Retailers Overhaul The Way They Do Business

Buyers are not buying like they once did and retailers can no longer run their business the same way they did as recently as several months ago.

Retailers are making drastic changes. They are cutting out marginal suppliers, hiring outside experts to keep inventory lean, and making efforts to satisfy the customers they do have.

They are worried that shoppers may not start spending much again for a while. The upside is that retailers’ problems may be mostly good news for buyers. The downside is that buyers who want something unique may have to look harder. Retailers are getting rid of offbeat, unpopular colors and styles, which will mean fewer choices for buyers.

As nervous consumers have stopped shopping, pricing goods within their financial reach has become a big focus for retailers. According to the International Council of Shopping Centers, November and December same-store sales fell 2.3% year-on-year. The worsening retail sales slump in January has the industry worried about the next few months.

Many retailers are cutting inventories and slashing their expenses. They are navigating new territory, predicting that the fundamental shift by consumers to spend less and save more will linger. The biggest unknown is when or if buyers will ever resume spending the way they did when the housing market was booming, credit was easy, and jobs were more plentiful. Now, buyer frugality seems to be more important.

Many brand owners and retailers are consolidating or eliminating some of their suppliers and are focusing on serving their best customers. However, weaning their customers off of discounts is a big challenge for the retail industry, as buyers have gotten used to them.

For the last couple of years, many of the nation’s best-run retailers have been reducing inventories in response to the consumer spending slowdown. But no one anticipated the severe retrenchment that hit in September as the financial meltdown ravaged shoppers’ retirement accounts, reduced credit availability, and resulted in massive job losses.
As shoppers simply stopped shopping, stores were forced to discount as much as 75% off in some cases even before the official start of the year-end holidays – resulting in the weakest season since at least 1969.

With no sign of the economy improving during the 1st half of 2009, retailers are preparing for times to get worse. Those who have survived are facing battered fourth-quarter profits and are slashing expenses and hoarding cash. Apparel retailers are cutting inventory by 20-30% for the summer and fall seasons.

But it’s just not about slashing the merchandise inventories they carry. Some retailers are turning to outside specialists in areas like sourcing and currency hedging to reduce the impact of volatile foreign exchange rates. They’re working with suppliers to reduce the time it takes to produce an item. And they’re trying to understand the new mindset of shoppers, scrutinizing the products they offer to see whether the prices and quality meet the new standards from consumers who are questioning the real value of things.

Apparel suppliers say they have noticed the difference in recent weeks as the buyers for big chains visit their showrooms to order for fall. The big chain buyers want eye-catching pieces that have longevity – and nothing too radical. They are buying styles with staying power. Previously, they have been buying one color in multiple styles, now they will be buying multiple colors in one style.

For now, retailers need to help shoppers “open their pocketbooks” and keep the economy rolling.

Welcome to SPESA’s blog.

This is the first of several posts about the recent IAF World Apparel Convention in Maastricht, The Netherlands. A delegation of SPESA members participated.

International Apparel Federation (IAF)
World Apparel Convention
October 28-31, 2008
Maastricht, The Netherlands

The very historic city of Maastricht hosted convention delegates from thirty-four countries – including quite a few SPESA member delegates. Maastricht was the site of the founding of the European Union (Euro) in 1995.

Ludo Onnink, COO & CFO of the Tommy Hilfiger Group traced the history of Tommy Hilfiger moving from a public company to a private company. Hilfiger’s is a story about meeting and not meeting consumer trends in the U.S. market. The story today is one of growth and one of being prepared for changing consumer trends. Hilfiger is now a diversified, globally integrated business driven by Europe and North American retail sales with a uniquely balanced, diversified business model and a global, widespread distribution network. The Tommy Hilfiger Group has morphed into a premium global lifestyle brand with a very strong brand portfolio that includes: Burberry, Lacoste, Gant, Nautica, Polo, Hilfiger Denim, Tommy Hilfiger, Diesel, Guess, Replay, and Puma. Ludo Onnink finds today that global brands do not die and flexible organizations succeed. Corporate Social Responsibility (CSR) really matters to the Hilfiger Group and brands are seen as being responsible for all value chain activities … even if the activities are based on rumors or untruths.

Bill McComb of Liz Claiborne laid out the four eras of the evolution of Liz Claiborne. He also described the economic anxieties of ”The Consumers NOW” along with their needs vs. wants – but not altogether rational and practical. What’s happening in fashion right now is self expression, casualization, extended value, and contemporary dress across all age groups. Today there is a fundamental attitude shift among consumers. How will the economic ruin and ‘asset reset’ affect attitudes about luxury, overt spending, brand labels, and consumption? McComb stressed that in today’s economic climate we must all challenge the assumptions that we hold to be true.  He predicts a “backlash from below.” The young generation believes that the “boomers” lived selfishly, callously for the moment, without regard to the future. We will all be facing new issues: real and attitudinal limits on credit and spending, authenticity, waste avoidance, and ruthless sources of opinions and influence by way of 24-hour mass communications media.

Emily Riley of Nike described how the new generation of consumers will shape the fashion business. They are socially active consumers and control the dialogue. The digital world has granted each individual greater power to voice their thoughts & opinions and most importantly to influence change. Through social networks consumers are controlling the dialogue that was once controlled solely by the media and the corporations. With the power of online networks, blogs, and social sites one person can have a massive influence. The influence to rally a million people to a public protest, or the power to influence what others think and and how they behave. They are an influential group – 66% will recommend products or services if a company is socially responsible. 81% have volunteered in the last year. They expect corporations to go beyond pure community investment and actively facilitate connections between them and relevant causes. It’s not just about giving money away. The experience of actively participating is a very strong and personally enriching experience. They have high expectations. They expect and demand that corporations engage with relevant social and environmental issues. 89% are likely or very likely to switch from one brand to another (price and quality being equal) if the second brand is associated with a good cause. They’re growing in size & influence. Sixteen million in the U.S. alone. Being socially active is becoming a cool lifestyle choice.

Peter Ingwersen of NOIR.Illuminati II asked: “What do teenagers think?” 85% of today’s teens believe controlling where they spend and invest their money will allow them real influence. 70% will refuse to work for companies that do not behave ethically (71%) or harm the environment (79%). 75% aim to run a low-carbon household, and drive eco-cars (46%). 54% will spend and invest their money with companies that behave ethically. Today’s teens will be the most socially-conscious generation of consumers yet, who are also very aware of the power of the Pound/Euro/Dollar.

Han Bekke, General Secretary of IAF, concludes that: “The linear relationship between design, quality, and price has been completely lost as consumers today are faced with a vast array of choices when it comes to buying clothes. The internet, blogs, and the phenomenon of urban ‘tribes’ are already causing fundamental changes in how consumers perceive fashion.”