15565 Fri, 11/07/2008 - 3:51pm
By Barbara Thau
It’s that time of year when home furnishings retailers and industry pundits size up the retail sector as they head into the make-or-break holiday selling season.
This year, the analysis has taken on a feverish pitch as the business community tries even harder to make sense of the common themes, concerns—even opportunities—that have emerged amid the unprecedented meltdown in the economy.
Here’s a snapshot of the hot-button issues that have been discussed during recent retail conferences.
Debunking conventional wisdom, the luxury market is not immune to economic downturns and is softening, according to some insiders.
“I think the luxury business has come to a virtual stop,” said Peter Boneparth, director of Kohl’s, during Emanuel Weintraub’s recent conference, “Innovate/Reinvent Your Business.”
With the meltdown on Wall Street, “There’s a couple of trillion dollars in loss of wealth,” he said.
And even the luxury shopper—or aspirational luxury shopper—is buying less expensive fare, experts said.
At Bloomingdale’s, “the customer is trading down,” said Michael Gould, chairman and chief executive officer of the retailer, during Weintraub’s conference.
Gould said the opening-price point merchandise is the most robust part of the Bloomingdale’s business these days.
And even the toniest retailers, such as Neiman Marcus, are getting heavily promotional, he noted.
The Credit Crisis
It’s no secret that the credit crisis is hindering both consumers and retailers.
“Few—if any—retailers have been able to raise equity capital, which was viewed as a conservative way to finance things like expansion, for example, said Adam Rifkin, senior vice president of global retail, consumer group, for Barclays Capital, during the Weintraub conference.
What’s more, private equity firms, which have been buying up retailers ranging from Fortunoff to ShopKo in recent years, “cannot finance their equity with debt.”
As a result, “liquidity and cash are king right now,” he said. “Banks just don’t want to lend in 2008.”
On the bright side, small, entrepreneurial companies might have a competitive edge, and there could be “a leveling of the playing field,” noted Boneparth.
Meanwhile, during recent conference calls, both Wal-Mart and Target said shoppers’ credit card purchases have plummeted. “Customers have maxed out on their credit cards,” said Eduardo Castro Wright, CEO of Wal-Mart U.S., during the call.
The Guilt-Ridden Consumer Mindset
“There’s a fundamental change in thinking where it’s no longer chic to be spending,” Boneparth said.
The new shopping mantra is “‘I will buy what I need, not what I want,’” said David Wolfe, creative director for the Doneger Creative Services, the trend forecasting firm, at the Retail Marketing Society’s conference, “Christmas 2009: The Retail Forecast.”
Wolfe thinks the shift will result in more gifts cards for things like food and gas this holiday season.
“I think a lot of people today feel guilty to spend,” Gould said.
Waiting for Other Retail Shoes to Drop
“I think there will be clearly more bankruptcies,” Boneparth said. And these days, “retail bankruptcies go right to liquidations,” which was the case with Linens ’n Things and Mervyns.
“You would think somebody else would be able to sell sheets and towels beyond Linens ’n Things but nobody stepped to the plate,” Boneparth said.
Circuit City, Office Depot, Bon-Ton and Gottschalks, are other retailers who are vulnerable in this economic downturn, noted Joe Feldman, managing director of Telsey Advisory Group during the Retail Marketing Society conference.
The Merchandising Picture, Opportunities
With expansion and testing new store formats and acquisitions on retailers’ back burners, merchandising has moved center stage, experts said.
“The tide has turned and merchandising is the emphasis,” Rifkin said.
What’s more, “You’ll see more retailers becoming more aggressive about making a connection” with in-store events, said Dana Telsey, chief executive officer of Telsey Advisory Group, at the Retail Marketing Society’s conference.
There is also an opportunity to “turn more browsers into buyers,” Gould said. “The fact is, we’re not converting enough.”
Gould shakes up his management team and store associates with an exercise designed to get them to view their jobs with fresh eyes.
He tells them, “I’ve been here [CEO of Bloomingdale’s] 17 years,” he said. “I’ve gotten stale. Go to bed and fire yourself—then rehire yourself again.”
Sizing up the merchandising landscape, Jill Granoff, chief executive officer of Kenneth Cole Productions, said, at the Weintraub conference, “With growth in private-label brands, there is less space in fewer doors.”
The product development and design talent pool has moved from the vendor side to the retail side, Boneparth said. That’s because merchants from Wal-Mart to J.C. Penney and Kohl’s have all set up design offices in New York, the epicenter of the fashion world, he said.
Home and the Holidays
It’s no secret that the home industry has been crippled by the economic malaise and the housing crisis. Williams-Sonoma just slashed its full-year earning guidance—by about 75 percent—last month, and revealed that October comp-store sales sank 26.5 percent as of Oct. 29, noted Joe Feldman, managing director of Telsey Advisory group at the Retail Marketing Society’s conference.
Overall, this economic downturn means it’s the discounters’ time to shine—most notably, Wal-Mart, pundits said.
“This is Wal-Mart time,” declared Lee Scott, Wal-Mart’s president and CEO, at the company’s analyst conference last month.
Comp-store sales for home at Wal-Mart rose 0.2 percent in the most recent quarter, said Eduardo Castro-Wright, president and chief executive officer of Wal-Mart U.S.
And the bellwether of the retail industry started its holiday campaign this month—earlier than ever, Telsey noted.
Telsey said exclusive collections, such as the American Living holiday home and apparel line at J.C. Penney, and the Eva Mendes home line for Macy’s, should “drive traffic” to the home department this season.
One thing is clear, as James Glassman, senior economist and managing director of J.P. Morgan Chase put it, “Anybody in the retail business has got a major challenge going forward.”