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Holiday Aftermath: Vendors Stay Lean, but More Shakeups Ahead

NEW YORK — Vendor caution will limit the damage from the poor holiday season, but it won’t stop more consolidation in 2003.Most firms...

NEW YORK — Vendor caution will limit the damage from the poor holiday season, but it won’t stop more consolidation in 2003.

Most firms will feel the pinch and some will fall in the aftermath of the worst holiday retail season in 30 years, according to Seventh Avenue executives, who are prepared to dole out markdown money to share the burden of lost sales.

What will ultimately save the season from disaster is the silver lining of good planning. Stores and vendors weren’t thinking big gains and they kept a tight lid on inventory levels. This will allow for fresh buying sprees from stores this year and won’t leave vendors looking to dump dead merchandise.

Vendors that are well entrenched at the designer and bridge end of the business considered themselves to have dodged a bullet through the harsh holiday selling season due to a combination of lower inventories of fall merchandise, already dramatically marked down by mid-December, sitting next to new arrivals from their resort collections marked at full price.

Roger Farah, president and chief operating officer of Polo Ralph Lauren Corp., said: "Everybody went into the holiday season very cautious. Last fall, because of Sept. 11, there were a lot of goods around and everybody promoted.

"I think inventories are pretty clear and pretty in line. There will be a nice flow of fresh product going into the stores. There was a lot of promoting at Christmas. Margins will be under pressure. It’ll be a very introspective time for retailers, who will be thinking, ‘what do we do next year?’"

Gordon Finkelstein, president of Tocca, said: "Most importantly, it’s been a difficult environment since spring 2001. As a result of that, retailers overall have been cautious for several seasons and that strategy has paid off for them with dividends at their inventory levels. It’s been a difficult holiday season and it’s tough, but they’re not sitting with the high inventory levels they would have coming out of a real boom. They were not as hurt or stuck as they might have been."

Robert Duffy, president of Marc Jacobs, said: "We started getting inventories in line at the end of 2001. We weren’t in an overbought situation and our inventories are in line for both the fall and resort ready-to-wear seasons. Our sell-throughs have been very good."
Similar reaction came from larger volume firms, which are more likely to be able to ride out any storm and might rescue some smaller firms through an acquisition.

Peter Boneparth, chief executive officer and president at Jones Apparel Group, said: "While this has obviously been a difficult season, the consolidation that began in this business, irrespective of this season, will continue. Even if this was a great season, there were certain things that would make continued consolidation inevitable.

"Like you see in every difficult season, there will be a number of small firms who call it quits. The paradox is that while retail results have not been stellar, for the most part, the major retailers are in excellent financial condition because they’ve done a good job at managing their inventories. So from our perspective, we don’t see any major near-term problems on the horizon. Obviously, should sales continue to deteriorate, credit concerns will become more of an issue."

Gregg Marks, president of Kasper ASL, said: "The suit business is one of the better businesses at retail today. I’m not feeling any impact at this point. We did OK for December. The category that was weak for us was the whole social-occasion area. The classic suits that were good value, and you can wear more than one time, were excellent."

Marks believes there already has been a lot of consolidation among companies and believes there will be constriction among divisions at firms.

"Stores are looking how to control expenses and inventories," he said. "The fourth quarter of 2001 was lousy. Everyone’s controlling their inventories."

He said the company’s inventory is "on plan." As for future orders, Marks said: "Stores are coming in the next two weeks and nobody’s telling us of any plans to cut."

The firm has reintroduced Kasper Sportswear, and since better sportswear has been a tough market, it presents an opportunity for new vendors. He noted that the Albert Nipon bridge rtw line is on plan and evening separates are being added for fall.

Hal Upbin, Kellwood Co.’s chairman, ceo and president, said he doesn’t anticipate major impact or fallout based upon the recent holiday selling period.
But, "out-of-the-door pricing continues to be under tremendous pressure," Upbin said. "Retailers do look to the most recent season, which is a factor. I think January will be helpful. At least, the good news is that the inventory is much more in balance, which would allow these open-to-buys to be more normalized."

Upbin doesn’t think retailers are in jeopardy because of the poor retail season. He said, "I can’t see any major retailer really going out or having to regroup in a major way because of it. I just don’t see it on the horizon."

Still, the climate will be more difficult with regard to markdowns and allowances following the holiday season, he said.

"We’ll do what we’ve been doing, keeping lean overhead, inventories in control and just sharper sourcing," Upbin added. "We’re staying the course. That’s what we’ve been focused on the last two years and we’ll continue that."

Andrea Scoli, executive vice president of Laundry by Shelli Segal, said mergers and acquisitions will most likely not be accelerated by the current market climate, but will occur nonetheless.

"That type of business strategy has become the main objective for large-scale Seventh Avenue firms in general and when you look at the giants like Jones, Kellwood and Liz Claiborne…their strategy is to buy companies," said Scoli, whose firm was acquired by Claiborne in 1999. "I think that makes it tough for small guys and it has changed so dramatically in the past five years."

Concerning inventory levels at retail, Scoli said department stores may have less inventory on paper, but she doesn’t find that floors look empty in the least.

"Have you walked into a store lately and asked yourself where the merchandise is?" she asked. "Have you been to Bloomingdale’s lately?"

George Horowitz, president and ceo of Everlast Worldwide, described business as "pretty good," even though some stores have pushed back spring orders.

"Where they did do business, prices were so low that it wasn’t good for anybody," Horowitz said. "Of course, vendors have to share in that [discounting], but sometimes in an unfair way."
Manufacturers that do most of their business with department stores will struggle and face aggressive chargebacks, he said. "Some vendors will walk away from department stores and look for other places to do business," Horowitz said.

In the jeans category, where sales growth had started to slow early in the fall as the category began to cool, executives said the limp holiday shopping season has left them a little antsy about spring retailing. Some executives said conversations with retailers about margin payments that typically happen in January had started last month, though many contended that they had planned conservatively for the season and didn’t expect to get hit with markdown requests.

"We came close enough to our plan that we didn’t expect a major effect in the first quarter from the holiday season," said Gordon Harton, president of Lee Co., the Merriam, Kan.-based division of VF Corp. "We were disappointed because we missed our overall plan slightly based on our expectations and retailers’ expectations. But we feel like we outperformed most other brands in our category and do not see major fallout."

He said the brand’s plan had been for high-single-digit percentage growth in its sales of women’s jeans. While it missed that mark, overall November and December sales were still up, he added.

Harton said he wasn’t expecting heavy conversations about making up lost margin points for one simple reason: "We don’t deal in margin-support dollars. We basically make sure we offer the product at a price so we can deliver value."

However, he acknowledged it’s likely that retailers are tinkering with their spring merchandising plans. "Overall, I’m sure they’re doing that to some degree because they have to respond," he said.

At New York’s Warnaco Group Inc., John Kourakos, president of sportswear, said the firm’s Calvin Klein Jeans business had felt the holiday slowdown, but still held on.

"We certainly felt the negative impact of the fall pressure, but we nevertheless made respectable increases," he said.

The company’s women’s jeans sales, which had been up 15 percent in the spring season, saw their sales growth cool to 4 percent for the back half of the year. Sales of Calvin Klein women’s innerwear held steady through the year, with overall sales up 17 percent.
Asked if he expected retailers to pressure the company to make up for their holiday markdowns, he said, "Not any more than the usual, which is enough pressure. I don’t need anymore."

He said he was "confident" that retailers would stick with their spring buying plans for women’s, though he acknowledged that heavy inventory buildup in the men’s market might make that area more vulnerable.

"On the women’s side, the inventory levels are relatively acceptable," he said.

Accessories and jewelry generally fared better than other categories during the difficult holiday selling period. Nonetheless, vendors in this sector are feeling the pinch so far this year and are expecting more difficulties ahead.

Abe Chehebar, chairman and ceo at Accessory Network, said there will be challenges this year and noted that he has already been contacted by several small vendors for financing or to be bought out.

"Needless to say, the ripple effect from retail carries through to the vendor," Chehebar said. "There have already been many vendors with difficulties, even before the disappointing holiday. This will make it a little bit worse."

Record retail markdowns will likely result in added support on behalf of the vendor, he said.

"Retailers will have to move inventory that’s on their floor to make room for new merchandise," Chehebar said. "One of the good things is they’re aggressively cleaning up the shelves for new merchandise."

Chehebar said he expects retailers to be more cautious with their buys to better manage inventory.

"They are buying closer to the ballot and quantities that are less aggressive," he said. "By watching their inventory levels, they get into less trouble and it’s all about watching inventory levels at this points."

Cynthia O’Connor, president of the accessories and apparel showroom bearing her name, said: "Stores are buying very safely and people are keeping inventories as low as they can. Vendors are having to project stock and lay out more cash up front for anticipated reorders. I have never had such a strong business of reorders.

"We had a lot of payment troubles during the holidays from across the retail spectrum, which is affecting vendors in terms of their cash flow. Going forward, I think vendors have to plan more to protect themselves. I do expect to see some companies go out of business, which is good in a way because the market can get flooded."
James DeMattei, owner of the ViewPoint showroom, which represents La Nouvelle Bague, Robin Rotenier and other jewelry brands, said: "Everyone is looking to pass the burden and push the cost of holding inventory back to the vendor. Many firms have jumped into the jewelry industry in the last seven years and not all of them will make it.

"A lot of new vendors, both domestic and foreign, that lived through the exciting Nineties didn’t save for a rainy day and those designers will be challenged to maintain their business. Especially in the precious jewelry industry, where there are a lot of entrepreneurial companies and margins are as thin as they are, I think there are going to be a lot of changes. I expect the vendor structure will shrink and we will see more consolidation."

Helen Welsh, owner of the eponymous showroom, said: "Many stores aren’t able to invest in newer brands. Buyers are so tied to people guaranteeing margins that they don’t have flexibility to bring in newness. Most stores were very conservative in placing spring and are only now finalizing and updating their spring buys. Many stores still have plenty of inventory. There is still a lot of merchandise out there. But the days of stockpiling are over. People buy closer to need and are more conservative from the get-go."

Meanwhile at Wolford America, spring orders have exceeded expectations and are up in double digits against last year, said Maria Basquil, national sales manager.

"The business was tough for Christmas," said Basquil. "It was the overall economy, the short Christmas season, bad weather and talk of war. Stores are asking for markdown contribution and we will look at it case by case and see where we can help."

For spring, she said, some stores will be keeping lower inventory levels. But, she warned: "If you don’t have inventory you don’t have sales. You need to replenish to keep business alive."