By: Glen Podhorzer
The economic meltdown is devastating the retail industry
Apparel manufacturers and suppliers of apparel, footwear and accessories
everywhere are also vulnerable. The author offers a wealth of guidance for
manufacturers and importers that are seeking to survive the recession -and even
emerge from it stronger.
On December 1, the National Bureau of Economic Research
declared that the U.S. economy had entered a recession in December 2007. The
announcement was anti-climatic, as the nation's retailers and suppliers of
apparel and other consumer goods have known or suspected this for a long time.
In fact, on December 4, 2008, it was widely reported that retail sales for
November 2008 were the weakest in 35 years, with same store sales falling on
average 2.7 percent vs. the same period last year.
However, department store sales were down 13.3 percent and
specialty apparel retailers were off 10.4 percent. Double-digit declines were
common, with one specialty apparel retailer reflecting a 28 percent decline in
same store sales. Against the economic backdrop of the financial meltdown,
credit crisis and drastic reductions in consumer spending, retailers and their
suppliers face their greatest challenges in decades. In fact, several already
have succumbed and filed for bankruptcy or are in the process of liquidating
(i.e. Mervyns, Boscovs, Linens N' Things). Many more retailers are expected to
file for bankruptcy early this year.
These conditions will continue to dramatically affect
suppliers to these retailers, in particular suppliers of apparel, footwear and
accessories. The realities of this recession will include:
- Significant
increases in bad debts and uncollectible accounts, negatively impacting cash
flow;
- Reduced consumer
demand and spending, resulting in decreasing sales;
- Reduced customer
base and fewer doors to sell into;
- Significant
increase in markdown money and allowances retailers will demand to help
mitigate weaker sales and increased markdowns at the retail level;
- Increasing price
and margin pressure as the retailer intensifies efforts to keep prices
competitive and enticing to the consumer;
- Inability to
obtain additional financing or credit lines to help sustain operations and
survive the recession, due to the credit tightening by lenders.
Faced with these conditions and challenges, what can the
apparel manufacturer or importer do to improve the chances, not only of
surviving the economic meltdown, but emerging stronger and more competitive
when the recession comes to a close? The answer is plenty!
Unfortunately, owners of small and medium-sized businesses
are often too caught up in the day to day operations to recognize or identify
corrective action or steps that can be implemented from operations, financial
and organizational perspectives. Therefore, it is more critical than ever that
owners sharpen their focus on critical business components, and the company's
operations and financials, to effectuate positive change to survive.
So what can the struggling apparel manufacturer or importer
do? Here are some areas for consideration:
Inventory
Because inventory is such an important component of the
apparel business, and likely the first or second largest asset on the company's
balance sheet, failure to control it will virtually ensure business failure.
Excess inventory has a direct and dramatic effect on margins, liquidity,
overheads and overall profitability. Old, obsolete or excessive inventory
levels must be eliminated or reduced to acceptable levels via improved systems
or realistic plans to reduce inventory through sales and distribution channels.
