UNDER THE GUN: MASS VENDORS GET SMART
Byline: Anne D’Innocenzio
NEW YORK — With fierce competition taking a toll on mass retailers, vendors are feeling the pressure to deliver more updated fashion items over a shorter time frame and at even lower price points.
That means stepping up trips to SoHo or Henri Bendel to spot the latest trends, doing more testing on fashion items at the store level, reducing prices on commodity items like basic sweaters, speeding U.S. production for a better turnaround time and developing novelty products.
“This is one of the single most difficult periods I can remember in the 31 years I’ve been in business,” said Michael Kipperman, chief executive officer of Gotham Apparel, which makes fashion tops for such mass chains as Kmart and Wal-Mart. “Factories are humming, but it’s so hard to project business when stores are buying later and later into the season.”
“Business is not very good out there,” agreed Marc Lichtenstein, merchandiser at Miss Julie, which sells misses’, junior and plus-size clothing to such mass merchants as Bradlees, Caldor and Venture. “Competition among mass stores is getting fiercer, and now for us that means more pressure to deliver what they want.”
Mass merchants have always had stringent requirements concerning pricing, quality control and quantities. The consensus, however, has been that supplying to the mass chains is preferable to selling to many department stores because the chains are more liberal about chargebacks and returns. However, apparel firms point out that in light of the fiercely competitive discount scene, mass merchants have become a more demanding lot over the past year or so.
While Sears, Roebuck & Co., the Target division of Dayton Hudson Corp. and Wal-Mart are showing strong sales increases, their success appears to be at the expense of others. Kmart has been badly bruised by the competitive discount environment and said this month it was closing 110 stores and slashing 10 percent of its management team. In the second quarter ended July 27, Kmart’s U.S. general merchandising operating profits fell 18.6 percent to $201 million. Total Kmart net earnings declined 7.8 percent to $94 million from $102 million. Sales rose 4.6 percent to $8.8 billion from $8.4 billion.
Kmart, along with many other discounters, reported virtually flat comparable-store sales results during the first half. In the 22 weeks ended July 2, Venture Stores inched ahead 1.6 percent, Bradlees was flat, Ames Department Stores — which emerged from Chapter 11 bankruptcy proceedings in December 1992 — was up 0.2 percent, Caldor rose 4.1 percent and Kmart rose just 1.4 percent.
To keep up with the competition, discounters in the last year have intensified their efforts to revamp the way they do business, including:
Narrowing their vendor base to develop stronger partnerships with suppliers and to gain more bargaining clout.
Demanding lower prices from vendors, a trend that has intensified over the last six months. In part, the move is a reaction to department stores that have lowered their prices over the last year.
Reducing open-to-buy budgets, particularly at Kmart, which is spreading its orders over a longer period of time, according to sources.
Demanding more tests of fashion items at the store to gauge consumer reaction.
Buying closer to season, as late as 30 to 60 days before, in an effort to play it safe.
Demanding that some fashion items be delivered at the same time department stores have them on their shelves.
Competition with one another and with department stores isn’t the only factor driving mass merchants to zero in on fashion and value; consumers are also becoming more skittish.
“Consumers are still very fussy about how they spend their discretionary income,” said Janet Mangano, an analyst at Burnham Securities. “There is still a lot of uncertainty out there. And with interest rates going up, people are spending more money financing their homes, leaving less room for apparel.”
Industry observers also point to a disturbing trend, now documented by the U.S. Labor Department — the three-job family. As reported last month, seven million Americans, or 6 percent of the work force, occupy 15 million jobs. While the Seventies and Eighties gave rise to the two-earner family, the Nineties is experiencing something different: One of the earners is taking on a second job, not for career satisfaction, but simply to put food on the table.
“Consumers are no longer time-scarce, but time-impoverished,” said Mary Beninati, retail strategy director of Kurt Salmon Associates, a management consulting firm here. “That means they have little or no time for shopping. And if they are that strapped financially, the question is: Are they going to spend it on apparel?”
At the same time, middle America is becoming more sophisticated in its fashion tastes, given the overload of mass media. For example, such popular shows as “Beverly Hills 90210,” “Melrose Place” and “Models Inc.,” which made its debut this fall, all feature characters in baby T-shirts, slipdresses and rompers.
“Over the past couple of years, the consumer has become more media-savvy, and that is intensifying,” said Suzi Chauvel, whose four-year-old firm, Pop Eye Chauvel, tracks fashion through video for hundreds of clients, including mass merchants. “There is all this information out there, from television commercials, which have gotten more sophisticated, and CD-ROMS to talk shows. It’s an informational culture that is translating into a savvy and trend-aware culture. Mass merchants and their suppliers have to take notice.”
With basic apparel business in the doldrums, mass merchants are hungry for novelty items from their vendors to boost sagging sales.
“Mass merchants are becoming more item-driven,” said Ilene Cohen, vice president and manager of sportswear at The Doneger Group, a buying office here whose clients include mass merchants and popular-price department stores.
“Items have become the subclassification, ” she said, adding that early spring bestsellers include baby T-shirts and one-piece dressing, like rompers and apron dresses.
“Apparel firms have to be very smart and react to these trends. They also can’t be everything to everybody; they have to focus in on a few fashion statements,” said Cohen.
To tap into the latest trends, the owners of Gotham Apparel — Michael and Patricia Kipperman — along with their five-member design team, scour the streets of SoHo, as well as shop stores from Barneys New York to Bradlees, in search of fashion inspiration. However, Michael Kipperman says that he’s finding the search more difficult than he did a few years ago.
“There are a lot of pockets of activity in fashion going on, but there is no ‘must’ item out there, and there hasn’t been for a couple of quarters,” said Kipperman, adding that some of spring 1995’s bestsellers include screen-printed cotton T-shirts with cartoon designs and short knit cropped tops, as well as oversized sweater tank tops. “It makes doing business very difficult.”
Because of this dearth of major trends, Gotham Apparel is more than doubling its testing at the stores each season, from 14 items last spring to about 40 new items for this season. The firm is currently testing 17 sweaters.
Joseph Dushey, director of Northeast sales for Jumping Joy, which sells junior and plus-size sportswear to the mass chains, is stepping up his trips to SoHo in response to higher demands from store customers to deliver more updated fashion.
“It is becoming more and more necessary now to be out in the market more often,” said Dushey, who is there a couple times a week. “In SoHo, I get a lot of ideas for fashion, most recently for slipdresses.”
Dushey said the firm is also expanding its textured offerings to include rib velour in response to demand from mass merchants. It is also doing more stitch detailing on such items as leggings.
Spunky Knits Inc., which makes junior and misses’ knitwear under the labels Spunky and Brand New Knits, did not see the need to have a product manager/fashion director until a year ago.
“In the past, all of us here just pitched in when it came to ideas for a fashion item,” said Bradley Barnette, president of Spunky Knits, which sells to such chains as Kmart, Mervyn’s, Hills Department Stores and Shopko. “There was no real strategy intact. These days, it is very crucial.”
The firm’s new product manager, Elizabeth Byrne, hired from a moderate-price fashion retailer, shops the stores daily, from Kmart to Bergdorf Goodman. In the past, spotting trends was done in a haphazard way, Barnette said. “We would all meet in a mall once every other week and look at what people were wearing, but that’s about it.”
Also for the first time, the firm is hiring a fashion service out of Paris to shop for fabrics and spot trends in Europe.
Spunky’s hot items for spring include novelty ribbed cropped sweaters, and cropped vests. In response to store demand, the firm is also turning to such bright hues as tangerine and lime.
“Stores are becoming more selective about what items they want,” said Roger Webster, merchandiser at Big City Knits, which sells to J.C. Penney and Ames Department Stores. “Stores are now more receptive to the fashion item than they ever were, but they are averse to something way out.”
Mass merchants are also ordering goods as late as 30 to 60 days before the season, making U.S. production more essential. Late buying has forced such firms as Gotham Apparel, Jumping Joy and Sutton Creations to boost their production in the United States.
“A lot of mass merchants are coming up to me and saying they want samples in a week,” said Dushey of Jumping Joy, which is increasing its domestic production. “We have to give them a lot more service these days. We have even been flying out merchandise more often to stores instead of sending it by rail.”
“You have to hustle a lot more because retailers are working a lot closer,” said Melodie Augustine, merchandise manager of Sutton Creations, which holds the license for Chic knitwear. “In the mass market, we are talking big quantities, like 50,000 dozen.”
The firm, which currently produces only five percent of its goods domestically, is now looking to boost U.S. production, especially its knit tops. Some of the company’s spring 1995 bestsellers are baby T-shirts and knit rompers.
“Vendors have to have a good relationship with mills, given that mass retailers are buying closer and closer to the season,” said Doneger’s Cohen.
Price, however, still remains paramount — more so over the last five months, given that mass merchants are now competing against many of the department stores, which have lowered their prices.
Many apparel firms — including Spunky Knits and Sweet Blondie — said they’ve been reducing prices on their commodity goods over the last year, but claim their mass accounts are a little more flexible when it comes to novelty items.
Spunky Knits, for example, said it has lowered its wholesale price of basic cotton sweaters from $12.75 to $10 to achieve a $19.99 retail price. Barnette added that the firm also feels pressure from stores to turn to a less-expensive fabric on the second run of a hot fashion item.
“We made a scramble-stitch striped sweater, and on the second run, we turned to a less-expensive, cotton-like acrylic,” Barnette said. “But this becomes an expensive process because you have to change equipment. It’s like a brand-new program.”
At the same time, Barnette pointed out that mass merchants are willing to pay a little more for an item if it is sufficiently novel, citing the firm’s novelty yarn ribbed sweaters, priced to wholesale at $10.75 for spring 1995.
“We have been lowering our prices over the past two years, but they are now as low as they can get,” said Mark Warman, vice president at Sweet Blondie, which sells to such chains as Bradlees, Hills and Caldor. The wholesale price of Sweet Blondie’s knit tops are about $9.
Jumping Joy and Gotham Apparel are holding prices even with last year’s levels, although Gotham is lowering prices on knit tops and activewear. And Webster of Big City Knits said it is keeping prices of the knit sweaters under $10.
“We are working backward, thinking about how much a consumer would want to pay for the item,” Webster said.
Some firms are also getting their quality control departments in shape in response to an increasing number of spot checks of apparel by mass merchants. Spunky Knits just launched a quality control department in its warehouse. The firm has a quality control office in its production facilities.
“Mass retailers are now checking every garment instead of each style, and we can’t afford to have a return, especially now,” Barnette said. “Ten years ago, you could get a return and you wouldn’t feel it.
“But with business falling in fewer hands, you get a bigger piece of the business,” he continued. “If you make a mistake, that means getting back thousands of items — and that means millions of dollars of lost business.”