NEW YORK — Factoring firms, companies that take on responsibility for a firm’s receivables for a fee, are saying the upcoming back-to-school season is shaping up to be a standout, as retailers prepare for the elimination of quotas and the uncertainty of a presidential election.
This story first appeared in the July 12, 2004 issue of WWD. Subscribe Today.
“The interesting thing this year is that it’s a transitional year for importers,” said Michael Stanley, executive vice president of Rosenthal & Rosenthal. “It’s unique this year because they’re running out on quotas. A lot of retailers want the goods earlier, to make sure their vendors don’t run into quota problems. That’s what I’m seeing.”
According to Stanley, in previous years manufacturers had the option of borrowing against quota limits from the upcoming year. However, with quotas being extinguished on Jan. 1, there will be nothing to borrow from. The possible implementation of protectionist measures on the part of the U.S. government could further complicate things, making it difficult to plan.
In order to avoid future problems, some retailers have been willing to sit on a little more inventory.
“We’ve had a couple situations, and we’re seeing more of it, where the stores are demanding that the goods come in early, because they don’t want to have a stock-out,” said Stanley. “Back-to-school is shipping now. We’ve encountered numerous situations of our clients asking us for accommodations to enable them to bring in the goods early.”
Steven Stone, executive vice president at Wells Fargo Century, said the larger trend, regardless of the time of year, has been for retailers to shun sitting on inventory. For the b-t-s season, this means later deliveries.
“What’s changed, I think in general, is the sequence of delivery. The retailers have pushed everything back to the importers or distributors. It’s up to those people to stockpile the goods and have them into the stores by July,” said Stone. “You can’t ship back-to-school stuff in May or June anymore, which used to be the case several years ago.”
The burden of inventory, said Stone, peaks several times throughout the year. The b-t-s season has increasingly been one of those peaks. “It’s a burden for everyone in the supply chain.”
Meanwhile, despite the dip in June same-store sales figures — 21 of the 50 retailers tracked by WWD posted declines, compared with 13 in May — retail analysts are optimistic about a rebound that will hinge on the b-t-s season.
“In the end, we did not gain much clarity on the upcoming fall/back-to-school season from June results; nor did we expect to,” said Wachovia Securities analyst Joseph Teklits in a report on specialty same-store sales for June. “But just about every retailer, whether their comp was disappointing or surprisingly good, is optimistic about the fall season.”
According to Teklits, sales results for July and August, especially for retailers catering to teen markets, will ultimately indicate who will be the big winner for the fall season.
Bear Stearns retail analyst Dana Telsey echoed this sentiment in her own review of June comps.
“Ultimately, July will provide insight as to whether the consumer has simply taken a spending breather or if the slowdown in June is indicative of a longer-term trend,” said Telsey.?“We believe that continued employment and wage growth, strong consumer confidence and moderating energy prices provide a compelling backdrop for a rebound in retail spending.”
The factors are equally optimistic, pointing out that June is traditionally a slow month. “The sense I get in the market is that things are strong,” said Jeffrey Kapelman, principal of Hilldun Corp. “June’s probably the quietest month in the year for shipping by wholesalers, and in terms of retail sales, it’s a quiet month also.”
While not a make-or-break type of situation for retailers, Stone believes some may have hurt themselves with too many sales events throughout the year.
“There are sales all year round now, and I think retailers have hurt themselves to some extent,” said Stone. “Nobody will go near a department store unless they think a sale is going on.”
Still, the season holds as much importance as it ever has. “There’s still an influx of customers at the end of the summer,” said Stone. They’re buying the same stuff they’ve always bought — a lot of clothes, school supplies and sports supplies.”
In Stanley’s view, the b-t-s season has only expanded its sphere of influence among retail management, so much so that it’s taking some of the heat off the holiday selling season.
“Even though the holidays are still the strongest season, we’re seeing that back-to-school is becoming increasingly important,” said Stanley. “You’re seeing holidays become less of a hurdle. At the end of the summer, people are getting back from vacation, and kids have to be outfitted for school.”
Another element overlooked, said Stanley, is the ever-increasing spending power of minors.
“Kids are responsible for controlling more and more disposable income,” said Stanley.
Stone also hopes this trend will continue. “Hopefully, there’s more spendable income at the student level,” said Stone.
“When I was going to school, you needed two pairs of jeans and two pairs of corduroys for the cold weather. There’s more diversity now. Maybe the kids are parting with more money, if we’re lucky, and I think they are.”