KNITTERS: STORES CALL THE TUNE
Byline: Stuart Chirls
NEW YORK — Following a year in which they bore the brunt of rising costs and shrinking margins, and facing another year of difficult prospects, knitted fabric suppliers are forging an increasing number of partnerships with retailers, a dramatic difference from what for years had been a decidedly adversarial relationship.
Recognizing this, the Knitted Textile Association has belatedly declared the Nineties the “Decade of the Retailer,” the theme for the trade group’s annual meeting March 14-17 in Aventura, Fla.
By working closely with retailers, the knitters are acknowledging the sea changes that have swept their industry and turned mills into merchandisers, the better to position themselves to do business heading into the next century.
These and other issues were grist for a WWD roundtable discussion by KTA members, including three mill executives: Regina Carusone, executive vice president, Lee Fashion Fabrics; Alfred Greenblatt, president, Guilford Apparel Fabrics, a unit of Guilford Mills, and Peter Frank, sportswear division manager, Malden Mills, and president of the KTA.
Two converters also attended: Jon Adelman, chief executive officer of Lida Stretch Fabrics, and Michael Garson, vice president, JBJ Fabrics.
Here’s what they had to say.
Q: After the trials of 1995, how is business shaping up?
Michael Garson: There is a perception that there is some oxygen in the market. There’s been some opening up of business, but there’s still some skepticism about how long this opening can be sustained because retail is still very soft.
Regina Carusone: The order positions for most companies that I’m aware of are down for this quarter compared to last year. People seem to be pulling their horns in. Maybe there’s a little tiny touch of optimism, but I’m not sure that’s not related to retail inventories that have been somewhat depleted, and people have to put something in their stores. I’d be happier if I thought things were picking up at retail, and then you’d feel that there was actually going to be some genuine pull-through.
Alfred Greenblatt: We do basics, and as far as that is concerned, it’s not good right now. I have seen some indications that in some markets, there has been some decent activity at retail in the past few weeks. February has been very good, bookings-wise, for novelties.
Peter Frank: I think the enzyme for success is who you are and what kind of marketing tactics you can take. When you are running basic fabrications — which at Malden we do not do — it becomes much tougher with the competition here at home and from the Far East. What it comes down to is that niche marketing is the most successful way to go. We’re fortunate that we built our business that way.
Q: Do marketing tactics also include changing your relationships with suppliers and customers?
Frank: There’s no question our industry has changed. Our customers today clearly are no longer the manufacturers we called on from coast to coast. They are clearly the big retailers. We work with the merchandising people at these chains and they, in turn, tell us who to ship the goods to. So, they control it, which 10 years ago wasn’t even in our thoughts. Sure, we still have some branded manufacturers who go direct to us and we to them, but the majority of our business today is private label.
Q: So, you have to get close to retailers, right?
Carusone: The retailers have an enormous amount of power because of consolidations, but balancing that has been the consolidations in the manufacturing area. But the smaller players, either manufacturers or mills, don’t have that kind of weight. As a result, you have to vary your product, you have to be unique or special. Or, you have to make some alliances with manufacturers in order to bring the product to the retailer. But even that’s not easy to do, because the nature of the business has always been somewhat adversarial. The idea that you can get partners and march off to sea and everything will be fine…we really don’t have a history of those kinds of relationships.
Frank: I don’t think it’s adversarial anymore. The retailer wants to rule his own destiny, and they can only do that if they work directly with the textile manufacturer.
Greenblatt: Selling directly to, or marketing directly to, the retailer, is our business today. We still have to service the [apparel] manufacturers — I’m not minimizing that — but marketing directly to the retailers is a critical part of today’s business, because they are making the decisions. And the increase in private label has also played into the hands of the mills working directly with them.
Carusone: In the old days, you gave the retailers the dog-and-pony show, but they really weren’t that interested. There were multiple layers [of decision-making] that have been eliminated through consolidation, but there still remains a segment of smaller mills and converters who are under a lot of pressure, people who maybe don’t have the resources and who are struggling to find ways to come together with a manufacturer, so they can also work with retailers directly.
Jon Adelman: There will always be room for the smaller players. The whole thing revolves around a demand ‘pull,’ and the retailer reorders what’s selling, versus 20 years ago, when everything was ‘pushed’ through the pipeline. The retailer is constantly seeking fresh, new product to generate excitement. That’s what a lot of the smaller companies like mine do: provide new products rapidly, a lot of change in our product line on a constant basis.
Frank: Not to denigrate the branded manufacturers, but they have changed roles with retailers. They’re still significant, but they have lost some control. It’s nothing new. The big retailers have been doing it for years in Europe, in the Far East, and now they’re doing it here. And they like that control.
Q: It makes sense, then, to seek closer relationships with stores. How has this changed the knitter’s approach?
Garson: The first foray by retailers into private label Continued on page 12
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was supposed to cut out the middleman, to reduce costs, and product development has evolved from that. The retailer has learned that we, as a producer, can be of assistance to them in differentiating their product. Price, for the past four or five years, has been paramount, and that made for an adversarial relationship. Their stance was to negotiate, negotiate, negotiate. We may be moving from that side. The product from most retailers has all been looking the same. They’re looking for newness, and they realize that buying cheap is not necessarily of value. We can assist them in giving their customers value.
Q: Does that mean that retailers are learning more from the consumer?
Adelman: The consumer dictates to the retailer. They buy, or they don’t buy.
Frank: Not only do the big retailers buy from textile mills, they’re very interested in developing new products. They work with us to develop products they know they can sell, because they’re on the firing line. It’s a natural change, but whether it’s natural or not, it’s upon us.
Q: So today, you’re not only a mill, or a converter, but also a merchandiser?
Greenblatt: Yes. We’re so capital-intensive that when we come up with new products, it’s mandatory that we put them in front of the retailer, to know whether they’re interested. One of the other things we get from working directly with retailers is consistency of quality. In prior years, they were buying many different garments with many different fabric suppliers, and they were having inconsistent color, inconsistent wash-fastness.
Q: Since you mention quality, how has sourcing changed?
Greenblatt: We certainly don’t cut any corners in terms of suppliers. We won’t go after the cheapest yarn or the cheapest dyestuffs. We know that at the end of the day, we have to pass the toughest quality standards from the toughest retailers.
Adelman: The consistency of quality and the consistency of supply are critical now. An advantage we have is quick turn to give them new merchandise. But you lose the whole advantage if you can’t deliver new merchandise because of off-shades or other quality problems, or whatever. You can’t chintz on supply or you’re going to end up paying because it’s going to cost you a lot more than you saved on materials. If you don’t have a high quality level, you can’t have good delivery.
Frank: If you don’t have consistent quality, you can’t sell to people. That’s what it comes down to.
Adelman: The balancing act is continuing to provide merchandise that is new, while staying within that quality framework.
Carusone: The retailers are committed to identifying those companies. If they find that you’re not capable of it, they will steer away from you because they have to answer to their customers. It’s those relationships the retailers establish that determines whom they go to for the majority of their products.
Q: That makes sense, but what about the price of raw materials?
Garson: The retailers have discovered that there are certain price points they can do business at, so you must fit into those price points. In the fashion end, there are areas where it’s not as important, but it is with the lion’s share of what sits on the retail floor, particularly as you get deeper into the discounters, who are selling a majority of the volume at retail. You are constrained by those price points. So, while the prices of raw materials have been going up, there has been almost no acknowledgment by, and no ability for, the major retailers to pass that along.
Frank: Of course, when we talk about retailers we are also including the catalog people. That has been a big growth area for the past 10 years, and has gotten more important for the consumer. The catalogs have made a big impact on all of our business.
Garson: They’re also the most rigid as far as taking price increases, because the price is set with a photograph in that book. During the life of the book, it is virtually impossible to change any of the prices.
Adelman: The reality is that retail prices for women’s wear are down the past two years. With retailers’ margins squeezed, they’re looking to us to give them ways to take them to higher margins. They’re not allowing us to raise price, so the only way they can do that is to get a product in there that they can target a higher price point. Their success is dependent on us giving them the merchandise to make it happen, individual fabrics going to individual retailers.
Q: Prudential Securities recently conducted a study that showed women’s soft goods spending declines by 20 percent after age 55. How does that augur for your prospects in the face of an aging baby-boomer population?
Garson: In a stable market, we’re all competing for market share, and that’s a different competition than in a growing market. There are a couple of frontiers: the domestic market, which is not growing, and the export market, which is growing by leaps and bounds. Now let’s assume that the smaller manufacturers, of which I am one, don’t have the wherewithal to really exploit the export market. So we have to, somehow, grab as much market share here as we possibly can. The challenge is, how do we do that? We talk about this being the ‘Decade of the Retailer,’ but it’s fast becoming the ‘Decade of the Consumer,’ in that the retailer is spending a lot of money on point-of-sale information and doing what they call ‘micromarketing.’ I’m getting information passed along to me by the retailer, and we’re learning together how to isolate markets within the markets. And that’s how we’re going to maximize our business.
Q: Is there a danger of cutting the market too thin, of splitting a dollar too many ways?
Garson: Well, we haven’t reached that end of the envelope yet; we’re not even approaching it. This is the age of information. The information’s there; how we massage and utilize it is the challenge ahead.
Q: What can we expect in the near term?
Greenblatt: I think the future looks pretty good. By the time this transition shakes out and there is some direction, we’ll be in a good position. But I read recently that designers don’t want to acknowledge the casual looks, so there’s no impetus to change the women’s wear business. I can understand why — they don’t want to start looking like the popular-priced stores. But they somehow have to find the right styling to take advantage of where the trend is going.
Carusone: We have seen the young designers coming out with less-expensive secondary lines. There’s a great divergence between what they’re showing at the designer level and what people want to wear, and I don’t think a lot of secondary manufacturers have really caught up with that. It’s like casual Fridays. It doesn’t happen overnight, but it’s a change in the way people are living and dressing.
Garson: It’s like blood pressure: It’s the bottom line that counts. I think that despite the kind of volume the big retailers do, they want a better return on their investments. By reshuffling and diversifying, they’re trying to expand their volume. I like to think the growth will be in the moderate area. I look back at what J.C. Penney and Sears were when I was growing up: They were the [mass marketers]. Now, as far as I am concerned and many analysts are concerned, they’re the department stores. I hope to see Kmart and Wal-Mart also move into the moderate areas. Wal-Mart has had great success with its Kathie Lee line, which is half a price point above its normal product. They’ve got a floor established, so I think the only place to go is up.
Frank: The taste level and sophistication of the average consumer has gone up. The mass merchants have traded up and been more and more successful at it. They know they have to compete with the mega-chains like The Gap, The Limited. That’s their business. And that’s our business.