Not that long ago, thirty off was an acceptable discount, now it’s an acceptable month.  Not that long ago, order cancellations were infrequent and guarded, now they’re commonplace and unapologetic.

How did we get to this point?  Is this just a bad recession?  Or is it more?  Are we near the bottom?  How will we know?  What comes after the bottom?

 As I try to bring some clarity to these and other questions, I promise not to say “I’ve been in this business all my life and I’ve never seen anything like this”.  I also won’t say “A lot of this downturn is emotional and we just need to start thinking more positively”.  And finally, I’m no longer going to say “We just need to be patient and we’ll eventually get back to normal”.  

The problem with “getting back to normal” is that 1) normal is different for each of us, and 2) what’s normal changes over time.  Once upon a time, the world was flat (normal) and then it was round (new normal).  Britannia ruled the waves (normal) and then it didn’t (new normal).  Owning slaves was legal (normal for some) and then it was immoral (new normal).  More lately, smoking was normal and then it was loathed (new normal).  In the sixties, beards, mutton-crops and mustaches were normal  and then the Beatles showed up and “clean shaven” became the new normal.  

Retailers know all about normal and new normal… we call it trending.  For a week, month or season - a look, an item or a vendor is happening (normal) and then its not (new normal).  This is a retailer’s life.  Our effectiveness at distinguishing between in and out or hot and not determines the degree of our success.  There is, however, a big distinction between normals and trends.  Normals change over time, trends can change overnight.  But whether one decade or one season, the operative word here is change.  As was accurately once said, “change is the only constant”. 

As we emerge form this economic downturn, it is my contention, that many apparel and other independent retailers will find themselves competing in a marketplace unlike the one they earlier left… that for some among us there will be a new normal. 

Without getting into details that are really over my head, it seems safe to say, that unsecured credit is going to be much harder to come by.  Banks are canceling credit cards and/or lowering credit lines at an unprecedented rate.  The days carrying enough cards to play a hand of five card draw  would seem to be over.  The same for college students and all the debt they’ve been allowed to collect… even before they get a job.  And just recently, the Obama administration made it clear to the credit card industry that there needs to be major changes in the way card fees and interest rates are regulated.  While better for consumers, I expect that this too will reduce the amount of available credit. 

We all need to face this music.  Over the past 20 to 30 years, for most consumers, credit card and other debt has gotten way out of hand and we retailers have been the primary beneficiary. 

Few among us are happy when the government increases taxes.  But few among us would dispute that something needs to be done about health care, our foreign energy dependence, the country’s failing infrastructure, and the deteriorating environment.  These, and other big, complicated issues have been pushed aside for far too long.  These fresh concerns combined with the costs related to our aging population and of keeping our enemies in check, make it easy to see that our country’s financial obligations are enormous.  Higher taxes, even if they come disguised as fees and surcharges are inevitable. 

Again getting into an economic area that’s over my head, it seems safe to say that all of our financial difficulties and hoped for remedies can’t be very good for the US dollar as it trades against the world’s other currencies.  While exporting companies will see this as a good thing, retailers buying European and other imported apparel are finding prices high and getting higher.  The same suit that retailed for $1200 in 2006 has risen to nearly $1600.  The same $400 dress would now be more than $550.  Exchange rate driven price increases became a concern in  2007, a real problem by the end of 2008 and close to unworkable by spring of 2009. 

I guess I’m thinking mostly about China, but one could make the case that almost any country on the planet is now as close as the nearest computer screen, Blackberry and UPS shipping kiosk.  It used to be that foreign buying, off-shore manufacturing and direct importing were available only to the biggest or highest-end retailers.  Buying trips to Europe or the Far East were expensive and the customs hassles required complicated paperwork and expensive facilitators.  As a practicing independent, my store would buy imported goods, but only if we could purchase them domestically and avoid any customs concerns.  

Early last year, a single store independent I work with went to China, hooked up with a local agent, was taken on a tour of relevant factories, asked a bunch of questions and was eventually connected with a factory that could produce the small quantities he wanted for his store.  Since then, all contact has been on-line and the store is profitably into their second season.  In the past month, a much smaller independent I also work with, in her quest to source affordable fashion directly from China, connected with the Director of International Business Development at the Dallas Market Center and is just now returning from a 6 day guided trip to Shanghi partially paid by a 1000 travel credit. 

Each of the various segments of the apparel industry has spent several decades adjusting to the vast differences in price between what is produced in the US and other developed countries and what comes out of China, Korea, Mexico and the rest of the developing world.  There may be a few remaining small retailers still trying to compete with Banana Republic, GAP, Abercrombie & Fitch and J. Crew, but none come quickly to mind.  A typical “Banana” woven top might cost $10 after both shipping and duty, originally retail for $48 and eventually clear between $20 and $24 with gross margin still north of 50%.  Those independents that survived this onslaught of vertical sourcing and untouchable retails, did so by trading up.  They increased their reliance on “better” goods, focused on even better service and staked out what became know in the industry as their “niche”.  This new found “comfort zone” is the market segment located above the mainstream but below the really high-end.  More or less, this is where the vast majority of successful independents have been hanging out for the past 25 or so years. 

But over the past 10 years (give or take), the mainstream of the apparel business has been quietly changing.  Remember: change is the only constant.    Retailers like Target and Penny’s have gotten into the designer business.  Not Neiman’s and Sak’s high-end designer, but mainstream, faux designer.  Designer at a price.  Designer for the masses.  At the same time, department stores have continued to struggle and have increased their discounting.  Also of late, came the emergence of stores like Sweden’s H&M, Spain’s Zara and LA’s Forever 21.  All these simultaneously occurring events have resulted in lots of apparel being sold at lower and lower prices.  These reductions started in the bottom tier and have recently moved into the mainstream.  How this movement will influences the “better” tier is an important question. 

I reached my early twenties in the late ‘60s.  Our family was middle class.  Most of my acquaintances were middle class.  The vast majority of how we lived our lives was middle class.  My life was similar during the 70’s, but sometime during the ‘80s, things began to change.  From cars, to clothes to restaurants and vacations, my lifestyle took a big up-tick.  Some of this was because my income was increasing, but not all of it.  Consumption wise I started living the good life….  And I wasn’t alone. 

It’s my strong belief that lots of stores, restaurants and vacation destinations reaped the benefit of guys (and women) like me that were pushing their lifestyle to the max.  While it’s not true that every family who booked a suite at the Four Seasons was “livin’ large”.  Not true that every guy zooming around in a BMW was in “over his head”.  And not true that every twenty something administrative assistance wearing Prada knee-high boots with a matching messenger bag was flirting with financial danger, but a great many were.  In the 80’s and 90’s lots of people started livin’ large. 

Enter the current recession… a much different type of recession than we’ve previously known: high and (as yet) rising unemployment, huge government spending, loss of wealth and retirement savings, unprecedented fraud and ongoing uncertainty. 

As previously stated, the great majority of independents operate in the so called “better” and “best” retail segments.  Some of these store’s customers are financially appropriate and some, like in the above examples, are financially aspirational… meaning they aspire to shop in these stores, but must stretch their financial means to do so.  It’s these aspirational customers that concern me. 

I know it’s taken a while to reach this point.  But the purpose of what you’ve just read, is to lay the foundation for what I consider a big and troubling issue.  The great majority of retail related articles I’ve read over the past few months suggest that the specialty segment of the retail industry is, like everything else, simply in the grasp of a bad recession.  Collectively these articles suggest that stores should make adjustments to their otb, negotiate up-front discounts and extended dating, request consignment terms, pressure vendors to exchange under-performing inventory and ask vendors to contribute markdown allowance when sales are weak.  This advise seems to suggest that if retailers do much or all of these recommendations and make appropriate operating expense cuts, their business should emerge at recession’s end bruised but not crippled. 

What concerns me with this thinking is the assumption that, once the recession subsides, a similar number of customers, spending similar amounts of money on similarly priced inventory will return and a store’s business will return to normal.  But, and here’s my main point, I don’t think all of the so called aspirational consumers will return.  Simply put, I don’t think they’ll have the credit or the cash they once did.  I also think that their newly discovered access to desirable fashion at lower prices will continue to take a toll on pricier fashion. 

My company interacts monthly with a small numbers of independent retailers.  A big part of our relationship with these store owners is to assist them in navigating what we are all going through.  Dating back to the middle of 2008, the following observations are consistent: 

• the higher-end a store’s product mix, the more challenging the sales decline
• dressy and special occasion are really struggling
• all men’s, especially tailored men’s is off more than women’s
• specialty apparel segments like lingerie and maternity are holding up pretty well
• short duration, category or vendor-specific price promotions have value
• trunk shows have value
• off-site events have value
• sidewalk and warehouse sales command lots of interest
• season-long VIP discount programs are showing promise
• many retailers are seeking and finding more moderate inventory
• new inventory priced below “what’s typical” is appreciated 

Evidence to date indicates that the most effective way for apparel independents to combat this downturn and prepare for its aftermath is to offer even more specialized (unique, compelling) merchandise and demonstrate a sincere effort offering more affordable price-points.  Admittedly, this is a much tougher task in some segments than others.  Maybe tough is also a new normal?