GUEST EDITORIAL: IDEAS FOR MOVING FORWARD

The retail world has changed dramatically in the last few weeks, and I’m sure many of you are dizzy thinking about the implications of the Coronavirus pandemic and the great financial meltdown. I know we are. But we have also had a chance to take a step back and consider the landscape ahead.

Most of our stores are now temporarily closed and not sure when they will reopen. In the short term, they will be seeking small business loans and payroll relief, while retail employees who have been furloughed will apply for extended unemployment pay under the government stimulus plan.

But what about the medium term? Here’s what we think you should consider when it comes time to reopen (and we really believe most of you will).

Spring inventory has been sidelined as the stores have closed. Balances of spring on order have been canceled or put on hold until stores open again, and we’re talking about hundreds of millions of dollars of merchandise. Stores are not able to absorb this product, thus putting tremendous amounts of pressure on the vendors. Until there is a resolution to this glut of inventory, vendors will be challenged financially to create and manufacture late fall and early holiday collections (do we skip a season?). As for fall on orders, most have been put on hold, adding to the pressure on vendors and those that finance the vendors.

Likely, inventory liquidation will require excessive markdowns, eroding margin that will be needed to ensure our retailers’ survival. This will be a tricky balancing act as stores reopen more quickly than consumers are ready to start spending again. On one hand we need to get cash flow moving, but excessive markdowns will erode balance sheets at a time when we may need to borrow.

This will be easier to deal with in menswear than in women’s, which is more seasonal.

Men’s stores need to be hyper-focused on the viability of their inventory and rethink aging. Will spring/summer merchandise sell later into early fall (it stays hot until September in most markets)? Many consumers have not even seen the merchandise. It will be a good idea to evaluate current sell-thru at the vendor style level.

As for the outstanding spring/summer ’20 on-order, can it be recycled as holiday deliveries? Most merchants will want to buy this merchandise off-price to build margin. This will require partnering with the vendors, so everybody comes out okay.

Women’s stores don’t have as much flexibility. Due to digital marketing, even if the customers have not seen the goods in stores, they have seen digital presentations and online sellers are already taking markdowns on the merchandise. They could be at second markdowns by the time the stores reopen. Merchants selling branded collections will have to reopen with sales blazing to create sell-thru that aligns with those of online sellers. This situation requires partnering at an unprecedented level with vendors.

So, here’s our strategy:

1. Start talking with your vendors about your financial requirements because your marketing strategy has changed, whether you like it or not. You must maintain extreme flexibility.

2. Your fall on-order has probably already been pared back, but don’t cancel everything; instead negotiate deals. You will need new product to entice consumers once they feel that the economic situation is under control. Expect price promoting to be as fierce as ever. The only out against this margin pressure will be increasing sell-thru. Work closely with your planners to establish a highly disciplined receipt flow.

3. Fact: Companies that have exercised disciplined merchandising are doing better than those that have been less disciplined. Commit to extremely disciplined merchandising now. Disciplined merchants may not be doing great, but they are not getting killed.

In the long-term we expect some significant changes to the retail marketplace once we emerge from this crisis. For instance, with so many people working from home successfully, some companies could decide to keep this work-from-home option in place (decreasing office expenses). This could lead to a longer trend of more casual clothing since fewer people will be working in offices.

Also, home delivery and shopping by appointment, which have been lifelines during the self-quarantines, may be more central to consumers’ shopping experiences than they were in the past. Where do you stand in terms of these services?

There will probably also be shifts in the commercial real estate market, as many businesses trim their footprint to smaller square footage with a focus on selling online. If you don’t already have a digital strategy, you’re behind the eightball. We’re not talking about selling on the other side of the world but in your own backyard. Where do you fit in to the established online marketplaces, such as Shopify, Lyst, and Farfetch?

In the coming weeks, we would like to talk with you to build consensus concerning permanent changes in the retail marketplace. We look forward to sharing what we learn since we are in this all together. It’s going to take mind power to get us all through this, and onto the path to prosperity. We believe we can do it.