California Apparel News

A presidential-election year in 2012. Unusual weather patterns for several more months. A Congress that can’t come up with a deficit-reduction plan.These are all issues distracting consumers from the shopping malls, said retail expert Marshal Cohen.Cohen was in Los Angeles recently to speak at the fourth annual “Economic Crystal Ball,” organized by the California Fashion Association.Cohen, chief retail analyst with The NPD Group in Port Washington, N.Y, was joined on the podium by economist Eugenio Alemaacute;n of Wells Fargo & Co., who predicted the U.S. economy won’t be making any significant strides until after 2013.The Oct. 13 event at the downtown Los Angeles City Club was hosted by Wells Fargo Capital Finance and sponsored by Avery Dennison. The speakers were followed by a panel discussion with Stuart Brister, chief executive officer and president of Wells Fargo Capital Finance, and R. Shawn Neville, group vice president at Avery Dennison.Kevin Sullivan, executive vice president of Wells Fargo Capital Finance, served as moderator. Cohen spoke of the metamorphosis of the consumer from a happy-go-lucky spender to a cautious consumer weighing the benefits and disadvantages of each purchase.“When consumers go shopping, they ask themselves a couple of questions: Do I really want this? Do I need this? How am I going to pay for it, and can I buy it for less?” he explained. “You have to make your product fit into this mindset of calculated consumption.”Innovation is one of the ways to make a product stand out, Cohen said. He cited the popularity of Skechers shoes that promised to tone your muscles, as well as the unlikely trendiness of those ugly Croc shoes. Cohen worked with Reebok to help the company improve its running-shoe sales by implementing new technologies into the company’s product instead of relying on its reputation as a comfort shoe. “Innovation is going to drive growth. It means that you have to adapt to the consumer rather than expecting the consumer to adapt to you,” Cohen said.Branding is another factor growing in importance. “We are headed into brand renaissance,” the retail expert said. “The consumer wants brands that have been around for a while and are not overly expensive. But it is not about producing a disposable product. ... Consumers want value at a price.”Cohen cited the successful partnership last month between Italian designer Missoni and Target. Missoni’s cheaper fashions for the discount retailer were so popular, the store’s website crashed the first day the collection went on sale.Consumer barriersSeveral issues beyond the high unemployment rate and economic uncertainty may slow down consumer spending.One of those issues is Congress’ upcoming vote in late November on a deficit-spending plan. A series of votes that put a Band-Aid on the problem went down to the wire and almost put the government in default.

In July, Congress spent weeks debating how to resolve the debt-ceiling issue with back-and-forth votes going on. On Aug. 1, the House finally voted 269–161 to raise the federal debt ceiing and slash the budget deficit. The bill raises the debt ceilling to just below $1 trillion along with a $917 billion spending cut. On Aug. 2, the Senate approved the bill on a 74–26 vote. Now a bipartisan committee has until Thanksgiving to find ways to cut the budget and have Congress vote on it.

“Consumers went into a spending cocoon for almost two weeks because of the government’s uncertainty,” Cohen said. The next vote is dangerously close to Black Friday on Nov. 25, the big shopping day after Thanksgiving.Also, consumers go on a spending hiatus whenever there is a major election year, such as the upcoming 2012 election for president. Weather is another issue that could play havoc with retail success. Currently we are in a dramatic weather pattern, Cohen said, which occurs about every 10 to 12 years and lasts nine to 14 months. He referred to the wave of snowstorms that created icy conditions last Thanksgiving in the Northwest, the Rockies and the Midwest and affected holiday shopping.Right after Christmas last year, a snowstorm blanketed New York City, Philadelphia and major cities in New Jersey with snowfall of between 12 to 32 inches. That hampered post-Christmas-season shopping. “We are in the seventh or eighth month of this weather pattern and will have continued weather issues that will change the way consumers spend,” Cohen said. “If people spend $500 for a generator and water, what did they not buy? They didn’t buy dresses, a new handbag or blue jeans.”Economic plateauIf weather weren’t enough, the economy isn’t expected to make a dramatic recovery any time soon.“We are in a transition from an economy that spent too much on the housing market to an economy that is going to be something else—but nobody knows what it is yet. ... The good news is we are closer today to a recovery than we were yesterday,” said Alemaacute;n, a senior economist at Wells Fargo & Co.But recovery won’t be coming soon. Alemaacute;n predicts the U.S. gross domestic product will inch up only 1.6 percent this year, 1.5 percent next year and 1.7 percent in 2013. That describes an economy that is barely making progress. In normal years, a healthy economy expands between 2 percent and 4 percent a year.Alemaacute;n doesn’t believe the U.S. economic recovery will be hitting any speed bumps with a double-dip recession. But he noted that the housing industry continues to drag on the nation’s economic welfare. “The housing market is going nowhere,” he said. “We have a supply of homes for the next five years. That means if we don’t construct one home in the next five years, we will get out of this.”The depth of the housing depression can be seen in places such as Nevada, where 60 percent of homeowners owe more on their houses than they are worth. In Arizona, that figure is perched at 49 percent. And in California, 30 percent of homeowners are underwater on their homes.Alemaacute;n believes it will take at least three years before the housing market starts to flex its muscle. Awash in cashDespite a slow economy, many corporations have seen profits with higher worker productivity. That’s good news for the corporations but bad news for workers.Instead of hiring, companies are hoarding cash in preparation for any unforeseen economic glitches down the road. “There is a lot of money out there, and nobody wants to use it until they feel better,” Alemaacute;n said. “Firms are doing this because they are so uncertain about the future of this country.”With businesses reluctant to hire, the U.S. unemployment rate of 9.1 percent won’t be coming down soon. “We expect growth to remain very, very fragile,” Alemaacute;n said.—Deborah BelgumPhotos from the event can be found here.