Factors: Inventory Control Is the Key to a Slow Economy

Local factors, who have their finger on the pulse of the apparel industry, give their outlook for the economy and advice about surviving a slowdown.

Ken Wengrod, founder and president of FTC Commercial Corp.

How do you see the economic climate shaping up next year? Do you think we will see a recession or a mere slowdown?I see a lot of positive signs for the economy. We have gone through 49 months of consecutive job creation. That is the longest wave of job growth in our history. Yes, there are spot markets where there are issues: financial services are down 14,000 jobs, construction is down 14,000 and retail is down 5,000, but overall the economy is stable.

I think the policymakers are taking steps to encourage spending by lowering interest rates. In the apparel industry, the contemporary markets have grown tremendously. Where the downfalls have [occurred] doesn’t hit the contemporary market. They have higher price points, and consumers are looking to get best-quality goods. You are seeing that at Kohl’s with Vera Wang going in there. Personally, I don’t think we are heading for a recession right now. We are going through certain corrections but nothing out of the ordinary.

What can manufacturers and retailers do to prepare for next year’s slowdown?The same thing they should always be doing. Keep inventories as low as possible and overhead as low as possible. It is a time to conserve and spend their money wisely. Don’t spend on frivolous things. A good example is that a lot of mid-size firms in the $5 million to $15 million mark are able to produce domestically because their overall budget is tight and mean, and they are able to compete with the larger manufacturers more efficiently. They don’t have to absorb the large overheads those big companies have.

Companies should be looking at their structure and ways to reduce overhead. If there is no value added, get rid of it. The other thing that is happening is to be able to work very closely with the suppliers, from the retailers all the way down to the yarn people. Pull in the product as you need [it]. Have the inventory you need, but don’t speculate because the market keeps on changing in terms of product and merchandise.

Sunnie Kim, chief executive of Hana Financial Inc.

How do you see the economic climate shaping up next year? Do you think we will see a recession or a mere slowdown?Since recessions are based upon consumer spending (although heavily influenced by political variables, as well), consumers’ “feelings” about current market conditions will dictate. It appears now there is plenty of uncertainty in the financial markets that would make consumers at least cautious, including the reduction in disposable income brought on by higher prices in critical expenditures such as gas, a tightening in credit markets, the housing market crises and the loss of manufacturing jobs to cheaper overseas labor. This would seem to cause people to stop, if not slow down, their rate of non-essential spending, causing slower consumption and GDP growth.

What can manufacturers and retailers do to prepare for next year’s slowdown? Any type of economic slowdown manifests itself in fewer customers and lower margins. Controlling inventory will be key. Both manufacturers and retailers will need to remember that they will need to focus on their core customers. They will not be able to service everyone with respect to the inventory they carry. In addition they will need to keep tighter delivery schedules, streamline their products and take quick markdowns. Also all business will have to watch the bottom line. They will need to watch margins and not volume. Cash flow becomes even more important as well as managing debt. If possible, accelerate debt repayments and take or negotiate discount terms.

Jim Morrison, president of First Capital, Western Region

How do you see the economic climate shaping up next year? Do you think we will see a recession or a mere slowdown?We do not see a recession on the horizon. A slowdown is going to be short- lived in our view. What has happened in the subprime-mortgage market will have a big impact on those directly involved, which is a small percent of the mortgage market. The overreaction that hit the financial industry was just that, an unwarranted overreaching reaction. This has already started showing signings of blowing over.

The recent job report was another one confirming our belief that there will not be a recession in the near future. The economy will continue with good, moderate growth.

What can manufacturers and retailers do to prepare for next year’s slowdown? The rules have not changed for running a good business model: keep your inventory and overhead lean and mean. This will apply during both good and poor economic times. It sounds simple and really is with discipline. Do not fall in love with your inventory or designs; the customer must fall in love it before you do.

Harry Friedman, senior vice president, Rosenthal & Rosenthal Inc.

How do you see the economic climate shaping up next year? Do you think we will see a recession or a mere slowdown?We look forward to a continuing slowdown but not a recession. The reason being is that the consumer is still the key to controlling the economy, and so far, there is no reason to expect consumer confidence, average disposable income or employment will all drop so significantly as to result in a true recession in the near future.

What can manufacturers and retailers do to prepare for next year’s slowdown? Especially for manufactures, an important factor in dealing with a troublesome economic slowdown is in maintaining efficient production cycles and, in turn, controlling inventory levels.

Dave Reza, senior vice president, Milberg Factors Inc.

How do you see the economic climate shaping up next year? Do you think we will see a recession or a mere slowdown?The economists continue to cite a number of indicators that suggest a slowdown if not a recession. We’ll have to see how international issues, the federal government and election politics affect the big picture.

What can manufacturers and retailers do to prepare for next year’s slowdown? Play a combination of tougher defense and maybe a more conservative offense: tighter inventory controls, i.e., purchasing for pre-sold orders, reducing SKUs that don’t meet certain volume requirements, re-evaluating or placing on hold expansion plans.