Industry Faces Many Hurdles on the Road to Economic Recovery
The recent news of CIT Group’s financial troubles (see related story here) rocked the apparel industry, which is already navigating a number of hurdles in this challenging year.
Following a reported 5.1 percent drop in retail sales in June and rising unemployment numbers, recent data indicate no near-term change in consumer spending.
“You still have the consumer that’s concerned about the overall economy, and the employment numbers still continue to be unpleasant,” said Jack Kyser, founding economist of the Kyser Center for Economic Research at the Los Angeles County Economic Development Corp. “Some people are saying you see some green shoots, but it’s more or less like we’ve hit bottom and we’re sort of bumping along. The declines are not as precipitous as they were. We have sort of a stabilization, but we’re still down over the year.”
Kyser said there were some favorable economic indicators, including some promising signs in real estate, but he expects recovery to be slow.
“Literally, we just fell off the table in the fourth quarter of 2008 and early into 2009—and now, when we start to recover, it’s going to be slowly climbing out of it,” he said.
“We’re going to continue to shed jobs into 2010, so unemployment is going to continue to be high.”
Slow through BTS, Holiday
Retail sales are expected to continue to remain low into the fall season. Back-to-School sales, which typically are a good indicator of the strength of holiday sales, are likely to be slow.
A recent National Retail Federation report found that parents intend to cut back on Back-to-School spending. The NRF’s “Back-to-School Consumer Intentions and Action Survey,” conducted by BIGresearch, found that families with children in grade school up through high school were planning to curtail their Back-to-School spending by 7.7 percent to an average of $548.72.Most (56.2 percent) plan to look for sales, while virtually half (49.6 percent) of those surveyed said they planned to spend less overall. And the overwhelming majority (74 percent) plan to spend their money at discount stores.
“Back-to-School seems to be starting late and going slow, which does not bode well for Holiday,” said Bill Susman, president of Financo Inc. “And as much as the economic stimulus has caused a rally in retail stock prices, we believe the economy remains very challenging, and consumer spending now, and over the next several months, continues to be effective of a recessionary environment.”
Susman recommended that apparel makers make sure they have ample liquidity and access to capital—and that they ensure their merchandise has the right balance of design, quality and value.
“Apparel manufacturers should hellip; price [merchandise] where the end retail customer sees it as relative value,” he said. “Retailers are keeping inventories very low. But good inventory will always sell, and conversely, bad inventory will always get marked down.”
More on the horizon
The apparel industry is already grappling with a number of issues that are threatening to make business more difficult over the next year.
The makers of children’s apparel and some tween brands will continue to juggle the costs and time required to comply with the Consumer Product Safety Improvement Act, which requires childrenswear manufacturers to provide retailers with proof that all components in a garment are lead-free.
Similarly, industry observers worry that California could see a raft of lawsuits based on the state’s Proposition 65, which concerns the use of hazardous materials. (See related story here.)
Importers have to comply with the 10+2 customs ruling, which requires companies to provide a specific set of data to customers 24 hours before shipping goods to the United States.Also looming is Card Check, also known as the Employee Free-Choice Act, which seeks to change the requirements for union organizing within a company.
In addition, the federal environmental initiative, known as Cap and Trade, also stands to impact many apparel and textile manufacturers by mandating that companies that cannot meet the strict energy-efficiency standards must purchase allowances, or “credits,” for excess carbon-dioxide emissions.
These are among the “hot-button” issues on the agenda at an upcoming seminar titled “Los Angeles: The Epicenter of Fashion,” hosted by the California Fashion Association and J.H. Cohn LLP, a financial accounting firm. Set for July 23 at the California Market Center, admission to the event is free. For more information, contact Mina Trujillo at (818) 205-2628 or mtrujillo@jhcohn.com.
