California Apparel News

For manufacturers and retailers this holiday season, the best words of advice could be this: Take a chill pill and don’t expect sales to be too spectacular.

The same goes for the first half of 2008, when snail-like economic growth is predicted as people dig into their pockets to pay for higher food and gasoline bills.

A basket of groceries is expected to cost 7.5 percent more this year than last year, the highest annual increase since 1980, the Labor Department reports.

And a barrel of oil is trading at around $80, up 33 percent since last year.

Currently a gallon of unleaded gasoline goes for what seems like a reasonable average of $2.85. But some are predicting that by next year we’ll be shelling out $3.50, which makes the “ouch” factor for filling up a tank of gas even more painful.

“Consumers will be the biggest bargain hunters this holiday,” said Britt Beemer, founder and chairman of America’s Research Group in Charleston, S.C. “You are going to see a huge response from consumers on Black Friday [the Friday after Thanksgiving and the official launch of the holiday shopping season]. I think consumers are going to come out in droves to get those early-bird specials. Last year, consumers said they thought the bargains on Black Friday were the best deals all season.”

In his surveys with shoppers, Beemer said that 73 percent of families noted they are paying $8 to $20 more a week at the grocery store. “Twenty-seven percent of adults tell us their property taxes and their homeowners’ insurance rates have gone up significantly,” Beemer said, noting that in California that rate is slightly lower at 21 percent. “You are seeing some of the highest amount of consumers looking for promotions and turning into bargain hunters.”

Needless to say, consumers are getting squeezed.

This is forcing retailers to take a cautious attitude toward inventories, which means they are ordering less merchandise.

Lean inventories are translating into lackluster cargo volumes at the ports of Los Angeles and Long Beach, which handle 40 percent of the goods shipped into the United States.

Container volume at the Port of Long Beach was up only 0.7 percent between January and August, compared with the same period last year. At the Port of Los Angeles, container traffic was up 1 percent for the first eight months of 2007 but down consistently since July.

“We are walking an economic tightrope right now,” said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp. “Everyone is cautious about ordering merchandise.”

The National Retail Federation, a trade group in Washington, D.C., that represents a diverse group of large and small retailers, said holiday sales will edge up only 4 percent this year, compared with 4.6 percent last year. That will be the lowest increase in holiday sales since the 1.3 percent hike experienced in 2002.

“Housing-related merchandise will remain weak, while electronics, apparel and accessories, luxury goods, and online shopping will do better,” noted NRF economist Rosalind Wells. “Next year, we expect quarterly sales gains to improve but average 4.2 percent for the year, the same as this year.”

Luxury retailers will provide one bright spot this holiday because their affluent consumers are wealthy enough to be unfazed by the uptick in any food and gas prices. Retailers catering to low- and middle-income families will have to work to draw in consumers. Most affected will be department stores whose customers might be looking to trade down to Wal-Mart or Kmart.

Wait until 2009nbsp;

For 2008, economists aren’t forecasting a recession—defined as two consecutive quarters of declining gross domestic product—but predictions abound for a challenging year ahead.

The UCLA Anderson Forecast sees GDP inching up only 1 percent in the fourth quarter of this year and the first quarter of 2008. Growing exports due to the declining value of the U.S. dollar will be one factor keeping things from falling into recession territory.

UCLA economist Ryan Ratcliff doesn’t see Southern California escaping the economic doldrums. He predicts rising unemployment, weak job growth and a slowdown in all broad indicators. Employment in the apparel and textile manufacturing industry will dip slightly.

Orange County, normally one of the more affluent regions in the area, is particularly weak because it was hard-hit by the crash of the subprime mortgage industry.

In September, the Ameriquest Mortgage Co., a subprime lender based in Orange, Calif., shut down. Ameriquest was the first major subprime lender to downsize in the current housing cycle, deciding in May 2006 to close all 229 retail branches and ax 3,800 jobs.

Another subprime mortgage lender, the New Century Financial Corp. in Irvine, Calif., filed for Chapter 11 bankruptcy reorganization in April and trimmed 3,200 jobs.

And recently, Impac Mortgage Holdings Inc. in Irvine had several rounds of layoffs of more than 500 people.

“People are losing their jobs, and these are people who are making a lot of money,” said Esmael Adibi, director of Chapman University’s A. Gary Anderson Center for Economic Research in Orange. “Our overall job growth in the county is much weaker than in the state.”

With so many companies shutting down, office vacancy rates are expected to shoot up next year. Impac is planning to sublease all seven floors in its new headquarters, which is called the Impac Center.

“Overall, there is no surprise that job creation is slow and will continue to be slow because we don’t have any impetus for huge growth,” Adibi said. “We’ll have to deal with this for another year or so.”

California Employmentnbsp;nbsp;nbsp; nbsp;nbsp;nbsp; Aug. 2007nbsp;nbsp;nbsp; Aug. 2006Apparelnbsp;nbsp;nbsp; 76,400nbsp;nbsp;nbsp; 78,700Textile Millsnbsp;nbsp;nbsp; 12,300nbsp;nbsp;nbsp; 12,400Los Angeles CountyApparelnbsp;nbsp;nbsp; 58,000nbsp;nbsp;nbsp; 59,900Textile Millsnbsp;nbsp;nbsp; 10,000nbsp;nbsp;nbsp; 10,100Source: Los Angeles County Economic Development Corp.