TAKING STOCK OF STORE CLOSINGS
Byline: Shirliey Fung
NEW YORK — The landscape for moderate retailing hasn’t been a pretty picture lately, leaving vendors who cater to this segment wondering where to pick up the slack.
In the past couple of months, the retail news has been depressing for those involved in selling to these populist merchants. This month, Federated Department Stores decided to shut down its $850 million, 24-unit Stern’s division and convert most of its units to Macy’s and Bloomingdale’s stores, Ward’s and Bradlees declared bankruptcy and are liquidating, Paul Harris announced that it would reduced its store count from 266 to 166, and the J.C. Penney Co. announced it would shutter 47 sites.
Unlike manufacturers, analysts are not seeing this gloaming as a negative. Instead, they believe that after five years of unfettered growth, this natural readjustment of the economy is a must-needed step toward attaining a healthy retail climate.
“There’s a considerable excess of capacity in retail, and it’s a natural evolution of things. We believe that there are as many as 500 to 1,000 too many broad-line specialty stores,” said Todd Slater of Lazard. “We view [the closings] quite positively. It’s one more step in the evolution of the natural culling of an overstored retail base.”
Shari Schwartsman Eberts of J.P. Morgan concurred that, “The rationalization in capacity is a positive for the retail industry, particularly in the apparel area. It’s pretty well known that we are in an overstored situation. The rationalization is happening at a good time given that consumer spending is likely to remain muted.”
Emanuel Weintraub, president and chief executive officer of Fort Lee, N.J.-based consulting firm Emanuel Weintraub Associates, said the smaller companies will be hurt the most, while the major players such as Liz Claiborne, Kellwood Co. and the McNaughton Apparel Group will absorb the impact.
“For my major clients, [the store closings] are just a bump along the way,” said Weintraub. “This could be significant for firms that are not megafirms. For a company with $30 million in sales that was doing $4 million with Bradlees, where do they go to replace the business?”
Weintraub added that he foresees that it will be a difficult time for vendors seeking new accounts.
“They will have to go to a buying organization and attempt to demonstrate that they are as good or better than the firm that already has an established relationship,” he said. “There will be a great deal of difficulty.”
For the time being, vendors have to put philosophical musings about the economy aside and focus on the task at hand: staying alive.
In order to avoid going the way of the dinosaur, analysts said companies will have to grow largely through acquisitions and economies of scale, rather than through topline growth. They must differentiate both in product and service, and have crisp product presentation and execution. Down in the trenches, some vendors are attempting to put these and other strategies into action.
Marty Klein, executive vice president of sales at Kaktus, which had 10 percent of its business with Bradlees, J.C. Penney and Wards, as well as troubled specialty retailers Hit or Miss and Ann & Hope, said the firm will have to try harder to sell to its other customers.
“We have to intensify with the companies that are picking up the business from the downtrodden,” he said, citing Wal-Mart, Marshall’s, Catherine’s and Charming Shops as examples.
“From the inside looking out, it’s OK,” Klein said. “But from the outside looking in, it’s not OK. It’s virtually impossible for a vendor to get in.”
Because of the difficulty, Kaktus is shifting gears and focusing more on specialty store distribution.
“We’re walking away from department stores,” he said. “We’re trying to get into as many specialty stores as we can.”
Right now, his business breaks down to 60 to 70 percent specialty store sales. He’d like to see that number rise to 80 percent, with the remaining 20 percent going to discounters.
Bob Salem, corporate vice president of marketing for Leslie Fay, said of the closings, “Does it affect us adversely? Of course it does.” But he was quick to add, “This is how it should be. This is a healthy adjustment based on the wonderful elasticity of our economic system. The survivors are the businesses that are the most efficient and productive.”
For Leslie Fay, which does $220 million in volume, it’s aiming to now gain a bigger piece of the shrinking pie.
“We are not going to panic with regard to our flagship brand. Some of our competitors have gone after discounters and tried to recoup lost locations that way,” he said, adding that he believes department stores will continue to be a dominant force in American retailing. “Our long-term plan is to have a broader portfolio of brands. For instance, we’ve gone out and purchased Cynthia Steffe to serve the upper tier.”
Salem added that Leslie Fay is also aggressively crossmarketing the brand through its licensing deals in categories such as handbags, hosiery and shoes.
In addition, the firm is working toward intensifying its relationship with key department store doors.
“We are currently talking to J.C. Penney about the intensification of selected stores,” Salem said. “We want to intensify the great doors that are dominant doors.”
The past year was a difficult one for midsized vendor Danny & Nicole, which had a volume of $70 million, although president Daniel Zar said business is currently healthy.
Zar said the company does about 12 percent of its business with Penney’s, and counts the retailer as one of its top customers. Over the years, the manufacturer has increased its business with the chain, and in the next year, it may expand up to 15 to 17 percent of overall sales. But Zar believes strongly in the having a diversified customer base. He said that “normally I put a limit on every account+I don’t allow any business to take up 30 percent.”
Vendor heads like Jeffrey Zipes, president of New York-based Jeffrey Craig, which had a private label business with Ward’s, Penney’s and Paul Harris that comprised nearly 10 percent of its total business, said that he knew that some of the closings were coming for at least a year. Zipes used the time to reevaluate his business.
“You just function cautiously,” he said. “You just make sure you don’t take as much business than you can get credit for.”
Delores Bell, ceo of Manhattan-based sportswear vendor Capacity, said she believes business will eventually turn around. She sees the shutterings at Penney’s as a positive because, “they’re cutting back on areas that are hurting the company.”
In the meantime, the firm, which does 6 to 8 percent of its business with the national retailer, is “being very sure with our orders.”
“We are cutting a little bit closer to delivery and just being sure about the orders we’re receiving and producing,” she said. “Even though it’s a difficult climate, there is business that can be done with the right product.”
Carol Wren, president of Norman Wolf, also said business has been difficult, but like Bell, believes that the Penney’s closings can only help in the long run.
“We hope that the result of their closing stores is going to make them healthier and put them in a financial position so that the industry can continue to do business with them,” Wolf said. In the interim, his strategy for staying afloat is to continue being a reliable resource. “Only the strong will survive,” Wolf said.
Stuart Weiser, ceo of Los Angeles-based Teddi, which had a private label business with Wards that comprised 5 percent of its volume, which is several hundred million dollars, said that the environment is “very, very difficult. The retailers are nervous, and it’s a time when everybody is concerned.”
To maintain his business, Weiser does not depend on any one client.
“No one’s store closing is that significant unless you’re not a good businessman and you allow somebody’s business to be dominant in your mix,” Weiser said.
The Penney’s shutterings have not affected his business too markedly, he said, and might actually help his bottom line.
“Slow turning stores have the highest markdowns,” Weiser said. “Sometimes we wouldn’t even want to be in 800 doors, we’d want to be in 300 to 400 doors.”
Weiser said it’s important to fine tune from the inside, as well.
“I watch all costs,” he said. “We’ve always done that. People who haven’t are going out of business.”
Peter Boneparth, ceo of McNaughton Apparel Group, which has net sales of $407.8 million in 1999, said the rash of closings has had “a less than 1 percent impact on business.” A year ago, it sold slightly more to Ward’s and Bradlees, but even at its height, total business with those chains only equaled about 1.5 percent of overall sales.
“We were watching these accounts closely,” Boneparth said. “We were very gradually weaning ourselves out of that business.”
He believes McNaughton is in a good position to benefit from the consolidation among smaller players that is simultaneously occurring on the manufacturing front, as well.
“We’re well positioned with every major retailer,” he said. “You’ve had so many weak hands go away. The remaining people are strong.”