Men’s Apparel: Survival Plan

Tough times require a variety of creative approaches.

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WWD MAGIC issue 08/31/2009

As the apparel industry convenes in Las Vegas for the spring 2010 trade shows this week, a cloud of uncertainty continues to hang over the U.S. economy — keeping buyers skittish and making it tricky for vendors and retailers alike to plan for the season. While there are some promising signs of an economic rebound — the stock market is up over 50 percent since March — consumer spending remains anemic, causing industry executives and observers to remain cautious in their forecasts. At the same time, the economic headwinds have forced savvy companies to implement creative strategies to ride out the storm.

This story first appeared in the August 31, 2009 issue of WWD.  Subscribe Today.

Total sales at Stüssy, for example, have dipped about 10 percent this year, but the company planned its business accordingly. “For the past two seasons, we’ve scaledback purchases and didn’t try to go after reorders or chase business,” said Frank Sinatra, president and owner of the Irvine, Calif.-based firm. “We knew there were going to be credit holds on some of our retailers and buyers were going to get nervous and cancel some orders.”

The sales dip at Stüssy is mirrored in industry-wide figures. For the first six months of this year, total apparel sales declined 7 percent, to $84.8 billion, according to NPD Group figures. The U.S. Census Bureau, which includes accessories in its figures, reported a similar slide through July 2009: Total apparel and accessories sales dropped 6.9 percent to $110.3 billion in the first seven months of the year.

These decreases come on top of contractions in 2008. Last year, total apparel sales fell 3.6 percent to $199.4 billion according to The NPD Group. By category, men’s wear sales declined 5.6 percent to $54.12 billion, women’s wear sales slipped 3.1 percent to $109.36 billion, and children’s and infant’s sales dipped 2.2 percent to $35.91 billion.

“Apparel has been one of the most heavily hit industries in this economic downturn,” said Marshal Cohen, chief industry analyst at NPD . “When you do the math, apparel is bigger than the auto industry, but where is our ‘cash for clunkers’ bailout? Where’s ‘cash for clothes?’”

Cohen said part of the industry’s problem is that it has allowed itself to become dangerously irrelevant to consumers. Ongoing NPD tracking studies show apparel has fallen from the category shoppers are most passionate about down to fourth place in that metric. “People are much more interested in buying new electronics or even footwear today,” he said. “It used to be that all teens cared about was what brand of jeans they were wearing. Now it’s all about what cell phone you have. Fashion has been out-fashioned by other industries.”

Emanuel Weintraub, an industry consultant who stages regular conferences with top executives from the apparel and retail worlds, noted 10 to 20 percent of the vendor community will go out of business over the next year. He bases this calculation on the 10 percent of total consumer spending that has been eliminated from the gross domestic product since the recession began.

Cohen blames the apparel industry’s decline during the recession on “uninspired, boring” product and a lack of technological innovation to create excitement and desire among consumers.

Arnold and Bruce Zimberg, the duo behind the Arnold Zimberg upscale, fashion-forward shirt line, agreed there is too much prosaic product in the market.

“Nobody needs any more clothes, so it all begins with design and merchandise,” said Arnold Zimberg, pointing to the sales increases his brand continues to enjoy on the strength of innovative offerings like ultra lightweight shirts made from double-faced fabric. The shirts benefit from technical advances in textiles that allow the doublefaced fabric to be so thin, as well as lots of hanger appeal with the fabrics exposing a different look on each side.

Still, price remains a top concern, even at Zimberg, where the average price of a shirt has gone from $225 to $165.

Weatherproof, a coat and sportswear maker in the department store channel, said its aura of practical style and affordability has been a boon to business. Weatherproof president Freddie Stollmack said bookings for his fall coats, which sell on average between $100 and $125, are up 25 percent.

“One thing that has changed for good is that the pie has gotten much smaller  for vendors. There is just less money and shelf space out there,” Stollmack explained. “Despite that, the perception of Weatherproof as a value-packed brand has been a major win for us.”

Similarly, L.A.-based Z-Brand has lowered its prices across the board about 25 percent. “It was very difficult to do without compromising on quality,” said Joseph Sfez, a cofounder of the company, which is owned by Hong Kong-based HTP Group Ltd. “We were able to negotiate better prices on fabrics and sourcing. Before this crisis, companies would add that to their own margins, but now you have to pass it on to the consumer.”

Sfez also said the challenges at retail have led Z-Brand to collaborate and share information about fabric sources and new washes with some unlikely partners: competing premium brands like Blue Blood and All Saints.

“We are competitors in design and image, but we can help each other with production and development information, so we can all succeed in this difficult time,” explained Sfez.

In another cost-cutting move, Stüssy reduced the size of its seasonal collections to trim product development costs. “Retailers are being more selective about product, and so we want all killer, no filler,” said Sinatra.

Adaptability has been key at Ed Hardy, where founder Christian Audigier said the company has learned to be more flexible with retail partners in regard to order minimums and individual store goals. That type of granular focus has inspired  cost-cutting, too. “The norm two years ago was spend, spend, spend,” said Audigier. “Now we overanalyze spending for every aspect of the brand.”

For a label whose embellished styles seemed to echo the excesses of pre-recession spending, the economy has moved the company to rethink its merchandise. While many of its retailers are sticking with the ornate styles Ed Hardy is known for, the brand is also offering toned-down designs, including a line of core basics, whose embellishments and prices have been pared.

One likely lasting outcome of the current economy is increased partnership between makers and merchants. Marc Schneider, president of dress furnishings at Phillips-Van Heusen Corp., said the level of strategic planning between the company and its customers, which range from J.C. Penney to Saks Fifth Avenue, has intensified over the past year.

“Today we are working almost like a vertical retailer, like one company,” said Schneider of the partnership between PVH and its customers. “The level of transparency about how we do business and how our retail partners do business has changed.”

The implication here is that pressure on consumer spending has prompted retailers and suppliers to put aside long-held contentions about pricing and chargebacks to confront current retail challenges together.

On the specialty store level, the economy and the credit squeeze has forced vendors and retailers into closer financial relationships. For example, 90 percent  of Arnold Zimberg’s retail customers are not being approved by factors, including many prominent specialty boutiques in New York and Los Angeles. “No one is being approved today. It’s not that these stores aren’t paying, it’s just that the factors do not want to take any risks,” said chief executive Bruce Zimberg.

That means vendors are increasingly extending their own lines of credit to retailers, which can create a significant level of risk for those manufacturers.

“Of course it is risky, but we decided some time ago that we need to take that risk,” said Z-Brand’s Sfez. “Because when this crisis is over, we are all still going to be in business together.”

In another new twist, the credit crunch has led many retailers to pay for merchandise with credit cards. About 40 percent of Z-Brand’s retail customers use bank credit cards to pay for merchandise.

However, banks have been clamping down on credit card limits this year, which will inevitably impact both consumers and retailers. According to a May report from Meredith Whitney, a prominent banking analyst and ceo of Meredith Whitney Advisory Group, the three largest credit card issuers, Bank of America, Citibank and J.P. Morgan Chase — which represent 60 percent of all unused consumer credit lines — slashed $320 billion in credit lines in the first quarter of 2009. These cuts follow $308 billion in cuts in the fourth quarter of 2008.

“Credit card lines are being cut at an accelerating pace. This clearly does not bode well for consumer confidence or prospective consumer spending,” she wrote in the report. Whitney estimates that over $1 trillion in consumer credit has been cut since 2008, and that figure could reach $2.7 trillion by the end of 2010 — or more than half of the $5 trillion in total available consumer credit at the end of 2008.

Mintel, a market research firm, has looked at consumer attitudes across the market and found that spending may continue to be cramped long after the economy has rebounded. “People are in a bunker mentality now and once consumer confidence returns, there will likely be residual impacts from the recession,” said Bill Patterson, a senior market analyst at Mintel. “People for some years will be more cautious with credit cards and mortgage commitments.”

But while there is less credit and fewer dollars up for grabs, some executives are quick to remind that the country’s consumers, even when chastened, can more than support creative, well-run companies. “Although times are challenging, it is important to remember that 140 million Americans still receive a check every two weeks,” noted Oscar Feldenkreis, president and chief operating officer of Perry Ellis International Inc. “Also, most economists do believe that recovery, though slow, has already started. Today, well-managed companies have become more robust in their financial structure, become more efficient in their operations and especially become more nimble and agile to respond to market needs and address emerging niches.”

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