MODERATE FIGHTS THE MALAISE
Byline: Kristin Larson
NEW YORK — Reeling from a disastrous second half, moderate makers aren’t expecting good news any time soon.
Poor results for fall and through the holiday season have pounded margins and decimated sales, as evidenced by powerhouse Kellwood Co.’s women’s sportswear revenues, which dove $98 million to $403.4 million in the third quarter ended Oct. 31 — a 20 percent drop from a year ago.
Executives aren’t pinning their hopes on spring either, projecting that an economic turnaround appears unlikely before next fall, barring any further upheaval that wreaks havoc on the consumer psyche. Consumer confidence already reached its lowest level in seven years for November, its fifth straight monthly decline.
Vendors said they have no choice but to plan conservatively, maintain lean inventories, keep prices sharp and find ways to shave expenses.
“We don’t see anything positive on the near-term horizon and we’re running our business on that basis,” Hal J. Upbin, chairman, president and chief executive officer at Kellwood, said.
Upbin said most retailers are buying down for spring and Kellwood has planned its production and inventory accordingly. He said Kellwood had previously made cutbacks in overhead and will continue to monitor expenses.
“We’ll be taking some further action, but not significantly in terms of bodies,” he said. “The first half will be very challenging and it’s very early to figure out what fall will look like next year.”
But at a time when consumers might be more likely to conserve money rather than spend lavishly on big-ticket items, Upbin said he’s still optimistic about Kellwood’s moderate-priced core brands — Sag Harbor, Koret and Kathie Lee — even though sales for these labels dropped a combined $65 million in the third quarter.
Kellwood’s bottom line also felt the impact: net earnings for the women’s sportswear group plummeted 48 percent to $13.9 million from $26.7 million.
Seeing some silver in the lining, however, Upbin said, “If you look at the insecurity and job loss coupled with the consumer debt levels, it’s pretty clear that people will be conserving money. In times like this, the lower end will get more of a play. It’s conservative purchasing.”
Anita Britt, senior vice president of finance and investor relations at Jones Apparel Group, which has under its umbrella the moderate labels Evan Picone, Jones Wear, Nine & Co., Norton McNaughton, Erika and Energie, described the company’s approach as “fairly conservative to the point of pessimistic.”
“If you looked at the recent stats on retail sales in general, it looks like things are a little stronger than people thought,” Britt said. “At the same time, business out there continues to be promotional and that’s one of the factors we continue to keep in mind.”
However, she said, “Each day, it’s starting to return to some state of normalcy and that will be the direction for 2002. Right now, with some of the success of the military efforts in Afghanistan, people are feeling more optimistic. But if you listen to any of the economists, it doesn’t seem like things will be status quo until 2003.”
In guiding Wall Street, Britt said Jones scaled back its sales projections to mid-single digits for spring, excluding Norton McNaughton. The outlook is to buy prudently, keep inventory lean and plan sales conservatively.
“The last thing we wanted to do was be optimistic and then be caught at the end of the day with excess inventory,” Britt said. “Our whole mantra in managing what we perceive to be a continuing difficult environment is keeping a strong balance sheet and+continue to produce very strong cash flow out of our operations.”
Jones is going ahead with the debut of its Easy Spirit casual apparel line for fall, after delaying the launch this year. Jones acquired the Easy Spirit brand when it purchased the Nine West Group in 1999.
While Jones hasn’t implemented any changes to its manufacturing and sourcing strategies, one positive that came out of the economic slowdown was more competitive pricing in Asia, Britt said.
Based upon the anthrax incidents, Jones is shying away from direct mail campaigns next year, said Benny Lynn, senior vice president and creative director. As for advertising, the company is constantly evaluating its media buy to make sure it connects with the customer, he said.
Lynn is also optimistic that the consumer’s fondness for casual dressing coupled with the financially strapped times will help bode well for the moderate market.
“People are looking to achieve the same kind of look without spending as much,” he said. “It’s much more about disposable looks, not investment dressing.”
Mel Nathanson, president of Jordan, a line of moderate blouses and knits, said, “The biggest challenge is to get the customer into the stores. She is going to purchase and is looking for something refreshing and directional at great value.”
Nathanson said Jordan’s position as a key linen resource should help it ride out the recession. But he acknowledges that moderate companies are being challenged by private store brands and better sportswear firms finding ways to lower their prices.
“It only makes the moderate maker more attuned to prices and quality of fabric,” he said. “You really have to stand for something and be focused with what you’ve done well with.”
If anything positive has come out of these difficult times, it’s a better cooperation between manufacturers and retailers, said Stanley Kitman, president of Pretty Talk, a firm that features a line of moderate blouses called Carlie’s Court.
“Both the retailer and manufacturer understand the concentration is on shorter periods of buying,” Kitman said. “There is more of a sense of unity between retailers and manufacturers and focus on merchandise. Not so much in terms of quantity, but focusing on what consumers are looking for and being very cautious and making very narrow selections.”
Business next year will be “very challenging,” said Kathy Bradley-Riley, divisional merchandise manager of sportswear at The Doneger Group, the large buying office in New York. “But I think most retailers have planned it very cautiously realistic and they continue to evaluate it on a pretty consistent basis. And they’ll evaluate it again once they get past the holiday selling season.”