California Apparel News

Many apparel makers are hoping that 2012 will be their turnaround year. They may have to wait.

“I didn’t have growth in 2011,” said Lonnie Kane, president of Karen Kane Inc. in Vernon, Calif., a manufacturer of women’s clothing sold at stores such as Nordstrom and Macy’s. “Revenues were flat in 2011 compared to 2010. It was in 2009 that our revenues dropped, and in 2010 it just continued.”

The veteran apparel maker, whose net sales in the past have hovered around $100 million, is hoping his company’s revenues will rise by 10 percent in 2012 after he saw the fourth quarter of 2011 pick up.

“I still think 2012 can be difficult mainly because the election will overshadow a lot of things,” Kane said. “But I think, across the board, the bottom has been hit, and most people, retailers in general, think there is opportunity going forward.”

But that opportunity may hit a speed bump. The National Retail Federation recently forecast that 2012 retail sales across the country will rise 3.4 percent to $2.53 trillion, slightly lower than 2011, when sales were up 4.7 percent. Factors that will affect a less-than-spectacular retail scene are lackluster income growth, uncertain consumer confidence, and rising prices for food and gasoline.

Gasoline prices could be the make-orbreak factor for apparel sales in 2012. Already, energy pundits are predicting that a gallon of gasoline could spike to nearly $4.55 to $5 a gallon by Memorial Day. High gas prices translate into diminished apparel sales because consumers drive less, shrink their clothing budget and hunker down to make up for rising energy costs.

When gas prices mushroomed in the summer of 2008 to $4.81 a gallon in Los Angeles and $4.12 nationally, shoppers migrated to mass merchants such as Wal-Mart and hunted for bargains at off-price retailers such as Ross Dress for Less and TJ Maxx. That year, Macy’s had a net loss of $4.8 billion on sales of $24.9 billion, compared with a profit in 2007 of $893 million on sales of $26.3 billion.

Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University in Orange, Calif., has been crunching the numbers and had a fairly upbeat outlook for 2012 if things run on a smooth course. “Overall, we ended 2011 last year pretty decently,” he said, noting that holiday sales were above the 3.5 percent rise he had predicted. They shot up 4.1 percent, according to a National Retail Federation measurement that excludes automobiles, gas stations and restaurants.

“We think this year is going to be slightly better than last year,” Adibi said, explaining that gross domestic product (GDP) should rise 2.3 percent in 2012 versus 1.8 percent in 2011.

But he has a few caveats. One is the price of gas. Another is the economic situation in Europe, which is headed for recession if it is not already there.

“Oil prices are running at about $100 a barrel, when they should be at $80 a barrel,” Adibi observed.

Everyone is watching what happens with Iran, a major petroleum producer, which is threatening to blockade the Strait of Hormuz, the world’s largest chokepoint for seaborne oil.

The blockade would be in retaliation for the United States and its allies threatening to impose economic sanctions on Iran for developing nuclear programs that some suspect are for weapons rather than energy.

The 27 European Union countries are meeting Jan. 23 to discuss an embargo on oil imports from the Islamic republic, which is the second-biggest producer in the Organization of Petroleum Exporting Countries.

“Certainly, there is concern about how the price of gasoline will affect consumer spending in 2012,” said Robert Kleinhenz, the new chief economist at the Los Angeles County Economic Development Corp. “It is one of the wild cards we are going to have to contend with.”

The other looming economic bugaboo is Europe and its sovereign-debt problem. Standard & Poor’s stripped France’s bonds of its AAA ratings and downgraded the ratings of nine European members on Jan. 13.

Many are forecasting that Europe’s recession will be long and deep. “They are, more or less, collectively in recession,” Adibi said. “We can still move forward. But what if the European zone just collapses? That would have serious ramifications on our banks.”

California state of mind

In California, the forecast is for slow growth until the housing market recovers.

According to economist Jerry Nickelsburg, with the UCLA Anderson Forecast, employment in the state should rise by 1.4 percent this year and 2.1 percent in 2013. But the unemployment rate will hover around 11.6 percent for the rest of the year.

“It still looks like slow growth this year,” Nickelsburg said. “Exports from the state were one of the bright spots in 2011, but they will be slower in 2012 because Europe is at—or about to enter—a recession, and growth in Asia is slowing down. Business investment is doing fine, but the housing market is still in the doldrums.”

Exports were a bright spot at the Port of Los Angeles, where the number of loaded 20- foot cargo containers shipped overseas was up 14.5 percent over the previous year. Overall, however, cargo-container volume was up only 1.4 percent to 7.9 million cargo containers.

At the Port of Long Beach in Long Beach, Calif., the economic picture was not as rosy. Cargo-container volume in 2011 dipped 3.2 percent to 6.1 million cargo containers. Exports slumped 3.6 percent while imports were down 3.3 percent. One of the reasons for the decline is that California United Terminals, which accounted for 10 percent of the port’s cargo-container volume, left the Port of Long Beach and moved to the Port of Los Angeles.