Gilbert Harrison

Despite record-breaking indices on Wall Street, solid employment numbers and increasing consumer spending, the retail industry is in a profound state of fluctuation. Shoppers continue to shift toward online while also buying more products from direct-to-consumer brands as they drift away from traditional department store retailers.

As a result, retailers are restructuring their business, which includes bankruptcies and store closures. Here, Gilbert W. Harrison, chairman of the Harrison Group and founder of Financo as well as a senior adviser at GLC Advisors, shares his insights into the current market and what’s behind these business trends.

WWD: From your perspective in the market, what are some of the challenges facing fashion apparel retailers and brands? And where are the opportunities?

Gilbert W. Harrison: As always, you must ask how companies are responding to the “new informal look” and other ever-changing styles. And what happens to a brand when the designer changes or leaves to go to another Maison, or the designer loses the perspective and point of view of an “A” brand, which is only as good as the style and design behind it? Brands must stay relevant and be consistently compelling to consumers.

WWD: You once said the industry needed to return to having “merchant princes” who were able to couple sound business acumen with a creative approach to merchandising. Do you still feel this is what’s needed in the market today?

G.W.H.: The merchant price is someone who has the feel, taste and love of a brand or a store and is able to build on the experience that is gained over the years. The notion of merchants with “great talent” may be a thing of the past since there are few such people left.

Many of the growing and emerging retailers have not been in the trenches long enough to gain the experience and knowledge needed to assess the look and feel of the product over time. Experience is basic to the merchant prince and they also have to have had failures to be a success.

WWD: Analysts are forecasting retail store closures to total more than 12,000 this year. Would you describe this as a much-needed correction to an overstored retail market?

G.W.H.: The U.S. has been overstored for years. The most notable statistic I saw was that in the U.S. there are something like 38 to 40 square feet of space for every man, woman or child in this county compared to about 19 square feet in the U.K. For some reason there have not been the number of store closures needed until very recently.

With the growth of e-commerce along with rising rents and changing consumer tastes, the number of store closures has increased substantially over the last few years. Just stroll down Madison Avenue in New York and you’ll find over 70 vacant stores just between 59th and 96th Streets.

WWD: As retail stores close, direct-to-consumer brands are stepping up efforts online as well as by opening stores. What can DTC brands learn from traditional retailers in regard to running and operating a physical store?

G.W.H.: I think the DTC brands realize that the customer still likes to touch and feel the merchandise, and that multichannel operations are essential. Perhaps the most important factor is not to overstore the brand. It’s also important to have sales associates in the store that truly understands — and loves — the products they’re selling.

WWD: What’s your sense of the lending market? Is it favorable or are things tightening up?

G.W.H.: Depends on cash flow coupled with growth. Lenders are not throwing money into this industry as they had in the past. They also will not overextend. Look at the number of retailers that did LBOs [leveraged buyouts] and other deals — they were at valuations that really could not be justified.

Did the buyers for company “X” pay $2 billion more than they should have? And did the lenders do the loans without any covenants? Yes, things are tightening up and everyone is very careful in approving credit.

WWD: From an M&A perspective, what is 2020 looking like? Are potential deals drying up?

G.W.H.: Good question. There are a number of reasons for M&As — consolidation, need for growth, killing the competition, interest in expanding into new business or geographic areas, etc.

“Buy versus build” has always been an interesting discussion, and the current field of the “right companies” is shrinking. Further, a lot of companies are failing — so that has an impact on the M&A front.