California Apparel News

Expect a stable economic recovery. Also expect that business will never be the same.

Those were two forecasts from “The Crystal Ball,” an assessment of the near future for the fashion industry and the American economy. The Oct. 8 event featured several business gurus, including economist Dr. Jim Paulsen, chief investment strategist for Wells Capital Management, and Marshal Cohen, chief industry analyst for market-research firm The NPD Group.

Sponsored by the California Fashion Association, Wells Fargo Trade Capital, FedEx and California Apparel News, the talk was held at the City Club at Bunker Hill, which is perched on the 54th floor of the Wells Fargo Center building in downtown Los Angeles.

The annual event delivered bad news in 2008 when panelists warned that that year’s holiday season would be marked by poor business and sales declines. For the upcoming holiday season, Cohen forecast sales would be given a boost by a post-holiday surge. This sales increase will be fueled in part by gift-card redemptions and retailers scrambling to restock their shelves after keeping inventories incredibly lean in the past year. Paulsen said the next couple of years might see a solid recovery marked by stable prices.

The event’s speakers offered optimistic forecasts during a time of modest and poor sales predictions for the 2009 holiday retail season. The Washington D.C.–based National Retail Federation recently forecast a 1 percent decline for 2009 holiday sales. The New York–based International Council of Shopping Centers forecast retailers would see an increase of 1 percent during the holiday season.

Paulsen said fear and uncertainty played a large part in the economic crisis that began in late 2008.

“What was outstanding about this crisis was the level of fear,” he said. “Our problem last year was indeed unemployment. People did lose their homes. But that wasn’t the biggest problem. The reason we fell so fast and so deeply was because our healthy players and our healthy consumers were so paralyzed by fear that they stopped doing any transactions. I call it the depression that wasn’t.”

The Dow Jones Industrial Average crossed the 10,000 mark on Oct. 14, which was seen as a rebound from the past year’s tough economy. Paulsen said an economic recovery will be solid for several reasons:

#9679; The federal government’s massive and unprecedented economic policy stimulus.

#9679; A corporate rebound: Businesses will be spending and rehiring in the upcoming year. Many laid off staff and cut inventory to prepare for bad times. Now they must produce to replenish old inventory.

#9679; A slow but steady increase in consumer confidence. Paulsen noted the Conference Board Consumer Confidence Index increased from a historic low of 25.3 in February to 54.5 in August. It dipped to 53.1 in September.

#9679; The housing and car sectors will not slow down a growing market as it has in the past two years. These markets are forecast to grow in the later half of 2010.

#9679; Domestic net imports are boosting real GDP growth.

#9679; Prices for mortgage rates and energy costs have stalled.

All of these points had Paulsen forecasting that real gross domestic product growth would average 4 percent in the next 18 months. It will benefit job seekers.

“I think by year end, we’re going to be creating jobs again. The seed corn for jobs is back, and that’s profits,” he said, using a farm metaphor to explain his projection.

Cohen, the retail analyst, forecast that the upcoming holiday retail season would treat businesses better than some had predicted. “Everyone is saying it is going to be a negative holiday,” Cohen said. “It is going to be the year of recovery.”

It will also be a year of change. Retailers will have to accept that the accelerated economic growth of the past five years will not return. “It was an abnormality,” Cohen said. “It did not exist in history. The future is growth rates of 2, 3, 4 percent. Slow, calculated growth is better.”

Cohen said that retailers will have to change the way they do business. “Retail as we know it, folks, is broken,” Cohen said. “Retail doesn’t work anymore. We’ve entered into a new era of consumption, where things are different.”

If businesses will opt for more-prudent growth, consumers also will not be as free spending. They also won’t open their wallets just because a sale is going on. “You’ve got to recognize that consumers want to get beyond price,” he said, suggesting that manufacturers follow the lead of electronics makers, who keep adding new features and applications to their products. “Consumers don’t want a one-dimensional product,” Cohen said. “They want products that will do a multitude of things.”

One such product is the smart phone. Smart-phone producers, such as Apple, have increased the prices of their product by 46 percent recently by consistently advancing the technology in their phones, he said. Apparel producers should follow their example by looking at why people buy clothes, then tailoring product features to support consumers’ reasons. For example, men exercise to gain muscle tone, while most women exercise to lose weight, Cohen said. He suggested that apparel producers design workout wear that can help consumers lose weight and gain muscle tone.

Asking the experts

The retail analyst also urged retailers to polish off their sense of showmanship and dramatic flair in a world of anything-goes fashion. “You’ve got to make the product real,” he said. “It’s got to be relevant, exciting and altering.”

Casting a deeper look into the future, Cohen said he was bullish on the direct-to-consumer market. Consumers are increasingly responding to direct to retail’s mantra of “Buy it now or miss out,” he said.

Factors, lenders and other companies supporting apparel retailers and manufacturers also will be going through a period of change characterized by technology, according to panel speakers at the Crystal Ball. The panel was moderated by Kevin Sullivan, executive vice president for Wells Fargo Trade Capital.

One speaker, Parshad Parekh, a corporate sales manager at FedEx, said many companies are seeking ways to improve supply-chain networks. The improvements will help retailers and manufacturers examine their inventory and make changes in their supply chain in “real time,” which would allow them to literally reshape their inventory on the proverbial dime.

Another speaker, Stuart Brister, president of Wells Fargo Trade Capital, said many factors and lenders are changing the way they do business and are creating new financial products.

Because much of the risk is shifting overseas, Brister said, financial institutions must build better ways of working with foreign institutions to fund business ventures.

Lending and merger-and-acquisition activity will find greater energy in the upcoming year, said Richard Anderson, managing director of Moss Adams Capital.

“The high-yield market is opening up,” Anderson said. “I wouldn’t be surprised if you’re going to see a lot of highly significant private deals playing out in the retail space as well as the wholesale market.”