California Apparel News

While brave medical professionals and emergency-service workers try to save lives, scientists work toward developing treatment options, and many professionals within the apparel industry are now creating personal protective equipment to shield those on the front lines fighting COVID-19, a world without the threat of the coronavirus might seem unimaginable. Yet preparing for the future is a key factor in regaining a sense of normalcy.

To guide our readers during this difficult time, we asked finance-industry experts, “What changes do you foresee in the United States apparel industry post COVID-19 in 12 months, three years and five years, and what steps do you think garment businesses can take to ensure they exist in this future that you envision?”

Darrin Beer, Western Regional Manager, Commercial Services, CIT

Until stay-at-home measures are lifted and retailers reopen physical stores, the apparel industry must focus on the need to manage expenses and vendor payments while preserving cash. It’s always prudent to be in constant contact with your factor and trusted advisers for up-to-date industry and retailer news.

The value of a secure and sound bank lender is particularly clear in times of uncertainty and disruption like this. When we understand our clients and their businesses well, we’re able to work with them as they adjust to fast-changing market conditions now and in the future. For example, we recently assisted a furniture client and an apparel client as they leveraged their supply chains to pivot to sales of protective medical masks in light of the current pandemic. This kind of agility, which supports the community and helps keep people working, will become increasingly important in this industry for the foreseeable future.

Mark Bienstock, Managing Director, Express Trade Capital

The apparel industry at both the wholesale and retail levels will never be the same post COVID-19. We will begin to see a shakeout of the weaker manufacturers and retailers. The move toward online sales with an inventory-fulfillment component will be more prevalent than ever.

Many companies across the apparel spectrum will receive some form of financial aid from the SBA as well as the state and local authorities. The key question regarding this assistance is the time frame. Many organizations have already been dealt a significant blow to their overall operations and balance sheets. Those entities that were diversified in the sourcing and product-related channels previously will have a better chance to survive this event and succeed in the future. The focus will be obvious at retail after the virus is quashed. Many retailers will begin providing shelf space for home and essential products in order to avoid a future concentration related to any one product. A very appropriate adage, “survival of the fittest,” will be the basis for the future of the apparel industry in no uncertain terms.

Sydnee Breuer, Executive Vice President, Western Region Manager, Rosenthal & Rosenthal of California

If your business wasn’t already heavily invested in e-commerce, then building out a direct-to-consumer infrastructure should be top of mind right now. Enhancing product availability online—and ensuring that those products match current consumer demand and need—is also critical. With most of the country now working from home, the demand for athleisure and loungewear has never been greater.

The aggressive stay-at-home and work-from-home directives and the forced closings of all nonessential businesses and retail stores have dramatically changed working environments in the apparel industry and beyond. With most of the industry’s employees now working from home or, with some of them, unfortunately, being temporarily furloughed due to store closures and declining business, it is imperative that business owners evaluate every detail and line item on their profit-and-loss right now.

In the coming weeks and months, executives will be making the hard but necessary decisions needed to sustain them for the long term. We will see significant changes being made to nearly every aspect of the business: Standard business practices will be reimagined, product offerings will be remixed to cater to changing consumer needs, the entire wholesale-distribution model will need to be rebuilt, staffing needs will significantly change, and so will our needs for high-rent office and retail space.

During this period of instability and unprecedented change, it is also important to recognize the silver linings popping up all around us in the apparel sector and beyond. Competitors are becoming collaborators, and companies are rallying together to do whatever they can to stop the spread and keep our communities safe. I’m hopeful that this realignment of business and personal priorities is something that continues in the next 12 months, three years and for many years to come.

Scott Carpenter, President of Retail Solutions of the Great American Group, B. Riley Financial

It’s difficult to speculate on what happens three and five years out. For the next 12 months, I’d say the biggest issue is getting the merchandise mix back in sync. All the spring product will not be sold, and winter goods may not have been cleared out. Summer goods that should be arriving now may not make it in for the summer season. My advice for survival would be to focus on a strategy for getting the season mix right for next year and Q4 of this year. Those that can do that will be well positioned for when this environment changes back to some level of normalcy.

Demand and supply chain will be the hardest to predict. We are currently going through a dynamic and hastened shift in the way and what the consumer may buy. This will be difficult for a fashion apparel buyer to align with in the short term. Spring and summer will be disrupted from both a supply-chain and demand perspective—it will be choppy. Back-to-school and the holiday supply chain should normalize, but demand will be difficult to predict. Other considerations include demand related to a shift in buying patterns by location—online versus enclosed mall versus strip centers—and demand related to product categories—luxury versus everyday apparel.

In the long term, demand uncertainty and disruption will also be impacted by the recent rise in unemployment. A new dress or pair of shoes may be lower on the list of things to buy for those who have to prioritize where to spend.

Gino Clark, Executive Vice President, Managing Director of Originations, White Oak Commercial Finance, LLC

I would like to recognize the apparel industry for being the first to take initiative and offer to make masks and gowns for our nation’s healthcare workers. In the near term, an apparel company’s emphasis should be on managing liquidity while maintaining critical employees, customers and suppliers. As the old saying goes, “cash is king.”

We encourage all companies to explore and take full advantage of all loan assistance programs offered by the SBA as well as economic relief programs offered by their state and local governments. We believe that most apparel companies will qualify for the newly created SBA-sponsored Payroll Protection Program, which will provide forgivable loans to companies with less than 500 employees.

As for the future, we expect to see productivity gains and improved inventory management in response to a changed retail market. We will also continue to see companies expanding their supply chain while accelerating the reduction of their reliance on China.

In the long run, I think manufacturing countries south of the border, especially Mexico, will have an opportunity to benefit from this supply-chain shift.

As we all know, retailers concentrated in a traditional bricks-and-mortar business model have been losing ground to those that have aggressively expanded into online sales, and the current crisis is accelerating this trend.

Weaker retailers, especially those with heavily embedded leases and occupancy costs, will have difficulty surviving; however, the retail shakeout will improve long-term market stability. We see those retailers with a strategic mix of select retail locations and a robust online presence as long-term successes.

Joshua Goodhart, Executive Vice President and National Sales Manager, Merchant Financial Group

First and most importantly, we at Merchant Financial Group hope that everyone is staying safe and healthy during this difficult time.

Cut any unnecessary costs. Reach out to suppliers in order to try to work out extended terms or negotiate a delayed-payment plan with them to ease some pressure. It is imperative to stay in active communication with retail partners so there are no surprises.

Having a good finance partner who understands your needs is extremely important. There are a bunch of governmental aid programs that could be a benefit to help with additional financial support during this time. Our Merchant team has made it our number-one goal to be involved and give guidance to our clients and to help in any way we can.

There is no doubt that the apparel business is going to change. Apparel wholesalers and retailers are going to need to have a direct-to-consumer platform in place. Right now, direct to consumer has become the premier way to shop. We think that this trend will continue even after this pandemic is over.

Wholesalers that are smart and have solid production, retail and financial partners will be very successful when this crisis is over and for years to come. We also believe there will be some interesting mergers-and-acquisitions opportunities.

In the future, we will see many businesses invest in systems to handle operations remotely. Manufacturers have to be completely prepared for any possible unforeseen problems that might occur. We believe that dealing with this pandemic now will make business owners smarter and more prepared for the future. Ultimately, we feel the apparel community will be better positioned to deal with problems and hopefully be more profitable than they ever have been before.

Rob Greenspan, President and Chief Executive, Greenspan Consult, Inc.

As I write this, I am hopeful and optimistic that over the next few months the virus will have been contained and under some form of control where we can all get back to the new normal life that we will be living in.

Over the next 12 months, the manufacturers and importers will need to review their operational structure to develop contingency plans should the situation arise. Companies should develop plans that allow employees to quickly move from working at their respective offices to working from home at almost a moment’s notice.

The fallout of retailers will have a direct impact on the survival of the manufacturer or importer. Look closely at your major customers and, if you have an economic dependence upon them, think about how you can possibly diversify.

The same is true for your trade suppliers. Don’t be dependent on any one major source of production or revenue. If they can’t survive a crisis, how will you be able to survive without them in business?

Over the next three to five years, apparel companies need to develop better risk-management and contingency plans. Those plans should include being able to have all of the company’s technology able to work remotely; employee plans for those you need to work full-time and those whose time might be limited to part-time or less; adequate insurance coverage, if available, to offset future losses; and of course alternative suppliers of product.

Lastly, and especially in times of crisis, stay as liquid as you can so you are not dependent on the actions and decisions of your lender. Have enough equity and liquidity in your company so you have financial control and are not subject to the decisions of someone else.

Robert Meyers, President, Republic Business Credit, LLC

Republic feels a tremendous amount of pride, compassion and empathy for the apparel industry going through this current period. Throughout all of the challenges and obstacles our industry is experiencing at the moment, we have extreme confidence in the resilience and perseverance of our industry.

Whether it has been depressions, recessions, port strikes or earthquakes, our industry has always found a way through by continuing to innovate and reinvent themselves. We have seen a tremendous short-term surge in face masks and other essential medical supplies. We have also seen a shift into serving the grocery, logistics and working-from-home constituencies in recent weeks. I don’t know what the apparel industry will look like in three or five years, but I know the entrepreneurs in the space will thrive, innovate and run through whatever obstacles get in their way. Good luck to all of our friends and partners during this storm. As they say, “this too shall pass.”

David M. Reza, Senior Vice President Western Region, Milberg Factors, Inc.

As this issue goes to press, we are still in the throes of the COVID-19 crisis, and the amount of infections, deaths and pressure on our first responders and healthcare providers has not yet peaked. On behalf of all of us at Milberg Factors we would like to extend our hopes that everyone in the extended apparel and textile communities is safe and healthy.

Unemployment nationwide will reach 15 to 20 percent according to some forecasts. It will probably be much higher in the apparel and textile industries. There has already been and will be a significant reduction in apparel/textile-related jobs both here and in producing areas such as Asia. As business picks back up, some will find that their jobs have been permanently eliminated.

When this crisis passes, there may be a temporary bump in bricks-and-mortar sales as people emerge from lockdown to both socialize and shop, but the trend to e-commerce will continue at a faster pace. On a more micro scale, those companies that were financially distressed pre-pandemic may not be able to weather the months of lost revenues.

With fewer retailers and potentially a 25 to 40 percent loss of revenue in 2020, apparel/textile companies will have to evaluate every aspect of their business.

When business ramps back up, companies will have to approach staffing and rehiring with a sense of caution. Often companies who have to reduce staff in a downturn find that they can manage the same level or even grow operations with fewer people when the environment improves. Inventory buys should be done based on specific orders or replenishment programs with speculative purchasing being eschewed. Allow for extra time to source goods as offshore vendors will have laid off their employees or closed down.

Kevin Sullivan, Executive Vice President, Western Region Manager, Wells Fargo

These are obviously unprecedented times that will require unprecedented measures. The first and most important step is making sure that everyone’s families and loved ones are doing all that they can to remain safe. Apparel companies will next need to assess what their critical monthly expenses are and ensure that those expenses can be met to get the company through a period where many customers are closed.

Most estimates would seem to indicate that we may be looking at closer to the end of May before companies can begin to reopen, but, clearly, no one really knows what the true timeline will be. Once a company has ascertained what their critical monthly expenses are, they need to work with their lender in presenting a cash-flow model that illustrates what those critical expenses will be.

In the short term, we believe that consumer demand in the back half of the year may be somewhat reduced, but much of that is dependent upon whether companies opt to hire back employees who have been displaced. In the long term, we certainly believe that direct-to-consumer models will continue to gain traction as the consumer becomes more accustomed to ordering product online. There will certainly remain a strong place for bricks-and-mortar retail within the marketplace, but we do believe that companies who can service both channels will continue to prosper.

Finally, it will be interesting to see whether companies begin to rethink globalization strategies. There is some chance that we may see some production begin to reemerge in the U.S., but that will still be heavily dependent on the ability to produce product in a cost-competitive manner for a consumer who will likely be very price sensitive as we emerge from this.

Ken Wengrod, Co-founder/President, FTC Commercial Corp.

The biggest change will be mindset. Learning to live with less. COVID–19 will alter the manufacturers’ and consumers’ way of thinking. From days of consumption to purchasing for necessity will eventually transition to a mindset of “because I want to” post COVID-19.

Instead of focusing on their image and appearance, consumers are obsessed with their cash and credit availability. Having essential items available is critical because they have to, “for safety.” Spending their money on nonessential purchases is a luxury they’re not thinking about.

Navigating the reality of the world we are living in takes a lot of fortitude and resilience. COVID-19 will condition consumers to be prepared when another wave or virus hits, triggering them to conserve their cash and credit, because they want to. Acceptance of a virtual world marketplace with the Internet giving them vision across the globe will be another change to come.

Manufacturers need to take note of the shift in consumers’ mindset based on the manner in which they are shopping. Technological ease and user-friendly experiences will be key. It’s likely this change in mindset could last for a long period of time. Five years is not out of the question.

Manufacturers should run their operations as a lean machine with low overhead. Utilizing appropriate software, such as cloud-based systems and 3-D design-and-merchandising applications to run businesses remotely as part of a disaster plan, is crucial.

Focus on supply chain. Keeping production close to home will in turn reduce idle time for shipping and logistics. Finally, less emphasis on manufacturing costs and more energy needs to be spent on the ability to reduce unnecessary overhead, size/location of their premises, staffing, reduction of excess inventory and sampling.