This year, the apparel game will be played with both offense and defense as retailers and vendors plot strategies for moderate growth — but remain mindful of the Great Recession’s tough lessons.
This story first appeared in the January 14, 2010 issue of WWD. Subscribe Today.
A degree of optimism has buoyed retailers and vendors as the industry gears up for the Milan runway shows this weekend and men’s market in New York next week. The news of unexpectedly solid fourth-quarter and holiday results even has some talking less about survival and more about growth, and how to achieve it.
“There has been a shift in temperament,” said JA Apparel president and chief executive officer Marty Staff. “I had one of our biggest customers in recently and instead of talking damage control, like we did last year, we were discussing new initiatives and opportunities. It’s about growth as opposed to managing risk.”
U.S retail sales climbed an unexpected 2 percent during December, according to the International Council of Shopping Centers. The ICSC now predicts year-on-year sales increases of between 3 and 3.5 percent this year. The strong holiday performance prompted retailers like Macy’s and Nordstrom to raise earnings forecasts, and overall, there is a growing conviction that the solid fourth quarter suggests the retail marketplace has turned a corner.
But even though the recession has technically ended, according to most economists, its shadow remains. Forecasts of a “jobless recovery” — U.S. jobs data continued to disappoint in December as 85,000 jobs were shed and the unemployment rate remained at 10 percent — have caused other apparel businesses to remain cautious about consumer spending and growth, so they are maintaining defensive strategies adopted in the last year, such as leaner inventories, lower-priced goods, promotions and a drill-sergeant-like focus on managing costs.
“We think 2010 will be the same as 2009, and we’re buying like it’s 2009,” said Hill Stockton, president of Norman Stockton in Winston-Salem, N.C. “We’re hopeful we can fill in if it gets better.”
But some brands feel like the economy already improved and are planning accordingly.
For the final four months of last year, Individualized Apparel Group said its custom business grew by more than 10 percent. “People are starting to spend again,” said IAG president Joe Blair.
But now the question becomes: How much demand is in the market, and how do brands, still wary of the recession’s sting, take advantage of it?
“This is not the time to be timid,” Blair added, noting the company is adding five salespeople, about a 20 percent increase. “There is an opportunity now to grow sales and profits, and it requires spending money to get there.”
The company said it expects to notch a double-digit gain for 2010, a bullish figure perhaps. But Blair said he’s seen the evidence: “Eight of our nine factories are at capacity. Last February they were at 55 percent. To me, that’s a clear example that we’re recovering.”
After a year of steep budget cuts, managers also are pumping funds back into marketing and advertising to drive growth.
“I don’t think the pie is growing, but there is the opportunity to take market share by performing at retail,” said Carmine Petruzello, president of Buffalo USA, which is increasing its marketing budget by more than 10 percent this year in order to invest in print and online advertising. “We want to be able to fuel our continued growth,” he said. “I think we are well-known in major cities, but we want to raise our awareness in secondary and tertiary markets.”
The company also is expanding an initiative started last year to boost its in-store appearance via new fixture packages, additional field coordinators and selling specialists.
After a strong back half of the year, JA Apparel also is hoping to gobble up market share by burnishing its image. The New York-based company just revamped its showroom, which officially opens during market week; hired a West Coast public relations firm to boost its profile in Hollywood, and is close to unveiling several new marketing partnerships.
It’s also focusing on its specialty store business by returning to the trade show circuit, where it has been absent for two years, and is hoping to energize sales at its department store partners via a new training program.
“We repositioned last year, and now we feel we need to support that position in ways that will help us take market share,” said Staff, who added he is considering resuming plans that were tabled during the recession, including a commerce-enabled Web site. “We pulled back in the last few years — now we feel it’s the right time to get the message out there.”
Denim brand AG Adriano Goldschmied also is going on the offensive by allocating resources to upgrade factory machinery, increasing production levels and upping its marketing spend. “Our challenge last year was bringing on new accounts and some old accounts back to AG. This year we are looking to increase these retailers’ AG product inventory,” said Kathy Kweon, brand manager of the Los Angeles-based company.
Outerwear maker Schott is planning on a good year, as well, thanks to what it sees as homogenized assortments at retail. “Department stores really cut down on the number of brands they stocked and went for safe brands,” said Jason Schott, chief operating officer and executive vice president of sales for the family-owned company. “I think buyers have more flexibility this year to make some changes.”
But retailers appear reluctant to celebrate growth and generous merchandising plans just yet. Dan Farrington, general merchandise manager of Mitchells/Richards/Marshs/Wilkes Bashford, said the men’s sportswear, luxury and contemporary businesses have begun to pick up, especially from more moderately priced lines, but that he is still managing inventories closely. “We will be taking more calculated shots to drive sales,” he added. “We’ve got to see a lift in sales before we start to get our pen out.”
Stockton agreed, saying he didn’t expect any huge surge in sales this year and that his store would “play it close to the vest” in terms of inventory.
The next 12 months will look like 2009 in other significant ways. Value will continue to be a watchword for retailers and vendors alike. Stockton said he sees value-oriented merchandise as a way to fight discounting. Farrington said he’ll be shopping the New York market for more moderately priced lines as well, naming Raffi and Peter Millar as two favorites of the past year. “They are really well-priced, and they help us make sure we’re in sync with our customer,” he said.
Vendors — even the bullish ones — also are paying attention to prices and inherent value in their lines. IAG is continuing to push its new opening-price range of goods, which made their debut last year. Buffalo hopes its value pricing and high-fashion quotient will continue to be a boon even as premium denim brands lower their prices to compete.
JA Apparel said its growth this year — forecast to be in the double digits — will be fueled in part because of its “sweet spot” in the market. “The only way a $2,000 suit will sell today is if it has $5,000 worth of value. As consumers have traded for better-priced goods, they are gravitating to our $695 suits,” Staff said. “Consumers are setting the price. Otherwise, he will stay on the sidelines.”
But not all brands are caving to price pressure. AG Adriano Goldschmied acknowledged pricing is competitive, but said it didn’t want to sacrifice the quality of its premium product. It has not lowered the overall price of its line, according to Kweon, in spite of price contractions in the rest of the market.
Even with slimmer inventories and more affordable merchandise, specialty retailers are still planning to discount this year in order to compete with department stores. “We did some promotions [last year] that we have never done before,” said Stockton. “That’s not like us, but we have got to be proactive.”
The recession’s hangover will be felt in other areas, too. Credit was cited as a potential hang up. Jason Schott noted that his factor, CIT, has tightened its formulas and was approving fewer orders. Schott in turn has extended its own credit to some customers.
“We know that some stores will default and not be able to pay us, but it’s a calculated risk and I think overall it will work for us,” said Schott. “I think the credit situation will be marginally better this year, but I do think we will have to continue to take on some more risk on our own.”
Penny-pinching will continue as companies look to get by with less. IAG will continue to watch travel and entertainment spending. Vice presidents at JA Apparel are justifying every expense, and operational staffers are scouring the supply chain for potential savings. “The new paradigm is that business needs to be run with great discipline or you won’t succeed,” Staff said. “The reset button has been pressed, but there’s still money to be made out there. Everything is just more strategic now.”