Guest editorial: ideas for moving forward

by Steve Pruitt
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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.
  1. 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.
  1. 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.

10 Replies to “GUEST EDITORIAL: IDEAS FOR MOVING FORWARD”

  1. That’s all well and good but stores without an on line presence will take the greatest hit. With customers still shopping on line during the spring season there will be little need for them to walk into a mom and pop store when they do re-open when it can be delivered right to there front doorsteps. I guess its shame on us (the ones who ever developed that presence). Hopefully for us who have been around a few years we have a cushion to hold us thru. For those who don’t or for those of you in the future now you why dad and grand pop always said make sure your have something put aside for a rainy day. Because baby its pouring outside.

    1. This is indeed a learning lesson. We kept our menswear business very forward oriented, and mercifully have an online presence that is vibrant (though we worry that local authorities might even shut that down at some point.) The greater lesson though is the one you mention of preparedness. I am the child of old parents, and they were born to old parents — one Grandfather was born in 1893! So I was raised on stories of depression and war. Based on the length of the last recovery, we started preparing for a recession two years ago. We left retained earnings in the business, reduced credit exposure, and built a cash reserve equal to six months running costs. It was hard, but now we count ourselves lucky. Whether in our personal or business lives, we all need to maintain better cash reserves going forward. This will end, but there will also be a next time. This is the worst, but in my life there has been one hiccup every ten years or so.

  2. Steve,
    This is probably a fantasy, but what if we could get as many specialty stores as possible to hold up on huge markdowns of beautiful Spring merchandise that our customers haven’t even seen yet. AND market the launch as “The Most Exciting Collection of Spring/Summer Menswear Ever”. Fashions for the new mobile office, comfort and style with all of the new yarns, etc.. The NEW in menswear really is exciting. In my fantasy, the launch would be on the same date for all and on the honor system, held to thirty days before breaking price.
    Thanks for listening,
    David

  3. What is your idea to address payments of merchandise we just received and we had to shut down . How much discount should we ask for ? And still outstanding orders can’t be taken right away after we open . Should they be canceled or switched out to fall deliveries. And cancel Fall ?

  4. When the 2008 crash hit in October we were down 30% then November 40%…because no one had seen many of the “sets” I removed them from the floor…packed them away and brought them out as new for Fall 2009…obviously we were in a cash position to do this. This current situation should be a wakeup call to better flow the receipt of product. Our core customer 20% = 80% understands our pain and wants us to survive. I do not believe they will kill us on markdowns. Our buy a gift certificate we will add 20% during the shutdown has been moderately successful; some purchases and some “I will be in after the shutdown” indicating support without the incentive.
    I would like to get a buy at small business program going national but we need the support of the press and that is above my paygrade… Steve or Karen Alberg can you help?

  5. Talk to landlords about a straight percentage rent for a period of time. No sales no rent. Small sales, small rent.
    Talk to vendors about a payment scheme based on sell-thru.
    Neither may happen but it would start your conversations.

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