Eric Wiseman, Wesley R. Card and Emanuel Chirico — chief executive officers of companies with combined revenues of $14 billion — had strikingly similar assessments of the consumer psyche.
Shoppers may be more conservative, but the executives said their core consumers are basically the same as they always were.
The same could be said for Wiseman’s VF Corp., Card’s Jones Apparel Group and Chirico’s Phillips-Van Heusen Corp., which spent the last year of the recession operating with more stringent expense controls and less inventory as unemployment shot to a 26-year high of 10.2 percent.
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Even though these companies have each reported slumping sales and earnings this year, they are sticking to their roots and preparing to step out and acquire new businesses.
Thes companies grew to prominence by snatching up competitors and layering on new lines of business. Gaining scale, building cash and then doing it again. That cycle, which slowed as valuations rose but virtually stopped as credit markets tightened could be ready to begin anew.
“This is really the best time to be making acquisitions,” said Card who, like Wiseman and Chirico, was upfront about his company’s ambitions during a round table discussion moderated by WWD editor in chief Edward Nardoza.
Card pointed to research showing some of the most successful deals were made right after the last recession in 2001, when businesses came with lower price tags. “During the heady days, the valuations get so high, acquisitions don’t seem to work so well,” he said.
PVH is on track to accumulate $400 million in cash by the end of the year, and Chirico said companies as big as his can only grow by taking market share from competitors or by purchasing businesses.
PVH is trying to do both.
“The cash — I’d like to use it,” said Chirico, who would prefer to chase bigger deals rather than smaller ones. “Instead of buying back stock or paying down some debt, I’d much prefer to use it to make the right strategic acquisitions.”
Wiseman said VF purchased 12 companies over the last nine years, and although the company has not cut a deal this year, it hasn’t been for lack of trying. One key hurdle appears to be selling prices.
“For us, as public companies, you can’t overpay,” Wiseman said.
But the three cannot afford to focus all their energies on the delicate M&A dance. They steer huge fashion businesses — from VF’s factories churning out 400,000 units a day in the Western Hemisphere to Jones’ 948 stores and PVH’s Calvin Klein licensing business, which has annual royalties of more than $200 million. The challenges are greater than ever, with the economy trying to climb out of recession, the traditional department store landscape changing and social media making its mark.
Uncertainty is still the buzzword.
“My crystal ball for the next three months, I feel good,” Chirico said. “After that, all bets are off. When we start really planning for spring, we’re cautious on our buys, but we’re trying to convince our retail partners and our own stores to plan the business flat to up going forward next year.”
Card said sales would not be the key measure of the holiday season.
“What’s critical is that the balance is really there between supply and demand,” he said, adding that inventories would be tighter, profits and gross margins would be up and cash flow would be improved.
And he suggested the industry was on its way to a better balance overall, after years when the increasingly promotional environment at retail ate into profits.
“How did we all drop inventory so much, slash expenses, get supply in balance with demand and perform so well?” he asked. “How do we keep our eye on that ball so we see these things developing?”
Questions like that, coupled with the experiences of the recession, could translate into a more efficient industry.
“I think we learned, permanently, that we can operate with less inventory than was in the system before,” Wiseman said. “We’re going to learn it’s smart to run the businesses with less inventory.”
But for all the talk of the upheaval wrought by the economic downturn, the consensus was that shoppers are going to more or less stay the same, even if they have pulled back.
“I don’t think consumers have fundamentally changed,” Wiseman said. “I think there’s a confidence issue.”
For shoppers, that translates into trips to stores they trust and a focus on goods that meet their own definitions of value.
When consumers are able to look past rising unemployment and the next mortgage payment and see value, as in a look both practical and fashionable, they are willing to spend.
“We can’t keep women’s boots in stock,” Card said. “They’re just blowing out. Does anyone know why we’re in such an incredible fashion cycle? They’re…buying boots like there’s no tomorrow. When they see an item that they want that’s on a fashion trend, it’s selling.”
Boot sales alone might not pull the industry up, but the impulse driving those sales indicates there is still fire in the consumer when the product is right.
“Nothing ever really dies or changes that permanently in human behavior,” Card said.