HOLIDAY AFTERMATH: THE BATTLE IS ON
Byline: Anne D’Innocenzio / Janet Ozzard
Bruised by the horrible Christmas season, sportswear manufacturers — faced with an abundance of requests for markdown money — say they’ve assimilated some important lessons. Designer houses have learned to put less emphasis on Christmas and more on resort. But better and moderate manufacturers, fearing a further shakeout, are offering new lines and slashing prices.
Better & Moderate
NEW YORK — In the aftermath of yet another dismal holiday season, apparel firms that cater to women with a tight clothing budget are being confronted with a major issue: How to keep their businesses thriving when their consumers are more concerned about making their next mortgage payment than with buying a pair of capri pants?
It’s a question that is especially vexing to moderate and better sportswear firms at this time. The Christmas period has turned out to be the worst since the 1990-91 recession — and industry pundits say the near future doesn’t look any better.
Vendors may put some of the blame for bleak holiday business on the sameness that pervades selling floors and on holiday flops like better career separates and cotton knit sweaters. But they say they are more worried about continued retail consolidation, which they fear will lead to a further shakeout in the apparel market. Another area of concern is the crush of restructuring at Fortune 500 firms.
Burdened by piles of mounting debt, many middle- and upper-middle-income shoppers also face a lack of job security, as corporate giants engage in significant layoffs to gain profitability.
“There is a lot of worry out there amid all this downsizing. Downsizing may make corporate America more profitable but it is making the middle-income families not feeling great about buying clothing,” said Norton Sperling, president of the moderate sportswear company Norton McNaughton Inc., which has cut its fall wholesale prices on wool fashions by 10 percent. “They are firing all the moderate consumers — the rank-and-file people and lower management.”
“The environment is tough these days, and so we have to concentrate on a long-term plan, and that is to capture a younger and wider audience,” said Larry Greenberg, executive vice president at Teddi Apparel Group, which until recently had catered to the 50-plus customer with pull-on pants, marketed under the label Teddi. “We slashed prices by 20 percent for fall, but those are just quick fixes.”
As reported, Teddi acquired Componix, a Los Angeles-based better-price firm, and is now reworking the line as an upper moderate, updated resource for spring selling.
“The bad Christmas season isn’t an aberration. It signals a shift in consumer spending patterns and the structural changes that are going on,” said Kurt Barnard, publisher of Barnard Marketing Report. “I had cautioned my clients to be prepared for a bad Christmas, but they just laughed and pointed to the booming stock market. But Wall Street sells paper, not suits, blouses and ties.”
Already, the disastrous holiday season has taken its toll on the moderate and better zone, resulting in the closing of several firms or lines over the past month, including AKF Sportswear, a 22-year-old company; In Group, a $16 million firm that marketed sportswear under the In label, and Tao, a two-year-old division of Kazu Apparel Group. Industry observers expect more to follow.
“With a bad holiday season, retailers are going to look to pare down their matrix systems,” said Arnold Cohen, senior partner at Mahoney, Cohen Rashba & Pokart, an accounting firm here that serves the apparel industry. “They will stick with companies that have a big brand recognition and that can financially support them. The losers are going to be the fringe resources.”
“Retailers are placing too many demands on manufacturers, and I think it is only going to get worse,” said Frank Bibbo, one of the principals of the now-defunct In Group, which saw sales erode from a base of $16 million a year ago. “There is no leeway anymore. Retailers don’t even supply hangers to their suppliers anymore — we have to get them, and they tell us where.”
Such fears are only being heightened as retail buyers take to the showrooms this week. While they are supposed to be shopping for summer merchandise, many vendors who have already been visited by buyers over the past few days said their top priority is getting markdown money, which is being used to help support the sharp promotions on holiday goods.
“They are walking up and down Seventh Avenue with a tin can,” said an executive from a buying office here. “They will be looking to make deals.”
“It is a disgrace,” said an executive of a better sportswear firm who wanted to remain anonymous. He said he was paid a few visits last week by several buyers looking for markdown money.
“It used to be a partnership, and now it is not,” he said. “They are coming here this week, not to buy, but to collect.”
Most buyers aren’t a happy bunch right now, with most having to cancel market week plans because of last week’s blizzard. Also on their minds is how they are going to get rid of their winter merchandise, which is still in piles at the stores. “We are just aggressively discounting our goods, and hope to get rid of all of it by the end of February,” said Debbie Laverell, divisional merchandise manager at Strawbridge & Clothier. Her hits included Christmas theme sweaters, but better separates were washouts.
“The question is not just what do you do with all that winter merchandise, but will there will be a healthy spring business at retail?” she asked.
Given a flat holiday season, Laverell said she is planning a decrease in her early summer open-to-buy.
Laverell and others noted that there doesn’t seem to be any real reason for shoppers to buy these days. The hottest trends are retro looks, especially Seventies designs like polyester shirts and hip-huggers, which can be picked up at thrift stores.
“Clearly, the consumer is spending less and less on clothes,” she continued. “There aren’t any new fashion changes. Firms need to come up with something new and exciting.”
Some, like Ellen Figg, Inc., a moderate sportswear firm, believe they have the solution.
Ellen Figg is joining a number of companies, including Peter Popovitch Inc., Teddi and Bernard Chaus Inc., which are targeting the upper moderate/low better zone. “The big question for vendors is how can we compete going forward, and the answer is that you have to trade up a bit,” said Barry Cohen, executive vice president of
Ellen Figg, which is unveiling a two-piece dressing line for fall that’s targeting the upper moderate/better zone. It’s called Ellen Figg Studio.
The line is reportedly expected to generate $5 million in wholesale volume. The firm posted sales of $35 million last year, according to sources.
“There is just too much competition from the mass stores and discounters,” Cohen said.”Department stores just can’t compete in the commodities business.”
The Ellen Figg Studio line wholesales from $50 to $80 per outfit, compared with a $25 to $45 price range at Ellen Figg. Studio features such fabrics as sueded Tencel, wool crepes and wool bouclAs, while the Ellen Figg line includes such less expensive fabrics as rayon acetate as well as polyester and rayon crepe blends.
Norton McNaughton is sticking to the moderate zone.
“All this upper moderate, much better stuff is a bunch of baloney,” said Sperling. “Everyone is looking for a niche to be in. People are searching for a new zone, but plain old moderate is where the working woman shops.”
After several years of double-digit sales, Sperling admitted that the holiday season was difficult, but he is hoping the various strategies he has put in place will improve business.
As reported, the firm is aggressively branching beyond its career assortments. For this spring, it unveiled DPS, a career line that company officials expect to generate $10 million to $12 million in wholesale volume for the first year.
Norton McNaughton also started shipping Norton Studio, its knitwear line, this past fall. The line is expected to generate about $15 million in wholesale volume in its first year, he said.
The company is also coming out with new fabrics, beyond its crepon and polyester rayons. For summer, the line includes washed silk.
“The way the industry is going is a real major problem for a lot of manufacturers,” said Mark Feit, president of J. McLaughlin, a better-price sportswear retailer and wholesaler that is going more casual, and consequently, marketing less expensive fashions, for spring.
“Consumers are buying later,” said Felt. “They are buying on sale, and clothes are not a top priority.
J. McLaughlin, which had a tough holiday season, has also hired two more sales representatives to build its business on the West Coast, including Washington and California. Its total sales force is now six. Given the wave of department store consolidations, Pacific Silk Clothing & Co., a silk-driven firm, is embarking on a brand intensification program under its August Silk label. As part of the strategy, the company over the past year has launched August Silk Collections — aimed at the “much better” zone — August Silk Dresses and August Silk Sport.
“I had a pretty good holiday season, and I think our strategy is really working,” said Jack Weinstock, the company’s chief executive officer. He said its chenille sweaters and fashion-forward spun silk designs checked well at retail. “It has been certainly a tough climate out there, and demands on manufacturers are getting bigger,” he said. “Retailers are demanding newness, and vendors have to come up with something innovative. You have to be really involved in product development.”
The company, which posted a wholesale volume of about $160 million last year, is expected to generate $200 million by 1997.
“The way I see it,” Weinstock said, “small companies are the most vulnerable. Retailers are going to be examining their resource structure more and more, and they will take small resources only if they have something of real interest.”
Designer & Bridge
NEW YORK — While they weren’t as badly stung by dismal holiday sales as other categories were, bridge and designer manufacturers here say they learned some important lessons to apply to the current season.
Presenting the consumer with a reason to buy helps the full-price sell-throughs, said manufacturers. That’s becoming paramount as markdowns become more aggressive. Stores are using ploys such as taking markdowns at the register to get around the traditional 10-to-12-week full-price selling period.
And, manufacturers here said, they know not to count on the fourth quarter to support the rest of the year, the way retailers often do.
But they don’t write off the season. Designer firms said a strong focus on their customer produced excellent results.
“The designer customer really does go away during the winter,” said Jennifer Peck, president of Isaac Mizrahi. “So we shipped a very resort-focused group. We did well with fabrics like terry toweling and linen in easy silhouettes and oversized shapes. Other looks that are doing well are shantung pieces in various colors and a little black dress group that she can pick up to wear to an event here and then take away with her.”
Peck said pre-spring deliveries on the designer line, as well as the first few shipments of the new Isaac line, are just hitting stores.
“That’s also a change. We used to ship spring later,” she said. “We’re in fine shape with inventory, and we have aggressive projections for 1996 that we still feel comfortable with.”
The Isaac line, Barnett said, will be treated very differently from the designer line.
“For example,” she said, “for holiday we’ll focus on holiday, gift-giving and wear-now looks for the Sunbelt stores.”
Bridge manufacturers, on the other hand, found that a fresh supply of item-oriented pieces is keeping customers coming back. Career wear is starting to pick up steam after falling off during the holiday season.
Adrienne Vittadini found that strong colors such as navy, white and green, and casual weekend styles outsold pastel groups and structured ensembles during the holidays. For the bridge and contemporary company Eileen Fisher, a focus on gift-giving that was supported by advertising and direct mail pushed sales ahead 20 percent over the previous year in their own stores.
Fortunately, vendors said, they don’t build up inventory for the fourth quarter as much as for the first and third quarters, so they’re not stuck with an excess of merchandise.
“We tend not to bank so much on the fourth quarter,” said Stephen Ruzow, president and chief operating officer at The Donna Karan Co. “The third quarter is really what’s important.”
Karan’s signature designer and DKNY bridge lines exceeded plan and same-store sales during the holidays because, Ruzow said, “our deliveries were better, and we delivered an exceptionally good-looking group.”
“There was a lot of strong color, innovative fabrics and styling,” he said.
“I’m pleased with the volume of sales we did,” said Tom Murry, president of the bridge sportswear company Tahari here. “What I am unhappy about is the markdown rate. Sales were highly promotional, and the worst thing is if they were taking high markdowns. There were more markdowns than we’d planned, and I don’t see it changing. It’s a vicious cycle — you have to create better retail sales, but how do you do that when you’ve trained the consumer to wait for markdowns? I’m hopeful that [stores] will take a more intelligent posture this year, and I’m talking to them about keeping groups together.”
Murry said that so far, spring deliveries are checking well, particularly ensembles such as suits or a dress-and-jacket combination.
“We had thought about doing more items, but we don’t want to lose our focus,” he said. “Our customer comes to us for suited looks and work apparel.”
“Stores are absolutely taking a more aggressive stance on markdowns,” said Brad Salzman, executive vice president of sales at Adrienne Vittadini. “The window is supposed to be 10 to 12 weeks, but I’ve been hearing that stores are starting at eight weeks. It is definitely a concern — if they’re not taking the markdown, they’ll do it at point of sale.”
But sportswear manufacturers didn’t just sit back and watch their margins drop. They did see some bright spots emerge, and they plan to capitalize on that this year. Pegging their merchandise to a particular need was a successful gambit, said a few names.
For Eileen Fisher, for example, being a gift resource was key. The company heavily promoted washable velvet separates, such as loose dresses, scarves, shirts, skirts and pants, and textured sweaters made from mohair or bouclA, said Eileen Fisher, designer of the line that bears her name.
“We’re getting more focused on merchandising in our stores and our wholesale accounts,” said Ann Kasper, vice president of wholesale business for Fisher. “We also started introducing more current-feeling merchandise. That will continue through this year. It gives our company a more contemporary look.”
Fisher and Kasper said that the company’s ad budget is being increased slightly, with new strategy, such as a double-page spread in Vogue planned for spring. They are also looking into store sites to add to their current 12 freestanding stores. Fisher said a store in Hamburg, Germany, is being considered, as are more U.S. sites, but added that she hasn’t signed any leases yet.
Spring offerings, particularly washable fabrics and slimmer silhouettes, are checking well, she said. Inventory levels are under control, and the company is opening a new 40,000-square-foot warehouse facility in northern New Jersey this month.
It is also keeping a closer eye on prices, said Kasper.
“During the last year, we have become very price- and value-conscious,” she said. “For example, keeping the velvet shirt at $148 was critical. It could have been $176, but at $148, people would think of it as a gift.”
Adrienne Vittadini saw strong sales in casual apparel, while the bridge sportswear Collection had decreases, said Salzman. “Casual sportswear had a good fourth quarter, with retail increases of 5 to 10 percent in key major stores,” said Salzman. “We shipped a navy, white and green nautical story that was exceptionally strong. Pastels were tougher. We found that the timing of a strong color delivery is key to sell-through and wear-now.”