‘NOT ALL BAD NEWS’: A GLIMMER OF HOPE FOR THE RETAIL SECTOR
Byline: David Moin
NEW YORK — Even with business tanking last month, projections heading south and rumors of bankruptcies, retailing isn’t as sick as it seems — at least according to one highly respected industry analyst.
“It’s not all bad news here,” contended Margaret Cannella, managing director of North American Credit Research, J.P. Morgan Securities Inc. “Retail sales are holding up better than in past recessions.”
Cannella spoke at a three-hour Fashion Institute of Technology seminar Tuesday, themed “Rethinking Retailing: What it Means To You.” In a broad sense, she characterized retailing as strengthened by sounder capital structures, liquidity gains and continuing economies of scales. She also gave a provocative prediction: “We won’t have the surprise bankruptcies in January that we saw in the Nineties. Leading retailers today are in a better position today to seek support from lenders, developers and banks.”
Meanwhile, the biggest threat to retailers is price deflation, she said.
Other speakers at the seminar, which benefited FIT’s Educational Foundation for the Fashion Industries, included Vanessa Castagna of J.C. Penney Co. and George Jones of Saks Inc., discussing improvements in their stores to better connect with consumers. Castagna is Penney’s executive vice president and president of stores, catalog and Internet; while Jones is president and ceo of Saks Inc. department stores.
Castagna mentioned the formation of what’s designated internally as “hot spot” departments, in areas such as jeans, juniors and T-shirts, to dominate a classification. She also cited a faster flow of goods to the stores through centralized buying, and intensified marketing that better integrates with the merchandising.
Jones talked about Saks Inc.’s strategies to shift to focused promotions as opposed to “blanket discounting,” buying merchandise through the eyes of a consumer rather than through a matrix mentality, and striving for greater gross margin dollars instead of gross margin rates.
But it was Cannella who led off the seminar with a hopeful tone, surprising in light of the recent terror events in the U.S. that have put fear into consumers and the economy, and last week’s Commerce Department report that cited the largest monthly decline at apparel and accessories stores since the government began keeping statistics in 1967. She did say that the nation has been in a recession since August, and will stay there at least through the second half. Christmas sales, she projected, would be up about 1 percent for retailing in general, while comp-store sales — with the exception of Wal-Mart, Target and some other retailers that have been outperforming the industry — will fall into the negative zone.
However, the current flat sales “is not a bad performance, given the overall economy.”
While recession is “terrible news” for retailers, in certain categories, such as toys, lamps and shirts, Cannella said business is “really solid on a unit basis.”
“The problem confronting many retailers is not unit sales, but weak pricing. Deflation is gripping most categories of department stores, with the exception of cosmetics.”
Citing previous recessionary periods, she said that from November 1973 to March 1975, general-merchandise sales fell 11 percent monthly. From 1980 to 1982, department and apparel stores fell about half that rate; and from 1990 to 1991, real department store sales began falling six months before the economy went into recession, and it took 27 months before they gained again.
The panel was moderated by Larry Leeds, chairman of Buckingham Capital Management, who said: “There has never been a period in our history with so much uncertainty. The whole planning process [for retailers and wholesalers] is so bizarre. Anybody who is honest says, ‘I don’t know how my business is going to be.”‘
Castagna also spoke on how Penney’s is becoming more relevant to the middle market, capitalizing on stronger classifications presentations and focused assortments. Hundreds of Penney’s stores have been refreshed, with clearer, more organized presentations, less clutter and faster merchandise flow. When categories are presented together, for example, such as putting all blankets in one place, it’s easier to shop. Also, “associates appreciate that because they can replenish faster.”
For veteran consultant Emanuel Weintraub, who gave the opening remarks, rethinking retailing means striving to “stop the brain drain” and working to attract the best and brightest out of college, providing a platform for new designers and speeding the checkout process, maybe including self-scanning.
Saks’s Jones added: “I believe department stores are rife with opportunity. There’s a chance for someone to come out with a sustainable advantage.”
However, stores are confronted by “an abysmal” turnover rate, loss of pricing credibility and a difficult shopping experience stemming from poor staffing of sales associates, he said.
Saks’s strategies for improving the turn include growing private label to 15 to 20 percent of sales in the next two to three years, from last year’s 12 percent, and zero in 1997, Jones said.
He also said the company was putting in “processes for identifying new resources,” asking major vendors for exclusive products, and cited a need to edit collections and identify key items.
Saks also wants to develop everyday low pricing, getting rid of blanket discounting. Promotions will diminish but not disappear, and shift to focused events such as a “shoe spectacular” or a family sweater event, he said.
Also speaking was Sara Bamber, group account planning director at TBWA/Chiat/Day, and Mitchells of Westport president Jack Mitchell, who said that in these difficult times, “the most important thing is driving sales. I call it hugging the customer. Being customer-centric permeates every single aspect of the company.