"This will create extreme financial hardships for manufacturers of domestic and imported private label. The market is already oversaturated with slow-moving retail inventory," Leeds said. "Regrettably, some domestic companies will not be able to recover from such a huge loss of income and inventory write-downs."
However, Leeds said he believes branded suppliers will weather the hardships better.
"They will still face potential order reductions, but the consumer demand for a brand will help dictate whether the retailer remains responsive to the need to accept these delayed programs because of their historical inventory turns," said Leeds.
Victoria Vandagriff, executive vice president of sales at Carole Hochman Designs, said a big concern is "controlling yearend inventory and projecting 2003 budgets and capital expenditures based on what will likely be a less-than-stellar holiday and very cautious spring planning for spring by many retailers."Creating business plans for 2003 will be challenging because budgets are being changed monthly based on current sales trends," she continued.
Meanwhile, Lisa Leigh, director of merchandising and sales at August Silk Intimates, said, "The biggest opportunity I see going into spring 2003 is you’ve got to be absolutely dead-on in your assortments. The customer has been reacting to fashion, price and color. Key items are not the only thing right now — you just have to keep creating newness all of the time."
Michelle Clark, executive vice president of merchandising at Movie Star Inc., agreed: "The biggest issue will be to develop and design the newness in product that is essential to drive business in these difficult times."
Because of the economic malaise, Clark said the customer is "wearing last year’s basics again this year and conserving her shopping dollars to spend on a few unique, fashion-driven pieces."
From a European vendor’s perspective, Krista Tonra, general manager of Simone Perele U.S. division of the French bra maker, said: "Our biggest issue in 2003 will be price points, given the issue of Victoria’s Secret with their "What is Sexy" campaign and supermodels. Middle America identifies with the garters and sexy lace bras, but they don’t necessarily know the difference in the quality of a $42 Victoria’s Secret lace bra and an $89 Simone Perele lace bra. We need to translate what quality is."
"Securing open-to-buy dollars and keep funding our strong growth, but within the context of an overall slowdown, will be our goal," said Sonja Winther, managing director of French foundations brand Chantelle.
In summing up the outlook, Michael Rabinowitz, president and owner of The French Room, which owns the Le Mystere bra label and imports foundations by Nina Ricci and Millesia, said, "I think it’s kind of a herd mentality out there and that’s why next year will be a real challenge for European brands in America."
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