INDUSTRY FOCUS: FINANCE
Industry Focus: Finance
Upon entering August, the apparel industry was already in a full back-to-school-season swing. Now that consumers are out and about after a year of COVID-19 lockdowns, apparel businesses are ready to help these customers spend. While consumers and businesses want to bid adieu to the challenges of 2020, there remain issues that could still affect shoppers and the apparel industry.
As kids prepare to return to school and employees to their offices, new viral variants of the pandemic have developed, leaving some businesses experiencing difficulties staffing their apparel operations with qualified workers.
Despite these issues, there is a lot of good news in the industry. Many consumers want to spend money and treat themselves to new products as they enjoy more freedom following a year of remaining at home. This back-to-school season is fueling growth in retail over the previous year as consumers seek to make purchases that were delayed during 2020 due to remote-learning policies that kept students and teachers home rather than in the classroom.
With consumers finalizing back-to-school purchases, in addition to planning autumn spending and holiday splurges, we asked financial-industry experts: As consumers shop in the midst of back-to-school season, how should apparel-industry professionals guarantee a strong finish as they head into fall?
Western Regional Manager
CIT Commercial Services
Current retail figures suggest the back-to-school selling season will be higher than pre-pandemic levels as parents and students remain optimistic about returning to the office and classrooms. Many are looking for that fresh start and are eager to invest in updating their closets.
Apparel companies need to maintain liquidity and financial agility to support the recent increase in demand while remaining flexible in supporting an e-commerce strategy that’s not going away. Supply shortages and logistics expenses are becoming a greater challenge as business increases. Maintaining a consistent workforce has also become difficult during these times.
It’s also important for apparel companies to stay at the forefront of styling and trends as we head into the fall and holiday shopping seasons. Retailer lead times for merchandise have decreased, and companies need to be ready to meet demand should it continue to grow.
No one can guarantee a strong finish, and recent increases in Delta-variant cases of the coronavirus remind us that the pandemic isn’t entirely in the rear-view mirror. Working with trusted advisers and factors during this period is critical for success.
Express Trade Capital
Those apparel companies that planned their inventory levels properly for the upcoming back-to-school and holiday shopping periods will be the big winners. With the ongoing shipping and port delays, those importers and manufacturers that had the foresight to either bring the merchandise in early or to have it flown in will be able to hopefully expand their retail footprint as many retailers are looking for at-once merchandise. However, all of the apparel manufacturers will need to be very cognizant of their inventory levels going forward as the expectation into 2022 is that some of these shipping disruptions will begin to normalize again.
Executive Vice President, Western Region Manager
Rosenthal & Rosenthal
If there’s anything this past year plus has taught us, it’s that there are no guarantees! The best we can hope for is to be flexible and in a position to pivot so that a strong finish is more likely than not. With the rising cases of the Delta variant and concerns about how that will not only impact consumer spending but also government regulations, the apparel industry needs to be able to have the right product at the right price and at the right place, which is certainly a tall order.
Consumer-shopping behavior has changed as customers are spending less and less time in bricks-and-mortar stores. Product needs to be easily accessible and delivered or picked up depending on the consumer’s individual preference. As the pandemic and variants continue to wreak havoc on the psyche of consumers, a continued online and social-media presence will be key to getting eyes onto product and driving demand for it whether on the brand’s own website directly, in-store, bricks-and mortar retailer e-commerce sites or digitally native e-commerce sites.
And with the continued supply-chain challenges and increased transportation expenses, it’s more important than ever to have enough on-hand inventory at a price the consumer is willing to pay. And with some profit for the wholesaler!
Unfortunately, I don’t expect it to get any easier for the holiday shopping season either.
Executive Vice President and Managing Director of Originations
White Oak Commercial Finance, LLC
As America heads back to the classroom and the economy continues to climb, the apparel industry has much opportunity ahead of it, but the road to growth contains various potholes that companies must actively navigate to gain share of a strong retail environment that is pursuing record growth in 2021.
Supply-chain disruptions remain a very present challenge across a myriad of industries and have resulted in increased delays for materials and finished goods and related costs. In this scenario, we recommend that businesses manage expectations on delivery schedules and prices by frequently and openly communicating with their suppliers, retailers and lenders. Transparency will be critical to building and maintaining trust and establishing long-term relationships and repeat business.
Another positive-yet-daunting prospect for the apparel industry is its ability to respond to the pent-up spending power of consumers who are ready to return to stores. The anticipated increase in back-to-school sales will test the bandwidth of many in the industry, and it is critical for them to be prepared for a strong selling season and the marketplace demands that accompany it. We advise that businesses closely account for the variables impacting their verticals, manage their operations accordingly and set realistic goals that can be confidently achieved.
Senior Vice President—National Sector Head for Retail and Apparel
HSBC Bank USA N.A.
The past year and a half has seen dramatic shifts in consumer behavior and the ways apparel companies have needed to adjust. We are indisputably in a period of healthy demand, with many brands and retailers exceeding revenue projections and pre-COVID sales levels. Our clients at HSBC are taking advantage of the positive environment, selling through more full-price inventory and selectively expanding their retail footprint. There is no doubt that uncertainty and volatility will continue.
With the memory of 2020 so fresh in the minds of many apparel executives, some may choose to maintain the conservative strategies of last year in order to guard against any future shocks. In 2020, the lockdowns necessitated canceled inventory orders and selling existing stock at marked-down prices. Companies also slashed marketing budgets and limited future purchases to just their core products and perennial sellers. These strategies allowed companies to maintain liquidity through a period of limited selling and survive until the shoppers returned. While these quick actions proved vital last year, I would caution companies against leaning on them too heavily going forward.
We are experiencing the effects of pent-up consumer demand across multiple categories, which is somewhat masking the normal and healthy selectivity that rewards the brands that show innovation and creativity. Once we settle back to a more normalized level of consumer purchasing, the companies who play it safe with design and merchandising decisions may lose ground to those who have taken risks and expanded product offerings. My advice to the market would be to return to the philosophies and strategies that made them successful before the pandemic so they maintain the loyalty of their core customers. The current growth rates within apparel are not sustainable for the long term. Companies need to be ready to differentiate themselves for a time when we see a more discerning shopper.
President and Chief Executive Officer
Greenspan Consult, Inc.
As the fall season approaches, apparel manufacturers and importers should be aware of the worldwide supply-chain problems. As a result of this current situation, apparel companies should have backup plans for product procurement. Additionally, apparel companies should be aware of their ability to deliver goods to their retail customers. You should not oversell your products. You should only take orders for what you know you can deliver. This is not the time to push for more sales.
If you have any excess inventory, try to focus on finding sales outlets for this inventory. Turn your excess inventory into liquidity.
While many companies are still trying to find employees to fill vacant positions, be careful in your hiring. Keep your overhead in line, and don’t let payroll costs get out of control.
There aren’t any guarantees in this business, but if you manage your sales and inventory and keep your overhead in line, you should be in a position of financial strength through the end of the year.
Chief Executive Officer
In order to have a truly successful back-to-school season, it is important for retailers to make sure they have adequate inventory on hand to meet the demand of their customers.
All reports indicate an expectation of a strong back-to-school shopping season. With the anticipated outpouring of shoppers, the success will be quantified based on the amount of inventory that the businesses have to ship and sell to its customers. Therefore, it is vital for bricks-and-mortar locations to keep the shelves stocked and their warehouses full. Additionally, it will be critical for the e-commerce segment to have inventory on hand to fulfill orders.
We are all aware of the recent supply-chain issues. Exploring backup options and planning in advance is key to minimizing supply issues and maximizing a successful season. Examples are increasing the lead time for getting new products, looking at secondary suppliers and staying up to date with logistics challenges. The winners will be the ones who deliver.
From a financing standpoint, most inventory lenders will lend against inventory held in the United States or in transit. In order to maximize the financing availability through a standalone-inventory revolving line of credit, it is imperative to get products in as early as possible. This assists the company in cash flow supported by the inventory and ensures a beneficial experience for all.
Republic Business Credit, LLC
The key area for apparel-manufacturing companies in the back-to-school season is the need to focus on both sides of their businesses.
Firstly, supply-chain issues and inventory management seem to continue to be the No. 1 issue impacting the second half of 2021. From conversations with our clients, it appears the costs of a shipping container have exceeded $20,000 several times so far in 2021, often requiring a wait and long lead times. One of our clients said that this is an increase of four or five times what would be considered normal shipping volumes.
Secondly, apparel manufacturers need to carefully manage their confirmed and speculative order process as the next few months unfold. With increasing supply costs, uncertainty and time delays, it could have a knock-on impact on financial performance later in 2021. These two main issues are going to reduce profitability as gross margins are squeezed from both their suppliers and their customers during the back-to-school season.
Pricing is often a function of supply-and-demand curves; however, when you add in additional variables you can see often silly and irrational impacts on pricing. We tend to advise our clients to make sure they are conserving cash, selling to creditworthy retailers and maintaining their focus on e-commerce channels in the event they get stuck with too much or too little inventory. E-commerce and online sales can help sell through old and returned inventory far quicker than the traditional wholesale channels. My advice is always to plan for a few scenarios and sense check your sensitivity analysis with industry experts. It is important to understand that normal isn’t here yet, so adaptability and flexibility will always put entrepreneurs in the best position to succeed.
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