Industry Cautiously Returns to Business

The Los Angeles apparel industry returned to work sobered by the horrific events of Sept. 11 and looking for clues as to how to resume normal business life. California Apparel News spoke with several industry executives to find out what impact the recent tragedy will have on the Southern California textile and apparel industries. All expressed concern for the victims and their families, many adding that anxiety over business pales in comparison to the pain felt by those who have lost family and friends. Many noted that despite the magnitude of the disaster, life and livelihoods must continue and they are looking at existing business plans and making necessary adjustments. Many executives said they saw short-term effects such as the delay of overseas cargo or a temporary decline in retail sales, but most said they had already adopted a cautious stance for the coming months—a position they say they plan to hold.

Lonnie Kane, president of Karen Kane Inc., a Los Angeles-based misses manufacturer

As manufacturers, we don’t have some inside view to help us in the decision-making process. Stores are talking, but they’re not divulging a new dollar plan. If I had to guess, [I’d say] people are going to buy conservatively and go from there. Projections will be lower, but there is a possibility there may be more business out there than we project for. Retailers may find themselves running out of hot items, but they won’t run out of goods. There’s certainly not going to be a shortage of apparel in this country.

[But] commitments have had to be made for spring—for raw materials and first deliveries. I’m going to be conservative and go low. My view is, I would rather bet on not having enough goods to meet demand than having an excess amount.

There’s a possibility that local domestic production could slightly benefit from this, and local contractors will see a little more business because of delayed decision making. Domestic textile people might possibly see some increases for the same reason. As long as they do not allow freight on passenger planes, transportation channels are certainly going to be backed up. A safe estimate right now for manufacturers is to plan on adding two weeks to their shipments.

So far, I have not had any order cancellations. Some of the conversations I’ve heard indicate retailers across the country are looking to cancel orders. Sadly, and understandably, last week was a horrible week for the country, and it went down as a horrible week for retail. The American people don’t have shopping on their mind at this moment.There are certain things that are important in this world. The reality after Tuesday has forced us to see how dear family is and how meaningful our country is to us, and everything else takes a back seat. Yesterday was the first day my staff on the East Coast went back to work, and I’ve listened to their concerns and fears about family members and loved ones. We on the West Coast have gone through our own tragedies such as the riots and earthquakes that were devastating and put fear in us, so we should understand what’s going on in the minds of New Yorkers. Sheila Gonzales, spokesperson for the Port of Los Angeles

We’re still open and operating. We have increased security for precautionary reasons, but the cargo is still flowing as normal, just a little slower. Nothing has been withheld. Basically, the port police have increased security at the Port around all the terminals. They have added more police and more Coast Guard. The U.S. Coast Guard is boarding and inspecting the ships as they come in the Port. They hold them at anchorage, board them and escort them in. [The disaster has] heightened security, but it hasn’t slowed our cargo. Shipments have been delayed, but they have been minor delays. There’s been minimal delay, but everyone understands. Everyone has been cooperative, and we’re working together as a team to make sure everything runs as efficiently as possible in light of the incidents.

[The term of increased security is] indefinite at this point. We are waiting for the U.S. Coast Guard to let us know when they will stop the vessel inspections.We’re just going day by day.

German Cerezo, trade commissioner at the Guatemala Trade Office in Los Angeles

Retail in the U.S. has been slow for a while. Projections have been cutting back even before the disaster because the U.S. economy has been declining. I’m not sure how long it will take to get it back on track. This quarter has had very little growth, and so I think we can expect to see a few more negative quarters. Consumer confidence is going to go down for the next few months, and there will be a cutback in production. The CBI [Caribbean Basin Initiative] countries will definitely be affected by it, as will Mexico. But, the manufacturers will be affected the most.

Lead time in the cargo industry will probably be affected. Those who ship samples, patterns and other production products will have to be prepared for security increases in ports, airports and places that will most likely inspect shipments and documents as safety measurements. Lead times will have to be extended.

Bruce Berton, a director at Stonefield Josephson CPA Consulting Advisers in Los Angeles

[Retailers] have already placed holiday business and are in the process of spring ordering. They’ll either try to cut back or sell it out at lower prices but have [fewer] profits. Quick response—that’s what they’re going to look for first. Foreign imports will be cut back quite a bit. Retailers have final say-so of what will be bought and sold. They will first reduce prices to generate more quick volume to keep [the] economy going, but there will be [fewer] gross margins or profit dollars, and future orders for spring 2002 are going to be reconsidered.

For manufacturers, the first issue will be, How late can I issue that order to have the merchandise on the floor for the consumer? This means it will have to be made in NAFTA countries versus being imported. Another big question will be, How much is going to be fashion-forward versus core basics?

They will have to cut back on projections—but only a little. The industry has become more sophisticated, so that the manufacturer does not have to take too far of a risk. In times of trouble you will see more manufacturers cut to order and rely on quick-response sources to produce.Patrick Bertagna, chief executive officer, EcSalesdata, a Los Angeles-based maker of EDI products

The mood is somber out there right now. It will be interesting to see what occurs over the next 90 days. We have to be sensitive to our business partners’ feelings right now. We’re taking a cautious and non-aggressive approach. Certainly, what happened last week will have some tremendous downside, but for every action, there’s a reaction. You’re looking at thousands of people leaving the workforce, but I think within a year or year and a half, things will bounce back. The government will do a lot to promote consumer confidence. This country is resilient to making adjustments.

Rob Greenspan, managing partner of Los Angeles-based accounting and consulting firm Moss Adams

[During] the past couple months, retail sales were not great, and the terrorist attacks just make it worse. I think it puts fear in people’s hearts and minds. Unfortunately, the reality is people have short-term reactions, and I think you’re going to see retail sales drop off even more. And when that happens, manufacturers are going to be hard pressed to deliver goods [possibly as a result of both the tragedy and as a continuation of current market conditions]. Orders may get cancelled; they may get postponed; they may get delayed. If people are afraid to go out, if people are afraid to spend money because they need it for other things, you’re going to see that effect. I’m telling all my clients this is not the time to speculate on inventory. This is not the time to produce goods or buy fabric that you don’t have orders for. This is a time to cut to order. This is probably a time to narrow the line and be a little more concise and not plan for any growth. When economic times are difficult, people who have cash or liquidity have the best chance of survival. This is not a time to be stuck with inventory because I’m not sure even at discounted prices people want goods today. Rupi Arora, sales executive, Tukatech Inc., a Los Angeles-based CAD/CAM provider

This touches everybody. As for hurting the economy for the long run, I really doubt it. With the government injecting $40 billion into the economy, I think it will stimulate the economy.

There are always opportunities. We’re looking at digitally transferring data so you don’t have to rely so much on travel. There may be more need for security, and those people need uniforms. There may be more need for materials like Kevlar and other things. This is a time to concentrate and focus even more.

Jack Kyser, chief economist, Los Angeles County Economic Development Council

On the logistical side of the business, there is going to be more security, so if you are importing apparel via ship or air, you’re going to have to watch very carefully the type of security there will be. There will be an increased transit time. For retailers who are doing small orders, with quick turn time, this might cause them some problems.

Is fashion going to become a little bit less frivolous? There’s been a major event and a lot of people’s lives have been impacted. Are you going to be as over-the-top as you would have been in the past? These are some of the things we have to look at. Right now, we’ve hit a patriotic stream, so we have to ask how long this is going to last. It requires very good communication with both suppliers and customers and taking time to listen to what people say at social events. You have to see what their needs and concerns are; then you have to lay what happens over the fact that we are in an economic slowdown that has gone into a recession. People will approach buying in a slightly different fashion.

The transportation situation is going to [last] a year before this thing settles down, and then we’ll know how lengthy the security checks are going to be.How do people approach travel? That will probably shake out in about six months. [With] air travel you have an airline industry that was already gravely in trouble, so this is an ongoing type of thing. Anyone who uses air freight has to be very alert to what’s going on.

You just have to wait and see the mood of the consumer and be very alert to catch the mood. You have to get yourself out of your usual routine and just watch and listen.

Moshe Tsabag, owner of Los Angeles-based junior manufacturer Hot Kiss

The apparel industry will be affected by the retail stores, which started to feel the effect last week with horrible sales. The mood of Christmas and the mood of celebrating and gift giving will be there, but in [smaller] proportions than in previous years. The stores will be careful in selecting the kind of product they bring in in the fourth quarter. They will want to stay very lean and mean and not keep big quantities of stock. They will work on faster reorders and not run too much risk of keeping [stock] in the stores.

We all have to weather the storm, and I think that things will change. The stock market will recuperate and it will take some time, but in the next 30 to 90 days, we will see. It will be a cautious merchandising mood, and the retailers will purchase to [meet their] actual need[s], as opposed to the spontaneous purchasing before. I think that the stores will purchase the exact things that they need, and the consumer[s] will be more cautious in their spending.

I think we will see that turn in spring 2002. It all depends on if we have a war or not, and it depends on the condition of the economy. Right now, you can’t do long-term planning; you have to take one quarter and one month at a time.

We all are in it together, so we all need to be very cautious and watch our expenses and weather the storm and hopefully see the light by spring.

Gregg Fiene, president, XOXO, a Los Angeles-based junior manufacturer

I think we will be affected, but I don’t think it’s just our industry.It will affect every industry from the stock market to the travel industry. It will affect people’s psyches in general.

We don’t even know if we’re going to be in a war or not.As long as there’s uncertainty, a lot of people won’t spend money.

We don’t do a lot of imports so we’re lucky. We mostly do domestic business as far as piece goods and products. [But] there’s hesitation in everyone. We’re planning next year’s trips and we’re going to break up the team and not all go on the same airplane. It’s a whole different way the world is going to be from now on. I think there will be a bit more scrutiny by people of how many markets and shows they go to.

There’s no protection from the sentiment and people who are upset. [But] people have to either come out of this or go forward. We’re going forward. My wife, Holly, is going on a photo shoot this weekend. She’s flying to New York on Saturday to do a photo shoot in the Hamptons for next Spring.

Ann Davis, president, Textile Association of Los Angeles, an independent sales representative

Right now I think everyone is scrambling to determine what the situation is, where to get goods from and to keep orders from being cancelled.

Personally, I’m devastated that this has happened and [about] what has happened to our world—our loss of innocence—but you have to think about business. We should stand together and stand strong.

The opportunity is here for fast turn because the West Coast has the domestic knitters. I think the opportunity is here to turn fabric very fast. And those who have local inventory should do well.The logistics of bringing in imported goods will be very difficult. Fred Garside, principal, Global Apparel Express Inc., a Dominguez Hills, Calif.-based garment industry distributor

The overall process has slowed. Paperwork is backed up. We lost one of our import brokers that was based inside the World Trade Center. The ports are running slow and there’s a tremendous backlog. U.S. Customs is scrutinizing everything extra carefully. One of our drivers just came back from a dock station with a line of 300 trucks. [Logistics] will never be 100 percent normal again. As for the economy, everybody is speculative right now. When the market is acting like it is, everybody is holding their cash. The good thing is that there’s lots of confidence about America right now.Jim Kaufman, CPA, co-owner, Kaufman and Kabani, a Los Angeles-based accounting and consulting firm

[It’s possible we will see] a slowdown in terms of completing orders and getting merchandise within the timetable. I see some slowup in obtaining merchandise and getting merchandise from the Orient. Manufacturers could see some problems seeing customers in the medium term because people could be hesitant to fly. The dislocation [will likely last] a couple of quarters or a six-month period overall.

We’ll find ways of communicating without having to travel as much—that will be a long-term impact.

I know we have a couple of clients using teleconferencing. Maybe there’ll be more now. And improvements in technology where communication costs—data and voice—are coming down will probably accelerate the [rate of people moving] to video conferencing.

There are [now] central inefficiencies built into our economy that we didn’t have before [including] certain insurance costs rising and air transportation costs rising....We will have to pass [those] on to our customers. This war or whatever you want to call it is not something that will be over in six months. This is going to be with us for some time. Robert Krieger, president, Norman Krieger Inc., a Los Angeles-based freight forwarder

It looks like there will be less commerce—at least for a while. I don’t have a crystal ball to predict how much Americans will buy. A lot of people lost jobs and they’re not buying anything.

Certainly if you bring goods in from overseas, there is a long lead time, you have to issue letters of credit [and] possibly ship to other countries [to complete the production cycle].

As of [Sept. 17], we had one-tenth [the number] of air shipments we normally do on a Monday. No freight is allowed on passenger aircraft, and there are very few international carriers coming in.

We had anticipated that the week before and [told clients] we could predict when goods were coming in by boat, but we could not predict when they would come in by air. We suggested that they put a lot of cargo on boats depending on the country [of origin] that could take 10 to 12 days. There are backlogs in Asia right now. [We are hearing that] some of the steamship lines are starting to backlog [at the local ports]. That might have something to do with a lot of companies being closed the last couple of days, so [there are] too many containers trying to exit and enter the port at the same time. Vessels were delayed in coming in, so some of that is starting to hit.

I’d be conservative. That was the trend before, and it seems like that will continue. There might be slight changes in styles—patriotic items will probably be in demand, and a lot of that will be made overseas. That could be a boost in commerce.

I got a phone call on Sunday from a friend looking for a large quantity of domestically sewn and dyed T-shirts for a patriotic theme [line].

[Within our own company], whatever funds employees raise to send to relief efforts, Norman Krieger is going to match those efforts.Dave Hop, manager, The Travel Lounge, an Encino, Calif.-based business that specializes in booking travel for apparel industry executives

Business is in the negative. Airline companies are running at only 20 percent to 30 percent of usual revenues. If this keeps up, they’ll be bankrupt soon. I’m seeing travelers who travel 300,000 to 400,000 miles a year afraid to fly. The apparel industry has seen trade shows cancelled, and it’s repetitious through other industries. I don’t see corporate travel getting back near normal for at least three to four weeks. Hopefully, the leisure travelers will soon follow. —Compiled by Alison A. Nieder, Claudia Figueroa, Darryl James and Robert McAllister

Retail Reaction: Caution Prevails, but Hope for Growth Remains

To get an idea of the World Trade Center disaster’s effect on the retail world, just witness business at the six-year-old Lisa Kline boutique in Los Angeles. All reorders have been placed on hold. Deliveries are arriving late, 10 boxes at a time. Owner Lisa Kline has forgone her days off and spent every day at the store, monitoring customer behavior.

“People are more cautious—I’ve had customers return things the same day, saying,’Wait, I don’t really need this,’” Kline said. “That concerns me. People don’t shop in wartime. They don’t need clothes. This store isn’t a necessity. It’s a boutique.”

As retail experts grapple with a hazy crystal ball, the sales picture remains murky at best. Retailers were hit hard last week in the wake of the attacks, with sales down 1.4 percent—the largest weekly drop in sales since March 31—as stores closed and customers stayed home, according to the weekly chain-store sales report from Bank of Tokyo-Mitsubishi Ltd. and UBS Warburg. Some stores, including Kmart, had issued plans to limit travel for their buyers. Given that retailers were already struggling with a sluggish economy these past few months and that consumer confidence was on the wane, experts project a rough road ahead for the holidays and beyond.

“This is going to further dampen consumer confidence,” said Richard Giss, a partner in the consumer practice of Deloitte & Touche LLP in Los Angeles. “A lot of retail depends on impulse buying. Right now, it feels wrong to buy something for the heck of it.”

Added JoAnne Brosi, the general manager at Glendale Galleria in Southern California, “It’s a somber time. It’s not the first thing on people’s mind to go shopping.”

Giss said that in the months ahead, most retailers will develop contingency plans to cope with the downturn by buying more conservatively when it comes to styles and quantity for the holiday season and cancelling orders.

Retailers, however, say it’s too soon to determine how severe the pullback will be.

“Yes, it will impact business, but we’re not sure what the impact will be,” said Kylie Dyker, a spokesperson for Nordstrom Inc. “We’re cautious going into the months ahead, but decisions haven’t been made.”

Dyker, along with other retailers, including Mervyn’s, Abercrombie & Fitch and Wet Seal Inc., added that it was too early to gauge how deliveries will be affected. Should cancellations occur, however, the effects will filter down the apparel food chain, putting the squeeze on apparel manufacturers and textile providers, according to Ilse Metchek, executive director of the California Fashion Association.

“Just because a retailer says cancel, the merchandise doesn’t disappear,” Metchek said. “The discounter centers, swap meets and places like Santee Alley [in Los Angeles’ fashion district] will have more merchandise to choose from as manufacturers get rid of the inventory at sale prices. Manufacturers will feel the pain and some fringe folks will go out of business.”

Upscale retailers Saks Fifth Avenue and Neiman Marcus have already felt the pinch, but those in the mainstream, including Federated Dept. Stores, J.C. Penney and Sears, who have taken a few punches, will really start to feel the economic blows, Metchek said. Wal-Mart Stores Inc. and other discounters will stand to gain.

“The top rung is OK, Gucci is way ahead, but bridge is suffering mightily and the fallout will continue,” she said.

The flip side of the equation is apparel’s everlasting effect on instant gratification, say observers.

“We’re an easy band-aid for depression,” Metchek said. “Apparel is the cheapest way of making yourself feel good.”

Also, if consumers put other plans on hold, Mike Niemira, a retail economist with Bank of Tokyo-Mitsubishi in New York, thinks their pent-up demand will spill over into shopping.

“One positive with the consumer cutting out air travel will be the freeing up of discretionary purchasing power,” he said. “They may spend it at Christmas time, which can mean we end up having a better one than imagined.”

Until now, Niemira had projected a 4 percent increase in holiday sales over last year, and he still believes that forecast can be achieved. To hit their numbers, however, retailers will have to work harder to retain the customers they have attracted, he said.

“Retailers will need new marketing strategies—lower prices aren’t going to do it,” Niemira said.

Part of that would involve advertising campaigns and promotions that convey a more inspiring message than in the past.

“They can offer to give back to the Red Cross or orient themselves to a social issue,” said Niemira. “Look at flag sales. What’s that telling you? Consumers want to do something, and retailers who are sensitive to these issues and make the consumer feel like he’s contributing will be successful.”

That’s the strategy Kline is embracing at her two boutiques on Robertson Boulevard. Kline is donating 10 percent of sales to the firefighters, medics and hospitals in New York.

“People may not be buying more, but they like the fact I’m doing it,” she said, adding that for the first time she will donate items from her yearly fashion show (which will be held Nov. 13) to a charity.

Meanwhile, the fate of new, mega-shopping malls hitting Southern California remains uncertain. TrizecHahn Development Corp. opens Paseo Colorado, a $130 million outdoor shopping and entertainment center, in Pasadena on Sept. 28.Then, in November, it will open the long-awaited $455 million Hollywood & Highland project, the future home to retailers Louis Vuitton, Celine, the Gap, Bebe and others, in Hollywood.

Experts say these new players may benefit and stimulate demand. “My expectation is that they may fare better than others,” Giss said. “They have a marketing focus, and there will be interest to see the newest place. The pie may get bigger, drawing out people who normally wouldn’t go shopping. It may also impact impulse buying somewhat.”

The specter of competition, too, is keeping local retailers on edge. Mark Goldstein, who owns four boutiques in Los Angeles and Malibu, is taking a more proactive business approach by remodeling his two Madison stores in Los Angeles’ Brentwood section and on Robertson Boulevard this year.

“We have to work harder and stand out as a leader,” Goldstein said. “I’m not retreating. I’m getting more aggressive. I think those who step up will survive.” —Nola Sarkisian-Miller