ACCOUNTANTS ADVISING CAUTION
Byline: Jennifer L. Brady
NEW YORK — Play it cautious.
That’s the advice to manufacturers from accountants servicing the apparel industry as they look to 1996. While some feel the year may eventually bring some uptick in consumer spending for apparel, they see little or no indication that this will happen during the first half. For the most part, they say, getting through 1996 will be another perilous journey, matching the challenges of 1995.
Reflecting the glum mood, Nathan Lubow, partner at Mahoney Cohen & Co., said, “It’s tough to look for a good year in the presence of what we see right now.”
He noted that every day brings rumors of another chain in trouble or being downgraded by a rating agency. “We haven’t seen the end of retail insolvencies,” he said.
Lubow added, “It gets to be more and more difficult to answer the question ‘Who do you sell to?.”‘ Although some branded niche apparel companies are faring well, it is tough across the board, according to Lubow. “Sooner or later the niche players will see their niche disappear, and even the stronger firms will be affected,” he said.
In addition to a shrinking customer base, apparel firms must confront greater demands from the stores they supply. One universal problem is heavy pressure from retailers who return or refuse merchandise as they fight to keep profit margins intact. The accountants maintained that the stronger manufacturers can resist such pressures while the weaker firms can not. Saul G. Berkowitz, partner at Goldstein, Golub, Kessler & Co., agreed that retail consolidation will continue to make business particularly arduous for the smaller manufacturers. He expects the end result will be mergers among the non-branded apparel companies.
“The retailers have taken the lead in mergers, and the manufacturers will follow,” he said. “One way or another, there will be fewer manufacturers in 1996.”
To battle the rough environment, accountants advise companies to keep a firm hand on costs and resist demands for markdown money. As Lubow said, “If you want to survive you have to control buying and minimize gross profit erosions.
“You can’t fall in love with a garment and expect it to sell,” he said, “Be certain that your production and import cycle matches the shipping cycle to the retailer.” Harriet Greenberg, partner at Friedman, Alpren & Green, advised cutting garments as close as possible to orders in hand to keep inventories down. In addition, she said, vendors should not ignore the credit warnings of factors.
“If they are skeptical about a retailer, don’t ship to the retailer,” Greenberg said.
Still, there are some threads of optimism in the accounting community. Steven I. Soble, managing partner of Steven I. Soble & Co., noted, “In 1995, people prioritized some of their expenditures away from apparel to other areas partially at the expense of apparel manufacturers.”
Next year, he looks for a modification in spending and more focus on apparel needs. Soble added that retailers have reduced inventories and expenses to combat tighter sales and manufacturers are responding accordingly. They are using shorter lead times, pushing some of the responsibility back to the textile mills and cutting inventory as close to the orders as possible.
“Manufacturers are responding more quickly to retail demand,” he said.
However, since there are fewer stores, Soble said, it will remain tough for the smaller players who will need to be on the accepted vendor lists of major retailers to survive. Goldstein’s Berkowitz pointed out that pricing pressures have led retailers to produce more private label apparel at the expense of the manufacturers. At the same time, larger branded apparel businesses have expanded their outlet stores.
“You have the manufacturer competing with the retailer with outlet malls, and the retailer competing with the manufacturer with private label. — Fairchild News Service