CRITICAL STEPS FOR MODERATE
Byline: Kristin Larson
NEW YORK — If the cool spring and early summer retail climate taught any lessons to moderate manufacturers, it was: Be prepared to react to quick-changing market conditions.
Factors such as lagging sales and markdown mania, particularly in May and June, have caused companies to buckle down and carefully plan for the critical fall and holiday — the third and fourth quarters typically accounting for 60 to 75 percent of annual sales for many firms.
Due to the suddenly challenging economy, moderate makers said they are maintaining lean inventories, setting conservative sales goals and, in some cases, beefing up advertising and marketing to ignite consumer interest.
“In general, most retailers are planning the second half of the year cautiously optimistic,” said Kathy Bradley-Riley, divisional merchandise manager of sportswear for The Doneger Group, the New York-based buying office and retail consulting firm. “The past couple of months have been very challenging, which has caused retailers to look at and evaluate their on-orders.”
Retailers and vendors should not be surprised by the challenges posed in the marketplace, said Hal Upbin, Kellwood Co.’s president, chairman and chief executive officer, considering factors such as the “economy, inflation, unemployment and the Web crash.”
“Overall, it was a continuation of depressing pricing in women’s apparel and highly promotional pricing at the retail level to get people in stores to move inventory,” Upbin said. “Spring has been that way, so you have to tighten controls, source better and enhance overhead.”
Last month, Kellwood reported a 13.4 percent decline in first-quarter earnings and cut its projections for fiscal year 2002. For the period ending April 30, income was $25.1 million compared to $29 million at the same time the previous year. However, the company saw a 9 percent growth in its core women’s sportswear brands — Sag Harbor, Koret and Kathie Lee. The company estimated earnings for the year at $60 million. In addition to those key brands, Kellwood’s moderate labels also include Dorby, Vintage Blue and Cricket Lane.
For fall, Upbin anticipates more of the same challenges, causing highly promotional pricing that will require a tight management of inventory. He said the company is “aggressively watching costs, watching inventories and making sure we maintain our financial position in what I consider to be one of the toughest retail environments in a long time.”
But perhaps all is not doom and gloom in the moderate sector, said Bradley-Riley, because even during tough economic times, this category is where people looking for value will shop.
“The bridge market would be more affected by the stock market, whereas the moderate market would be more affected by gas prices,” she said.
But the key to attracting those sales goes beyond price and into having the right look in the increasingly fashion-conscious sector, she said, noting that for this fall and holiday, the hot looks will be geared around head-to-toe dressing. This could boost the average retail transaction over last year, she noted, since more pieces would be needed to complete the outfit. In addition, knitwear, leather and suede will continue to flourish, as well as men’s wear influences and novelty jackets.
“As bad as business might be at retail, there are things women didn’t have enough of [for spring] and cropped pants were one of them,” said Darren Cohen, president of First Options.
Cohen said fall bookings are up about 30 percent, while holiday orders are ahead by about 10 percent. Based on the last two years, Cohen has hopes for a successful third quarter.
“It seems the whole missy business is turning stronger in fall than spring,” he said.
Probably influenced by the difficult economic climate, the consumer seems to be responding well to quality, staple merchandise, as opposed to trendy items that might not withstand more than one season. This is particularly true for holiday, Cohen said, where glitter and glitz dominated for several years. Now, more clean and classic merchandise “is where it’s at.”
Since the consumer is so price sensitive, this poses a greater challenge to make products cheaper, Cohen said, “so, you look to grow volume and import more and source things at lower prices. You preserve margins to be more efficient.”
While the first half was admittedly challenging, John Henderson, executive vice president of Sag Harbor, Kellwood’s largest division with annual wholesale revenue of more than $600 million, said business has picked up quite a bit in June.
“In terms of the last two quarters, I think everyone went in pessimistic,” Henderson said. “In terms of adjustments, there has been some minor adjustments, but everyone is sticking pretty close to plan.”
Taking a cue from the first quarter, where capris, printed denim and career bottoms performed best, Henderson predicted that this trend will continue and present a greater opportunity for key-item cotton sweaters to pair with bottoms. The collection will feature a big assortment of sweaters, along with chenille and boucle novelty jackets for fall and holiday.
“We’ve been seeing three things this year — no one had enough cotton sweaters, everyone is chasing capris and no one is buying dresses,” he added.
In October, Sag Harbor will demonstrate this focus on sweaters by changing its advertisements on bus kiosks from the standard career jacket and skirt to a cable-knit sweater and pants. Color also appears to be playing a big influence, as seen from its dominance in the spring, noted Neva Turi, director of merchandising at Sag Harbor.
“We’re doing a big program in chenille for holiday in key jeweled tones and brights for early spring — in apples, corals and buttercup,” Turi said. “We’re getting big bookings on that.”
While spring overall proved challenging at retail, March started off with a bang for Norton McNaughton, according to Lynne Fish, president. The line includes three brands: the career-oriented Norton McNaughton; Norton Studio, a casual lifestyle line, and a new dress line called Norton.
Fish said the company, which was purchased by Jones Apparel Group for $572 million in April, weathered the difficult spring climate and was able to record “double-digit increases to plan.”
“Business has been difficult, but we’ve been meeting and exceeding our plan,” she said. “I don’t have concerns for Norton, but it’s just been difficult. But luckily, our product mix has been right and the customer has continued to buy our product.”
Items that drove the business during the first two quarters included cardigan sweaters, dresses, novelty looks, embroidery and linens, Fish said. For the third quarter, knits are strong, as well as items with an Americana/Fourth of July theme, and capri pants.
For fall, Fish said the hot items will be tweeds and boucle fabrics, plaids, sweaters and jackets. She said “sweaters will represent 30 percent of our business.”
Fish expects double-digit increases for fall and holiday, adding that the company increased its advertising efforts by about 25 percent with placements in magazines such as In Style, but denied it was a result of the challenging economic times.
“It’s just our focus for the past two years to try and turn this brand into a lifestyle brand, where the customer recognizes the brand and comes into the store and looks for it,” she said.
Offering easy, lifestyle pieces has always been Liz Claiborne Inc.’s philosophy, and versatile items such as head-to-toe knitwear continues to perform well at its moderate brand Liz & Co., said Angela Ahrendts, senior vice president of merchandising at Liz Claiborne.
“The whole knitwear division has been performing excellent at retail for the last seven to eight months,” Ahrendts said. “It just suits the customer’s needs. The average American consumer wants clothes that are functional, multipurpose, easy care and comfortable.”
Regardless of the product offering, the economy will continue to pose challenges at retail, said Kellwood’s Upbin.
“I expect to continue running the company as if [the difficult economy] will continue into the first half of next year,” he said. “It’s not about product — it’s going to take a renewed economy. People have to be more comfortable with their jobs and the economy and we can’t do anything about that. We can only control our overheads and inventories with good business practices.”