California Apparel News

BONITA SPRINGS, Fla.—Credit makes the apparel and retail world go round, and a lack of credit is playing havoc with the industry.

“You have a banking system that is frozen,” complained Carol J. Hochman, chief executive and president of Danskin, the New York maker of dance, yoga and activewear whose parent company is Triumph Apparel Corp. “A lot of banks are no longer interested in the apparel industry. And factors are getting tougher.”

When one of Danskin’s major accounts hadn’t paid its bills recently, Hochman and her colleagues had to really think twice about whether to ship to the large retailer, which she didn’t want to name.

Hochman was in Florida attending the annual American Apparel & Footwear Association’s Executive Summit. The economy was on everybody’s mind at the March 11–13 meeting, which took place at the Hyatt Coconut Point Resort. There were lectures on leadership, the Obama administration and its challenges, as well as foreign policy and whether trade protectionism would be making a comeback.

Yet, on the sidelines, credit was another popular topic. For apparel manufacturers doing business with overseas factories, credit has become extremely scarce. One California manufacturer who produces in overseas factories said he is financing his production more than ever. “You can see how weak the banking industry is in the Far East,” said the manufacturer, who requested anonymity.

Sourcing companies such as Li & Fung are seeing factories reluctant to extend open-account terms to retailers and importers based on the current credit environment and their experience with the various bankruptcies.

“Financing is becoming trade financing, starting with yarn suppliers giving credit from supplier to supplier,” said Rick Darling, president of Li & Fung USA in New York.

While thousands of apparel factories have closed in China, many are consolidating. Rick Helfenbein, president of Luen Thai USA in New York, said that consolidation may help factories cope with manufacturers’ and retailers’ demands for lower prices. “There is pressure by U.S. retailers to gain margin,” he said. “If less product is going to be sold, they need to make more money, which is causing a lot of factories to re-engineer and take on lean manufacturing, better cost management of raw materials and have product spend less time on the floor.”

For Tom O’Riordan, chief executive of American Sporting Goods Corp. in Aliso Viejo, Calif., 2008 was a challenging sourcing year, with skyrocketing fuel prices and rising freight rates, taxes on certain exports, and an increase in the Chinese currency’s value. “The thin margins were killing us,” said O’Riordan, whose company makes athletic shoes under the Avia, Ryka and Apex brands, among others. “Since the recession hit, we’ve seen the Chinese currency stabilize, and freight charges have come down 50 percent.”

With retailers facing hard economic times and the tough credit environment, American Sporting Goods is being wary about which stores to sell. “There are still stores on the watch list,” the athletic-shoe executive said. That list includes highly leveraged retailers as well as those owned by private-equity groups.Working smarter and harder

Retailers may be having a tough time, but maybe this is the right opportunity to reassess your business and change, said Marshal Cohen, a former merchandise manager at Bloomingdale’s and now the chief industry analyst for The NPD Group in Port Washington, N.Y.

Because of false wealth based on subprime mortgages, people who barely had jobs were spending like millionaires. People who normally shop at mid-tier had discovered luxury goods.

“Retail is bloated. Retail needs to go on a diet. Do we need another mall on every exit of the 405 [San Diego] freeway?” Cohen asked. “Being successful sometimes means being smaller or slower or cutting back. That is all part of being an innovative company.”

Innovation is one of the major keys to success right now. Cohen, who visits scores of malls every month, pointed to the success of Apple Inc., with its iPhone and Apple stores. “Almost everywhere I went, Apple was busy with people of all ages, all income levels in the store,” he observed. “Apple is changing consumers’ lives.”

The fashion industry needs to do the same thing. “We have reached a time where we need to have product so innovative and forward-thinking that it gets people excited,” Cohen said. “If you want to grow, you must think of dramatic change.”

Fashion used to be about change, too. “Remember when short skirts were in and long skirts were out?” he asked. “Today you can wear long skirts, short skirts, pants. We have lost the element of change. There is no fashion trend that is so big that the consumer says, ’I have to have it.’ Consumers can wear clothes from three years ago and be fine.”

To recuperate from the recession, retailers need to wean consumers off steep discounts in merchandise, Cohen said. To do that, they will have to recalibrate supply and demand.

He pointed to Nintendo and its holiday merchandising plan for its Wii gaming console. For the holiday season, Nintendo limited the amount of products made available in the retail environment. “And then on Dec. 23, what was available but Nintendo Wiis? They are creating demand by keeping the supply limited,” he said.

Advertising beyond price and making merchandise compelling is another way to improve business. “Conservative times do not call for conservative product,” he said, noting that retailers such as Gap Inc. are bringing back a rainbow of colors for Spring.

For Deckers Outdoor’s ambitious expansion plans, click here.