Expert Advice: Danny Paul

Veteran specialty store consultant Danny Paul discusses what’s working, what’s not and what’s next. 

Danny Paul has more than three decades of retail sales and management experience, including owner of three apparel stores in southern California and president/CEO of RMSA (Retail Merchandising Service Automation) for 12 years. He’s now chairman of Retail Communities where he brings together quality menswear merchants to share insights and experiences; he also does private consulting. Here, we pick his brain on how independent menswear stores can compete and prosper.

Let’s start with product: what are some of the bestselling (and most profitable) menswear categories these days?

By far, among better luxury merchants, the biggest change in the business is the growth of made-to- measure. Between MTM clothing and custom dress shirts, it can easily represent 15 to 40 percent of the business and it’s still expanding. It used to be that MTM garments were for hard-to- fit guys but today, it’s the hottest single element in menswear.

Why is that? And why would retailers want to grow a business that will adversely affect their regular clothing volume, which has been their mainstay?

Retailing is entertainment and MTM allows the customer to get involved with creating his own look for the same money a better off-the-rack suit would cost. Few consumers buying luxury apparel need a new suit; they buy out of desire. And these guys don’t mind waiting for it, especially since there’s nothing all that compelling hanging on the racks…

You’re right that increased MTM adversely affects sales of nested suits, but with no inventory and no markdowns, it’s a much more profitable business. Retailers just need to reduce their suit inventory accordingly and with so many swatches available in custom, the customer actually has a broader selection than they could ever have off-the-rack.

What should retailers be doing with all the space they’ll have available from not carrying suits?

Displaying a sea of suit sleeves in dark colors was never a great way to sell suits anyway. The way to show suits is using face-outs or T-stands with exciting shirts and ties. Stores need to get more imaginative. And the more they reduce stock, the more imaginative they need to be.

Any other hot categories of late?

We’ve had three fantastic years of strong sales in woven patterned shirts so I’m holding my breath that this will continue. Stores are also doing well with more unique and interesting pants and of course fashion denim and unconstructed sportcoats.

All of which you think will continue into 2007?

I’m a little concerned now because menswear business goes in cycles. I’ve been tracking it since I was 15 years old and three or so good years is about as good as it gets. The other reason I worry is because unlike women’s wear, menswear business follows the stock market: guys see it as a barometer so the minute the stock market wavers, they get a little spooked.

So what should retailers be doing?

They need to keep their house in order and control their inventory. Inventory management is like dieting— you’ve got to do it all the time for it to be effective. That way, if business softens, you’ll still be okay.

The menswear industry is often accused of being boring; do you agree?

Retailers cannot buy what they don’t see in the market so if stores are boring, it’s mostly because the market may be boring. I agree that much product out there is kind of stale but markdowns are a big concern for vendors as well as retailers so they are taking less risk.Which is why they too are happy with increased volume in made-to-measure.

Any other hot items?

Believe it or not, neckwear is doing well. In many independent stores, the neckwear volume equals or exceeds their suit volume. When clothing doesn’t change, guys buy interesting shirts and ties.

What’s the biggest challenge for specialty stores these days?

Getting customers through the door. It’s one of the biggest changes in the business. In the old days, you’d buy good looking merchandise, you’d advertise it, and the traffic would follow. Today, you’ve got to be doing something exciting every month, if not every week. Trunk shows, charity events, whatever: retailers have to be proactive and customers have to be reminded. But bottom line, customers like to be contacted and it still stimulates sales. Especially charity events: people like to feel that they’re helping a cause. It’s no longer about offering a percentage off: better customers don’t respond to that. The only exception being the “no sales tax” promotions: for some reason, although it’s only seven percent or so, customers go for it even while ignoring 20- or 30- percent off coupons.

Any marketing moves that are proving successful?

Few specialty stores can afford newspaper, and direct mail has also gotten pricey so more merchants are using e-mail which is less expensive and can be sent frequently. Radio is also an effective tool, especially a controversial talk show since people spend a lot of time in their cars.

If you had to single out the most important thing specialty stores can do to survive, what would that be?

First of all, the number of independent specialty stores is a tenth of what it was 20 years ago so the stores that are left are already survivors. But in this increasingly challenging environment, for stores to be here 20 years from now, they need to get better at everything. It’s not enough to be a better merchant or marketer or seller, they’ve got to crank it up at every level!

As for one key survival tip, I’d say stay within a budget. That’s been difficult for retailers for the past 100 years and it’s still difficult today.

What are some of the financial parameters you use as guidelines?

Rent should not be more than seven percent of sales and that’s where many stores are getting in trouble today. Compensation for sales associates should not exceed 10 percent of sales: if a salesperson is earning more, they’d better be doing something in addition to selling. Total payroll should be no more than 21 percent and that includes selling, alterations and management. Advertising expenses are averaging around two to four percent. The goal is for total expenses to be 42 to 43 percent: with a 60 percent average markup and 20 to 25 percent markdowns (which is a pretty clean business), that would mean six to eight percent profit margins which is acceptable. Many stores however are getting more: I believe that 10 percent profit is very attainable today. Of course that’s on paper and if you don’t turn your inventory, you won’t have cash profit. You’ll have paper profit which is good for the ego and uncle Sam, but not good for the owner. You have to turn goods to have access to the cash and I believe men’s inventory should turn between two and three times a year. One secret to that is made-to-measure clothing. In the old days, with off-the-rack clothing, this kind of turnover was not commonplace.

Another thing that’s improving turn today is a new widespread availability of goods. For example, there are companies that deliver dress shirts eight or nine times a year, which is unprecedented. So in that sense, if retailers can’t make it today, they’ll never make it.

You’ve said that expenses can sometimes be too low: how is that possible?

Well, you don’t want to spend too little on something if it undermines your opportunity to grow the business. So if your advertising expenses are two percent or you’ve got a great lease and your rent is only three percent, take that money and do something with it!

If you’re so smart about specialty retailing, why aren’t you running your own menswear store?

Maybe because I’m smart… But seriously, I bought into a menswear store at age 18 so by the time I turned 25, I thought I knew everything about retail (ha, ha) and was ready to move on. But once it gets under your skin, it’s tough to let it go. It’s a very compelling business and the people are genuinely nice: they work hard, they’re honest, creative and they want to learn. I love helping people discover what they’re capable of achieving.