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Recovery Mission

<?XML:NAMESPACE PREFIX = CS /><CS:BOLD>THE OUTLOOK FOR THE MIDWEST PROVES UNCERTAIN IN THE FIRST HALF, AS RETAILERS STRUGGLE TO REBOUND FROM A TOUGH HOLIDAY SEASON.<BR><BR>Despite sluggish sales following Sept. 11, good news may be around the corner...

THE OUTLOOK FOR THE MIDWEST PROVES UNCERTAIN IN THE FIRST HALF, AS RETAILERS STRUGGLE TO REBOUND FROM A TOUGH HOLIDAY SEASON.

Despite sluggish sales following Sept. 11, good news may be around the corner for retailers, as some analysts predict a slight economic turnaround during the first quarter of 2002.

But then again, all that hinges on world events.

“There are so many unstable conditions in the world right now. It makes our job as forecasters more difficult,” admitted Dianne Erpenbach, director of fashion retail management at Columbia College in Chicago. Roseanne Cumella, general merchandise manager at The Doneger Group, a New York-based retail buying and consulting firm, agreed.

“Everyone is cautious,” she said. “Everyone wants to be optimistic because we need to be, but it’s such a wait-and-see attitude.”

“I think there is going to be marginal growth in the first quarter, but that could change,” she added. “If there’s another attack and we have two weeks of no one shopping, that’s hard to make up.”

What occurs in Afghanistan, as retailers know, directly affects what happens in shopping centers and boutiques across the country.

“As the vice gets tighter in Afghanistan, people get nervous [about retaliation], and they don’t invest in the stock market and they don’t shop,” said Keven Wilder, a retail consultant based in Chicago. “Every time we have an alert, it’s a reminder of where we’ve been. If we have another terrorist attack, that will set us back.”

However, shoppers’ attitudes also reflect the U.S.’s recent progress in the war. As Afghanistan slowly rebuilds and the United States continues to seek out Osama bin Laden, without major setbacks, many customers are more comfortable and confident and are returning to stores.

“In December, I’ve seen consumer confidence on an individual level starting to come back,” said Gina Kulbieda, owner of Jolie Joli, a boutique located in Chicago’s Lincoln Park neighborhood.

That fact, combined with a predicted slow upturn in the economy, may provide retailers with improved profits.

“We will see a turnaround,” said Rosalind Wells, chief economist for the National Retail Federation. “We’ll see some growth in the first quarter.” Marginal growth, that is — around 0.5 percent, she said.

“It’ll pick up in the second quarter,” Wells added, predicting 2.5 to 3 percent increases then.

Columbia’s Erpenbach is less optimistic.

“I don’t think a big recovery will happen for about a year,” she said, adding that the apparel industry may not feel the first stirrings of an upturn until July or August.

Not only has the war affected consumers’ spending, but their buying patterns as well. Shoppers are shying away from high-end, status-driven goods and heading to Target and other discount retailers.

“Value is a big factor,” Wells said. “Luxury goods are not ‘in’ this season.” In turn, discounters posted solid results for the holidays and will continue to do so this spring, according to analysts.

“The discounters are doing very well,” Erpenbach said. “Wal-Mart is going gangbusters.”

“Until the economy demonstrably improves, the discounters are going to be king of the hill,” Wilder added. That’s bad news for the larger, more upscale Michigan Avenue department stores, such as Marshall Field’s, Lord & Taylor, Saks Fifth Avenue and Neiman Marcus, which were harder hit over the holidays and may have a difficult time rebounding, Wilder said.

“It’s going to be very tough for them,” Wilder said. “The first six months [of 2002] will be tricky. The discounts they offered before the holidays set records, and that’s going to hurt their margins. Their best shot is hoping they’ll have good products this spring that people will want to buy for full price.”

That may prove challenging, since many customers are used to buying merchandise on sale.

Chicago designer Jane Hamill, who runs a Lincoln Park boutique bearing her name, said she has encountered “a little bit of price resistance” for the first time in nine years. She offered two weeks of special discounts to attract holiday buyers, up from weekend-only offers in 2000.

Hamill’s not planning any special promotions this spring, but is taking into consideration the price resistance she felt. “I’m going to play it by ear,” she said. “We’re a small business, so if I want to make a change, I can do it in about two weeks.”

“Now customers are thinking, ‘Why pay retail?”‘ Wilder said. After offering sharp discounts before and during the holidays, some stores may have conditioned their customers to expect to pay less.

Regardless, Wilder predicts retailers will present spring merchandise at full price and see what happens. “If they can get the fashion message right, that will help,” she added.

Other retailers will continue to offer special promotions or events, as they did during the holidays to help boost sales. “They’re trying to do something to bring people into the store,” Cumella said. “They’re making [customers] feel special and making them feel safe.”

Such individual attention is a priority at Daffodil Hill, a clothing and gift boutique in northwest Evanston.

“We’re centralizing our focus on customer service,” said owner Stephanie Riley. “We’re delivering packages to customer’s homes. We offer free gift wrap. We’re really doing anything the customer wants.”

Because Daffodil Hill can’t match the deep discounts of larger stores, Riley said she counters with more in-store promotions and personalized customer service.

“For smaller stores, it’s tough,” she said. “We can’t offer too many discounts, because my margins aren’t large to begin with.”

Leslie Gersten, who has a strong base of repeat customers at Oak Street’s Sugar Magnolia, said a small boutique means more now to customers than ever before. “They’re going to someplace familiar,” Gersten said. “People are looking for that.”

That may be why some larger department stores are struggling. In an uncertain time and economy, shoppers want comfort, ease and familiarity.

“Retailers with a focus, ones with a clear niche are doing well,” Cumella said. During these uncertain times, “the customer is confused,” she added. “She doesn’t need the retailer to make her confused, too.”

Shopping at Kohl’s, for example, is easy, she said. Customers don’t have to search the store or wade through racks of merchandise to find what they’re looking for, she added. The increase in business that jewelers saw as a result of couples getting engaged post-Sept. 11 should, in turn, lead to a mini-boom in the bridal and special-occasion categories during the first quarter, Cumella said.

“People are still getting married and going to weddings and want to look good when they’re there,” said Hamill, who’s increased her special occasion offerings correspondingly.

She ordered more strapless and long dresses, and elegant dress separates. “We’re always known for our dresses,” said Hamill, who described their look as simple and fitted with varying beautiful fabrics. “That category has been steady for us.” Hamill expects her sales to be up 7 percent from last year.

According to Cumella, the junior market also didn’t suffer unduly as a result of recent events.

“Junior business is on a roll. Parents want their kids out shopping,” she said. “Some parents want them out of the house. They don’t want them watching the news.”

Consumers will also look to classics instead of here-today-gone-tomorrow looks when spending their fashion dollars.

“That punk/slashed look is hard to go for right now,” Wilder said. “People are looking for more classics and quality.

“Some retailers are well positioned for this, such as Talbots or Armani,” she added, noting Armani’s clothes are “subtle, beautifully designed and don’t go out of style.”

Daffodil Hill’s Riley bought conservatively, both in amount and style. “We’ve gone a little preppy, lots of pink and green. I’ve bought very carefully for spring — I didn’t take as many risks as I usually do.”

Riley, whose store features both clothing and gifts, also ordered more home accessories, which sold well during the holidays.

“With what has happened, people’s minds have changed over from fashion to their homes,” she said. “They’re more likely to buy a picture frame for their home rather than a T-shirt for themselves.”

As a result, shoppers should be prepared for a post-holiday season different from those of the past.

“There’s not going to be a glut of inventory,” Cumella said, because retailers are carefully watching their inventory and avoiding overstock. “There will not be the flow of spring merchandise in February butting up against clearance racks,” she said.

Jolie Joli’s Kulbieda can attest to that. “We’re buying with the assumption of business being flat. If there’s growth, we can reorder.”

Betsy Horsfield, owner of Canvasbacks, a Milwaukee-based novelty sportswear manufacturer, is all too familiar with that cautious retailer response.

“Our sales have been softer,” said Horsfield, who estimated her spring merchandise sales were down 15 to 20 percent. “People were very reserved in their buying. Our good accounts are still buying, but they’re buying less.”

Some department stores canceled orders, and some catalog clients went under. “It’s been tough,” she said. “If they don’t like our color palette, it’s a good excuse not to buy our product because they’re already afraid to buy.”

So Horsfield is setting her sights on their new fall fashions. “If our spring is going to be lackluster, we’re excited for fall.”

“I have to believe there will be an uptick in the economy in 2002,” she said. “Although it may take a little longer than people think.”

Horsfield, however, is not counting on a miracle. “In 2001, our sales were flat,” she said, although her company made a profit from managing costs better. “I would be satisfied with flat sales for 2002.”