With the world turning over a new, progressive leaf following the COVID-19 pandemic, optimism seems to be on the trend calendar for 2021. As vaccines are distributed to more people, extreme measures of caution are beginning to dissipate as the general public exhibits an increased feeling of safety.
Economists have forecasted a strong final half of the year, which will welcome in an era that some financial experts predict will be the second occurrence of the Roaring Twenties, with consumers set to begin buying again. Within the apparel industry, from retail to manufacturing, there have been many investments made to prepare for a post-pandemic market with brands securing financing in anticipation of growth, new factories opening to fortify domestic manufacturing and brands being positioned for initial public offerings.
With restrictions on gatherings continuing to ease, coupled with the confidence afforded by widespread vaccine distribution and a longing for normalcy following a year of distancing and isolation, consumers are ready to enjoy the simple pleasures of life again, which means fashion businesses must be prepared. As the apparel industry continues to heal, we asked financial-industry experts: In what areas of their operations should fashion businesses focus for smart economic recovery?
Western Regional Manager
CIT Commercial Services
With pandemic restrictions being scaled back, the opportunity for apparel companies to sell through physical retail stores is improving. Assuming case numbers continue to decline, we’re likely to see an increase in third- and fourth-quarter sales as pent-up demand from shoppers is released.
Retailers’ adaptation to e-commerce during the past year should fuel growth during the second half of the year as digital-shopping demand will continue. In addition, there’s a sense that people who are finally emerging from a long period of quarantine for work, family gatherings and socializing will want to update their closets, which should boost demand even further.
As the overall economy improves, supply-chain logistics is a key area companies need to focus on. Production demand from factories has increased, prices have risen, and clearing shipments through the local ports has been a challenge. Business owners should continue to manage expenses as business improves while focusing on selling to financially sound retailers.
Express Trade Capital
As we begin the slow reopening process throughout the country, apparel-related companies need to reinvent themselves in order to properly compete in the new environment. It starts with technology.
Many of our clients have taken the lead and created virtual showrooms. It is clear that many retailers will be limiting the amount their buyers can travel for both safety and cost-savings reasons. This provides those companies the opportunity of having a distinct advantage in selling their merchandise safely and cost effectively while providing a similar showroom experience. In addition, the days of many apparel companies being thinly capitalized is over. Those companies that are well capitalized or have significant support will be the survivors. Many retailers are requiring just-in-time inventory, and that requires significant vendor support. In addition, with the growth in online sales, maintaining a proper inventory level is paramount to future success.
Executive Vice President, Western Region Manager Rosenthal & Rosenthal
After more than a year of mostly shutdown or extremely limited in-person gatherings, the efficacy of the COVID-19 vaccinations and the hopefully continued decrease in COVID-19 transmission certainly is a welcome light at the end of a very long tunnel! However, the impact the pandemic had will leave an indelible mark on our evolving fashion needs and how we transact business. For example, after a year of Zoom calls where casual attire became the norm, will corporate executives return to wearing more-formal attire to the office or will new company policies not mandate it? Will the shopping-mall model survive given that everyone has conveniently had fashion delivered to their front doors for the last year?
If nothing else, this pandemic has taught us that businesses, in general, and fashion businesses, especially, need to be as nimble and as flexible as possible. The world’s demands and needs are fluid and rapidly changing, so today’s fashion entrepreneurs need to anticipate that change and respond accordingly and in real time. There is some expectation that there will be fairly significant pent-up demand and desire to shop and spend post-pandemic, but no one is certain how long that will last. And if so, what will the consumer want to buy? More products—or maybe more experiences?
The supply-chain issues that came to light during the pandemic taught us that just-in-time inventory may not be the answer it once was. But stocking inventory has its challenges and is also not the answer.
Fashion needs to be available when and where the consumer is and wants it. The omni-channel approach is here to stay—buy it where and how you want, pickup or delivery where and how you want. Fashion businesses need to continue to diversify their supply base so they are not too dependent on any one region of the world for product, they need to keep expenses controlled and as low as possible, and they need to manage their inventory levels. No matter what economic climate they find themselves in, these rules will hold true.
Executive Vice President and Managing Director of Originations
White Oak Commercial Finance
With uncertainty and unease still lingering about the pandemic, apply and diligently manage safety measures for employees and customers. Establish clear and consistent rules for both workers and clients, introduce hand-sanitizing dispensers for the sales floor and break areas, strategically place distance markers near registers and dressing rooms, optimize ventilation, and limit in-store occupancy to avoid overcrowding.
Be aware of the impact COVID-19 has had on institutions and services we once took for granted, and adapt as needed to employees’ schedules to help accommodate related disruptions such as juggling childcare due to reduced in-class learning or increased commute times caused by dramatic cuts in public transportation.
Stay apprised of market trends and consumer demands as we emerge from “at-home chic” and return to the office and social gatherings. Now that Zoom meetings are so commonplace, new opportunities in professional wardrobes could prove profitable.
With the world’s supply-chain disruptions continuing to command headlines, now is the time to expand your supplier network and reduce single-country reliance. Effecting change in this area is an arduous task that requires persistence and due diligence, but it will pay long-term dividends and lessen the impact of the future global supply-chain challenges.
Many retailers proved that having an online distribution stream is vital to their total revenue and future growth in a drastically reduced bricks-and-mortar environment. To confidently pivot your business to include e-commerce, work with an experienced lender who understands the apparel industry and can help you keep pace and expand in a fast-evolving marketplace while allowing you to stay focused on your designs and consumer demands.
Senior Vice President, National Sector Head for Retail and Apparel
HSBC Bank USA N.A.
The whole country is optimistic that the vaccine rollout will bring back a level of normalcy in the near future. We are already seeing an uptick of in-person shopping, which is a function of improving weather, vaccine rollouts and lower positive-case levels nationally.
Our clients are planning with continued positive trends in mind. If that proves out, the stress points for business will immediately shift to the areas that they sought to shed in the beginning of COVID-19. At the start of the lockdowns, two of the largest areas of liability were inventory and payroll. Companies desperately sought ways to liquidate the stock on hand or in transit and reduce payroll expenses.
With the potential rebound, companies now need to decide how bullish of a position they want to take on new inventory purchases, bearing in mind that the recovery may not be as linear as we all hope. Similarly, with malls and other retailers extending hours of operation from the condensed 2020 schedule, companies need to rehire staff and are hard pressed to quickly train and onboard the experienced employees they had before the pandemic. These are just two of the many pressing issues that each business is facing in 2021, but it’s important to remember that these are challenges relating to how to best manage a recovery, which is certainly more welcome than the experience of the past year.
Executive Vice President and National Sales Manager
Merchant Financial Group
As more and more people receive vaccinations and gathering restrictions continue to ease, apparel businesses will start to get back to the new normal. It is my belief that you will see more stores opening as more consumers will start shopping again at retailers. Consumers will want to get out of their homes and be at the stores, especially as the weather warms up.
People will be looking for reasons to dress up for nights out, celebrate special occasions and just go out for a nice lunch or dinner with friends. I believe these trends by the consumer will only benefit apparel businesses and the economy overall.
Apparel manufacturers still must be smart and prepared. Overall, I believe most apparel businesses have been thinking ahead and are ready for a better overall market. They have learned lessons from the pandemic such as the importance of having a multi-channel sales platform, keeping expenses low, making sure you have all the working-capital support you need to expand and not speculating on inventory.
One thing I believe is that the online-selling platform will continue to evolve and expand. We hope that manufacturers have adapted to this side of the business. Most importantly, we hope that these apparel businesses have put in place all the proper contingency plans just in case there is another crisis of some sort down the road. I believe we are in for a big pickup in the apparel business shortly. Those businesses that have adapted to the changing times are the ones that will have the most success as the economy continues to reopen.
President and Chief Executive Officer
Greenspan Consult, Inc.
As the COVID-19 cases continue to trend downward, our local, state, federal government and the Centers for Disease Control will create more opportunities for companies to increase operations by allowing more in-person business whether that be retail, dining, sports and entertainment, or the like.
If you are a fashion manufacturer, importer or retailer, you should analyze all parts of your business operations to see how to proceed and build up to full strength. This should include evaluating your current personnel. You should determine who are your most-important employees and, conversely, who are your least important. You want to retain your most-important staff and, unfortunately, your least-important employees might not be needed going forward. Review your personnel plan and make any adjustments that you deem necessary. You should also consider if some of your staff could continue to work from home, whether that be full time or part time, and the remainder at your offices.
You should review and evaluate your current inventory positions. If you have carryover inventory either pre-pandemic or created during the pandemic, find the best way to get liquidity from it. Do not go forward with old inventory. Identify what needs to be sold or disposed of. Be careful about speculating on new goods as it will still be early in the process of businesses openings so play it safe until things are more normalized.
Another important area of your business to review is your facility costs. Do you need the same amount of space as you had pre-pandemic? With more and more people knowing they can work effectively from home either full time or part time, you might not need all the space you once thought you needed. This is a long-term decision that needs to be analyzed as your lease term comes due.
Lastly, during the pandemic some businesses survived because they had multiple revenue streams. You should continue to invest in ways to conduct your business effectively online or with other online e-tailers. You do not want to be dependent on traditional retail as your only revenue stream. Look for ways to diversify.
Apparel National Practice Leader
While the vaccines are rolling out and restrictions are being removed, I would caution companies on being too optimistic as we clearly continue to go through some very challenging times. There is still a considerable amount of uncertainty out there with spikes occurring again in certain states and uncertainty in general around retail bricks and mortar and the consumer’s confidence in going back into stores.
The revival of bricks and mortar to some semblance of what it used to be is going to take some time. My advice to our clients is that they continue to focus on their digital and e-commerce distribution channels. We have seen these grow by double digits in 2020, and this trend will only continue into 2021 as the consumer has become very comfortable buying online.
The fashion industry is continuing to change to a much more direct-to-consumer business model. Companies need to embrace this and provide their customers with a great online shopping experience and place importance on the core values of today’s consumers when it comes to inclusion and social responsibility.
Managing cashflow is extremely important, and companies need to continue to curtail spending around the discretionary expense items and closely monitor payroll costs. Inventory management will continue to be very important, especially in the change to a DTC business model, where companies are going into production for inventory with no customer orders or bookings, which is very different from the traditional business model for companies in the apparel industry.
Executive Vice President and Portfolio Manager
Finance One, Inc.
As the U.S. delivers more than 3 million vaccines daily and vaccination rates continue to climb, consumers are becoming more optimistic about returning to a normal way of life, whether in socializing, planning vacations, in-office work or in-classroom education. Apparel businesses should experience a sales rebound in 2021 due to pent-up demand and as vaccines bring us closer to herd immunity. Demands for even hard-hit apparel categories such as dresses and workwear are coming back as consumers refresh their wardrobes for the new season with a more-confident outlook.
By now, apparel manufacturers and importers should have already adjusted their overhead and secured the liquidity necessary to navigate toward recovery. Inventory planning, sourcing and logistics should be the next set of priorities for these businesses during the recovery phase.
Anticipating consumer demand and predicting consumption patterns were impossible for many apparel businesses during the pandemic. Additionally, the pandemic has disrupted the supply chain and logistics globally. Among overseas suppliers that survived, many may seek more upfront deposits rather than extend payment terms. A sudden surge in apparel demand will compound production issues as factories will require additional time to bring output capacity back to pre-pandemic levels. Shipping delays due to container shortages and congested U.S. ports contribute to the logistics problems.
As long as COVID-19 infection and hospitalization rates continue to remain low and local governments avoid reimposing lockdowns or other restrictions, overall economic recovery should be steady. Switching gears from survival mode to improving competitive advantage and standing out, apparel businesses must strive to address the increased challenges brought on by the pandemic within inventory planning, sourcing and logistics in order to meet their buyers’ needs of having the right mix of products, at the right price and quality, delivered reliably on time.
Republic Business Credit, LLC
The key operational areas for apparel manufacturing companies will be centered on supply-chain and inventory management. Both have been significantly impacted by successful and unsuccessful sales channels through this point of the pandemic recovery.
Manufacturers will face a combination of confirmed, speculative and non-reoccurring orders to contemplate over the next three to six months. Inventory-planning and supply-chain decisions will result from the confidence level of each individual business owner in many cases. If you don’t have the inventory, you won’t be able to handle the just-in-time requests that will inevitably arise. If you don’t have a reliable e-commerce channel then you won’t be able to profitably sell the unsold inventory.
There is no guarantee about consumer demand, and it has been reliably fickle in recent years. Of course, it will depend on the given category, but overall predictions of demand are just that and won’t have much of a baseline to be statistically significant. I believe each owner needs to choose an acceptable risk threshold and adjust confidence levels accordingly as the recovery matures.
Lenders, lawyers and accountants all view new inventory more favorably than old inventory, so you need to plan your upcoming season based on how likely you will be stuck with it for next season. Lost revenue doesn’t cost you anything, but aged inventory has holding costs and real negative financial impacts for your business. My advice is always to plan for a few scenarios and sense-check your sensitivity analysis with industry experts and friendly competitors.
David M. Reza
Senior Vice President, Western Region
Milberg Factors, Inc.
As the nation and world emerge from the COVID-19 “winter,” business enterprises of every type and size will share a primary objective—ensuring the health and safety of all employees and stakeholders. If this goal is neither achieved nor sustained, then no organization or community will be able to enjoy complete fiscal health. In the interest of employee health and well-being, many fashion-industry companies have been complying with or employing guidance from the CDC, state of California and other local municipalities.
Once a company has adopted and complied with the requisite health and safety protocols, it faces the challenge of navigating a changed landscape where the basics of doing business have been fundamentally altered. It’s not simply understanding and abiding by pandemic-related regulations, but more intrinsically and irrevocably it’s about understanding the changes in consumer and retailer behavior wrought by the accelerated application of technology.
While not intended as a pun, our topic that deals with “smart” economic recovery is right on point; in this case, smart as in “smart technology.” Successful fashion vendors will have to up their digital game. In tandem with the traditional metrics of design and quality, customer data at both the retail and consumer levels will be the new currency helping fashion vendors compete for and win both virtual and physical floor space.
Improved digital capabilities for design, production, inventory management and fulfillment will be highly sought-after qualities by retail partners. At the same time, vendors cannot focus solely on internal improvements. Their digital assets also have to help their retail partners be more efficient, productive and customer centric.
Since this article is part of the “Industry Focus: Finance” series, I would be remiss if I did not remind all of the readers about the value of a healthy balance sheet regardless of the size of the business. If the pandemic has underscored anything, it demonstrates to all business operators that unexpected events can quickly reduce revenues to a trickle. A strong balance sheet with a current and lean inventory, clean and protected accounts receivable, and good vendor relationships will provide any company with the runway to weather most storms.
Kevin M. Sullivan
Executive Vice President, Wells Fargo Commercial Services
Since our economists at Wells Fargo continue to forecast a strong Q2 as the economy begins to open up again, I think it’s important that apparel companies be prepared for a potential uptick in orders as consumers begin to act on pent-up demand. One of the biggest issues facing the industry right now is the ability to get product out of the Port of Los Angeles given the sizable delays that many companies are still seeing.
It’s important that companies understand the impact that this can have on their ability to deliver product on a timely basis and develop a strategy to address the issue. Some companies are shifting ports of entry into the country while others who have access to production in Mexico are temporarily shifting production until lead times from China and other major sources of production normalize. We also see a strong back half of the year, so it’s important for apparel companies to also ascertain proper staffing levels since many cut overhead significantly last year due to COVID-19-related sales decreases.