Retail sales for all core outdoor stores combined (chain, internet, specialty)* grew 2% compared to last April, moving from $339M to $347M, according to the most recent edition of The Outdoor Industry Association (OIA) Outdoor Topline Report, produced for OIA by the Leisure Trends Group. Sales for the four months of the year totaled $1.4B, down 5% from the same period in 2008.
Outdoor Chain – Shoppers ReturnAccording to the OIA Outdoor Topline Report, chain stores saw sales surge 20% in units and 18% in dollars. Every major product category (equipment, equipment accessories, apparel and footwear) and most sub-categories gained. Products that appeal to families and car campers fared especially well. Recreation tent sales shot ahead of last April by 78% in units and 64% in dollars. Sun shelters were up 88% in units and three-season recreation tents, retailing for $124, jumped 71%. Synthetic fill rectangular bags, retailing for $32, increased 82% in units whereas the more technical synthetic mummy bags, at $99 retail, grew 31%.
Outdoor Specialty – Declines Slowing But Not Yet ReversingIn specialty stores, April declines were not as severe as in past months, as total sales fell 1% in units and 4% in dollars compared to April 2008. So far this year, all specialty unit sales declined 6% and dollars fell 10%. Each major product category (equipment, equipment accessories, apparel and footwear) saw single-digit declines compared to last April. There were bright spots this month, too, as synthetic sleeping bags, medium-sized packs, climbing gear, multisport shoes, hiking boots and various equipment accessory categories posted gains.
Outdoor Internet – Retail Prices Rise, Units Fall as Online Retailers Reign in Clearance ProductInternet sales totaled $54M this month, falling 20% in units, rising 4% in average retail-selling price and dropping 17% in dollars. All year, Internet sales have been sporadic, up 35% in January on huge carryover sales, down 9% in February, back up 14% in March and now down 17% in April. Higher retail-selling prices across many categories coupled with dramatically smaller carryover sales (defined as old and/or discontinued merchandise) point to either a lack of available merchandise and/or online retailers reigning in the amount of rock-bottom clearance priced product they are offering. If this is the case, total sales may have fallen but profit per turn might go up.
Hands-on Hydration Reaching Plateau?Hands-on hydration, consisting mostly of water bottles, is now an $89M category across all store channels in the current rolling year. However, the category seems to be reaching the height of its growth, after a meteoric rise. While still up 15% and 28% in specialty-store units and dollars so far this year, the hands-on hydration category dropped 10% in units and 2% in dollars in specialty stores compared to April 2008. The category plunged 54% in online units and 57% in dollars from last April, while still seeing growth in chains. Looking at all three store channels together, total units were flat in April and dollars grew 5% on a 5% increase in retail price. Still, with $6.9M in total April sales and $22M YTD, the category is a long way away from the 2006 totals of just $2M in April and $6M in the January – April YTD period.
Paddlesports – Canoes Bright Spot for AprilCore paddlesport stores (specialty, chain, internet) brought in $36M in April and $86M so far in 2009, dropping 1% and 3%, respectively, against the same period last year. While all boats, with $21M this month, dropped 2% in both units and dollars, both recreation kayaks and canoes gained steam compared to last April. Recreation kayaks with an average retail price of $769, up 7% from last April, gained 3% in overall dollars for an April total of $11.2M. Canoes gained 5% in units, 4% in retail price and 9% in total dollars this month.
Wednesday, June 10, 2009
Tuesday, June 9, 2009
SNEWS Special Report: A broken supply chain? The retail perspective
The quest to help facilitate the discussion around finding a solution to a badly flawed outdoor industry supply chain began with an email plea to SNEWS® in March from a number of retailers. The email called out a list of challenges to the way we buy and sell, from a retailer's perspective:
- too many trade shows, both regional and national exist, and yet we keep adding more;
- early preseason and pre-show buying deadlines keep moving forward at an alarming rate;
- rep line previews are taking longer, as is the amount of time required to write an order, sometimes as much as four days, for a single brand;
- minimum order amounts for best terms continue to escalate in price, making them unreasonable for most small specialty retailers;
- reps for larger brands demand time in stores from buyers and store owners often during the busiest selling seasons, right when owners and buyers need to be focused on managing their business, brands and staff;
- and the pressure from too many vendors -- each selling too much me-too product -- to buy multi-categories from each vendor, often leading to retailers taking on inventory they don't want or need to get best terms.
As SNEWS started to peel back the layers of the onion to work on better understanding the issues from all sides, we quickly realized there was going to be no simple answer to what has become a very complicated issue. We spent several months investigating, including visiting factories overseas, interviewing numerous manufacturers (CEOs, production managers and designers), talking with sales reps, trade show organizers and other retailers. Then we chatted with industry consultants to seek opinions, garner background information and decide how best to proceed. One common thread began to appear among the complexly woven tapestry: Everyone shares some responsibility for how we arrived at the current supply chain problem and everyone must act collectively to find a solution.
Somehow, in the headlong race over the last 15 years to chase the almighty sewing dollar, we have managed to create a production and sales cycle that is so complex even executives coming into our industry from far more seemingly complicated markets shake their heads in wonder. Few retailers and even fewer manufacturers from other industries are making buying and selling decisions a year in advance -- decisions that can make or break a season or even a year.
Order lead times have lengthened, necessitated in part because manufacturers insist they need 10 months or more lead time for greige goods (i.e., unbleached and undyed textiles). That means reps are showing up in key stores in November, asking buyers and store owners to make buying decisions for products that won't deliver until the following August, intended to sell during the months of September through December.
The problem with this, retailers told us, is they often have no real idea what will sell through this year in order to make an educated guess as to what colors and styles might sell well next year. Worse, few feel confident enough about their personal crystal balls to place orders when there is no way to gauge the economy, trends or consumer buying moods that far in advance. In the outdoor specialty market, with few exceptions, the strongest selling season for most retailers is November through January (on average, 25 percent to 30 percent of all sales are made during this time). The second most important selling season appears to be May through mid-July. With the current ordering cycle, reps are coming into stores during the busiest selling seasons, and buyers and storeowners, and often key floor sales staff, are having to spend significant off-the-floor time in meetings. Retailers also point out that once the rep has left, their scramble is not done, as most manufacturers now are demanding paper by December for the fall deliveries and paper by late June and early July for the following spring deliveries.
If it were only as simple as viewing product and placing an order, that might be one thing, but retailers also tell us that during those same peak sales times, they have to be in contact with their sales reps by phone or email, national sales managers by phone, and in some cases, even sales VPs or company owners to ensure turns and profits are maximized and the best terms are worked out. Since every retailer is doing much the same thing, and there are only so many reps and sales managers to go around, retailers tell us that this leads to a circus of voicemail messages, phone tag dances, and games of hide-and-seek that are enormous time wasters. Multiply that scenario by 100 brands all demanding essentially the same performance and one begins to wonder how any business is getting done at all, let alone good buying decisions are being made.
Most retailers we spoke with are responding to the shifting economic climate and consumer buying habits by modifying traditional preseason and fill-in strategies to align more closely with inventory need. The majority is now allotting only 55 percent to 60 percent of their dollars for preseasons with the rest kept in pocket for fill-ins and chasing bargains. But manufacturers still seem to want retailers to essentially super-size their orders to gain the most favorable terms, we were told. And that just doesn't seem healthy either.
Retailers further explained to us that manufacturers seem to be on the same path, despite the economy, of trying to push preseasons earlier and earlier. Retailers assert that manufacturers apparently want to tie up more of the retailers' dollars earlier, so they can garner a competitive advantage and, perhaps, ensure earlier production time on the factory floors in Asia.
Not one retailer we spoke with told us manufacturers were lowering thresholds to garner the best terms -- even in this challenged economy. In fact, most manufacturers appear, according to retailers, to be insisting retailers maintain flat to increased business to earn best terms -- often requiring they take on more SKUs and a broader product mix than a retailer might wish to carry from that particular vendor. Retailers told SNEWS that while they suspect manufacturers are doing this to prevent cherry-picking of lines, this kind of business approach is not only short-sighted, it is the kind of strategy that created the overstock scenario many retailers found themselves in when the market collapsed in late 2008. And, it is this approach to force-feeding a retailer that is the primary reason why so many preseason orders were cancelled this spring, leaving manufacturers stuck with spring/summer inventory that had landed, but wasn't selling.
Additional preseason trade shows, regional shows, rep shows and moving the dates on what is currently considered our national show, Outdoor Retailer, are of no help and do nothing, really, to address the overall issue of a broken selling cycle, retailers said. The earlier the shows move, they said, the earlier still the manufacturers continue to push their reps to get in to see key retailers, and round and round the merry-go-round goes.
Retailers acknowledged, somewhat wistfully, that the days of heading to an August or January national trade show for the inaugural "show and tell" of new product, followed by the buying decisions either at the show or a month later, are long gone. There are too many brands with expanding product lines and production spread all over the globe for that to ever work again. In fact, some argued, we have too many brands to begin with now…but that's a topic for another day.
So, from a retailer's perspective, what are the solutions?
1. Stop all the show madness -- pre-shows, manufacturer preview shows, regional show additions and trade show date dancing. Less is more here.
2. Reps are welcome (begged for and wanted a number of retailers told us) in the stores November through December and June through July as long as they are there to drive sales by supporting the sales staff and working the floor, not give a line presentation. If manufacturers are creating a scenario where reps feel they need to be in the stores giving line presentations -- sometimes lasting multiple days -- then the manufacturers need to shift the order and production timelines to eliminate this.
3. Manufacturers need to realize that retailers are going to order less in preseasons, and as a result, require more with fill-ins. For retailers, it is about turns, not about how much has been preseasoned. Core products should never be out of stock.
It is VERY important, however, that everyone reading this, realizes, as SNEWS does, that the above is but one view of a very complex situation -- it is how retailers are looking at the supply chain problems. Next up, SNEWS will take a look at the distribution challenges through the eyes of the rep.
Our goal with this series of editorials is to engage the industry in healthy discussion. Perhaps open a few eyes to seeing things through a new lens, and, hopefully, help us all arrive at a series of ideas and action items that will, in the long term, lead to a healthier and more profitable industry for us all. --Michael Hodgson
Sunday, June 7, 2009
Wednesday, May 27, 2009
NPD’s Economy Tracker Shows Consumer Perceptions of the Economy Moving in a More Positive Direction
The latest information from leading market research company, The NPD Group, Inc.’s (NPD) Economy Tracker shows consumer sentiment is on the rise and concern regarding job security is decreasing.
NPD’s General Economic Perception Indicator rose from 36.5 points in March to 40.8 points in April. The indicator measures consumer concerns regarding the economy on a scale between 0 and 100, with 0 being “Very Concerned” and 100 being “Very Confident.”
“These results are encouraging and indicate that the consumer is feeling more positive about the state of our economy,” said Marshal Cohen, chief industry analyst, The NPD Group, Inc.
The survey also showed a 7% decline in the number of consumers who are “very concerned” about the security of their jobs. “How consumers feel about the security of their incomes has an impact on how they respond at retail,” noted Cohen.
This decreasing concern regarding job security may have been a factor in the up-tick of the Retail Response Indicator, which increased almost four points from 35.9 in March to 39.5 points in April. “Consumers are telling us they are still buying only what they need and that they are motivated to purchase by sales and special promotions.” said Cohen. The Retail Response indicator measures consumer spending intentions on a 0 to 100 scale, with 0 representing “Reduce or Spend Less” and 100 representing “Spend More.”
“As news of our economy continues to improve and reach the ears of consumers, we will see that they are starting to move beyond just purchasing necessities. This movement is critical as we begin to progress through this period of stabilization," concluded Cohen.
The Economy Tracker is based on online surveys completed by 1,000 respondents each month. The sample is nationally representative. Results are delivered in 12 monthly reports, quarterly summaries and a year-end analysis.
NPD’s General Economic Perception Indicator rose from 36.5 points in March to 40.8 points in April. The indicator measures consumer concerns regarding the economy on a scale between 0 and 100, with 0 being “Very Concerned” and 100 being “Very Confident.”
“These results are encouraging and indicate that the consumer is feeling more positive about the state of our economy,” said Marshal Cohen, chief industry analyst, The NPD Group, Inc.
The survey also showed a 7% decline in the number of consumers who are “very concerned” about the security of their jobs. “How consumers feel about the security of their incomes has an impact on how they respond at retail,” noted Cohen.
This decreasing concern regarding job security may have been a factor in the up-tick of the Retail Response Indicator, which increased almost four points from 35.9 in March to 39.5 points in April. “Consumers are telling us they are still buying only what they need and that they are motivated to purchase by sales and special promotions.” said Cohen. The Retail Response indicator measures consumer spending intentions on a 0 to 100 scale, with 0 representing “Reduce or Spend Less” and 100 representing “Spend More.”
“As news of our economy continues to improve and reach the ears of consumers, we will see that they are starting to move beyond just purchasing necessities. This movement is critical as we begin to progress through this period of stabilization," concluded Cohen.
The Economy Tracker is based on online surveys completed by 1,000 respondents each month. The sample is nationally representative. Results are delivered in 12 monthly reports, quarterly summaries and a year-end analysis.
Wednesday, May 20, 2009
Economic downturn may have lasting effect on consumer behavior
The economic struggles of the last year that have taken a heavy toll on retail may have a lasting effect on how consumers shop and buy – one every retailer and supplier will have to deal with.
According to a new report from Information Resources Inc., research suggests that most shoppers will continue with their current mindset for a long time – even after the economy recovers. The IRI research compares the thinking to that of the children of the Depression and says it is a basic “rewiring of behavior (that) that will have long-term effects on shoppers’ bargain-hunting habits, where they get their information and the number and types of stores they will frequent.”
At the same time, Nielsen reported at its recent Consumer 360 Conference that the Dollar Store and similar stores are thriving, attracting new customers and are not just for low-income shoppers anymore.
“As consumers respond to the economic downturn by simplifying their lives, the dollar channel is providing convenience, value, and a new level of shopping consistency,” said Jeff Gregori, vice president of retail services for Nielsen in his presentation, "Rise of the Dollar Channel."
Nielsen research has shown consumers of all income levels are coming to the channel but that the most growth is among higher-income shoppers – up 10 percent compared to a year ago – and that the growth accelerated in the last half of 2008.
No matter whether you side with the forecasts that the economy will recover later this year or not until late in 2010, experts are taking a look at its effect on shoppers not only today, but in a decade or two. Experts are saying they think the American consumer has begun to rethink the so-called American Dream of buying a house that rises in value, an easy availability of credit, and a better future. Meanwhile they are willing to pay money for some items, such as “affordable indulgences,” but are looking to find more and more bargains too.
In addition, they are looking at such practices as pooling resources with friends and family, for example by sharing yard equipment.
In the study, 71 percent (up from 64 percent) said they would look at store flyers before going to a store or while at the store, and 82 percent (up from 63 percent) said they would bring coupons, while 44 percent (down from 48 percent) said they would make additional unplanned purchases in-store.
“The Downturn Generation will take significant convincing before they believe it is safe to open their wallets and purses again,” said research author IRI president of consulting and innovation, Thom Blischok. “This group has less long-term optimism and a much more cautious outlook for the future than their predecessors.”
The research, titled, “Dissecting the Downturn Generation: Recognizing and Leveraging Permanence In Today's Transformational Economy,”, also shared nine tips for consumer goods manufacturers and retailers:
Shift merchandising out of the store and into the home – Shoppers are doing more research about products at home where they also are downloading coupons.
Increase Emphasis on Online and Social Media Presence – Many are embracing less traditional media in favor of websites, blogs and social media sites, and research often becomes a viral, collaborative effort.
Recognize and Assist with Changing Rituals – Where applicable, manufacturers should try to make it easier for consumers to “stock up” on some items by offering larger quantities, and retailers can put them in special areas.
Focus on Familiar Products – Line extensions rather than new products may be more successful for the short-term.
Understand that "Good Enough" is Good Enough – Re-engineering an existing product to make it cost less compared to introducing or selling a higher-priced item may be more worthwhile.
Realize That Shoppers Will Travel for a Deal – A good deal will prompt consumers to drive farther while brand and retailer loyalty may erode.
Collaborate to Find Common Ground – Retailer margins may continue to erode so trading partner will need new strategies to collaborate effectively and successfully.
Adapt to the Rapid Pace of Change – If the recession continues, businesses should be prepared and ready for shoppers to cut more items out of their closets, houses, medicine cabinets and diets.
Prepare for the New Conservative Consumer – Optimism is not long-term and most of this generation will remain cautious about the future.
“Change creates opportunity,” Blischok wrote, “and today’s economic environment reflects more change than any time since the 1930s. While the opportunities are somewhat different,… ample opportunities exist to collaborate and improve product offerings, assortments and layouts, as well as pricing and promotions.”
The entire white paper can be downloaded from Retailwire by clicking here (registration is required)
According to a new report from Information Resources Inc., research suggests that most shoppers will continue with their current mindset for a long time – even after the economy recovers. The IRI research compares the thinking to that of the children of the Depression and says it is a basic “rewiring of behavior (that) that will have long-term effects on shoppers’ bargain-hunting habits, where they get their information and the number and types of stores they will frequent.”
At the same time, Nielsen reported at its recent Consumer 360 Conference that the Dollar Store and similar stores are thriving, attracting new customers and are not just for low-income shoppers anymore.
“As consumers respond to the economic downturn by simplifying their lives, the dollar channel is providing convenience, value, and a new level of shopping consistency,” said Jeff Gregori, vice president of retail services for Nielsen in his presentation, "Rise of the Dollar Channel."
Nielsen research has shown consumers of all income levels are coming to the channel but that the most growth is among higher-income shoppers – up 10 percent compared to a year ago – and that the growth accelerated in the last half of 2008.
No matter whether you side with the forecasts that the economy will recover later this year or not until late in 2010, experts are taking a look at its effect on shoppers not only today, but in a decade or two. Experts are saying they think the American consumer has begun to rethink the so-called American Dream of buying a house that rises in value, an easy availability of credit, and a better future. Meanwhile they are willing to pay money for some items, such as “affordable indulgences,” but are looking to find more and more bargains too.
In addition, they are looking at such practices as pooling resources with friends and family, for example by sharing yard equipment.
In the study, 71 percent (up from 64 percent) said they would look at store flyers before going to a store or while at the store, and 82 percent (up from 63 percent) said they would bring coupons, while 44 percent (down from 48 percent) said they would make additional unplanned purchases in-store.
“The Downturn Generation will take significant convincing before they believe it is safe to open their wallets and purses again,” said research author IRI president of consulting and innovation, Thom Blischok. “This group has less long-term optimism and a much more cautious outlook for the future than their predecessors.”
The research, titled, “Dissecting the Downturn Generation: Recognizing and Leveraging Permanence In Today's Transformational Economy,”, also shared nine tips for consumer goods manufacturers and retailers:
Shift merchandising out of the store and into the home – Shoppers are doing more research about products at home where they also are downloading coupons.
Increase Emphasis on Online and Social Media Presence – Many are embracing less traditional media in favor of websites, blogs and social media sites, and research often becomes a viral, collaborative effort.
Recognize and Assist with Changing Rituals – Where applicable, manufacturers should try to make it easier for consumers to “stock up” on some items by offering larger quantities, and retailers can put them in special areas.
Focus on Familiar Products – Line extensions rather than new products may be more successful for the short-term.
Understand that "Good Enough" is Good Enough – Re-engineering an existing product to make it cost less compared to introducing or selling a higher-priced item may be more worthwhile.
Realize That Shoppers Will Travel for a Deal – A good deal will prompt consumers to drive farther while brand and retailer loyalty may erode.
Collaborate to Find Common Ground – Retailer margins may continue to erode so trading partner will need new strategies to collaborate effectively and successfully.
Adapt to the Rapid Pace of Change – If the recession continues, businesses should be prepared and ready for shoppers to cut more items out of their closets, houses, medicine cabinets and diets.
Prepare for the New Conservative Consumer – Optimism is not long-term and most of this generation will remain cautious about the future.
“Change creates opportunity,” Blischok wrote, “and today’s economic environment reflects more change than any time since the 1930s. While the opportunities are somewhat different,… ample opportunities exist to collaborate and improve product offerings, assortments and layouts, as well as pricing and promotions.”
The entire white paper can be downloaded from Retailwire by clicking here (registration is required)
Thursday, May 7, 2009
Credit - Q&A: Mountain Hardwear’s Mike Wallenfels on the Evolving Business Model
For a look at what a new business model for the outdoor industry might look like, CEO Brief posed some questions to Mike Wallenfels, president of Mountain Hardwear and Chairman of the Outdoor Industry Association Board or Directors. Below are excerpts from his responses:
Q: How would you see vendors’ terms changing under a business model in which brands are breaking up business into four or five production runs and delivery periods throughout the year? A: There would be three tiers under what retailers would buy from. Continuous replenishment of year-round product that would carry 30-day terms at set prices providing reliable margin to the retailer, these transactions are not driven by discounts and dating. For seasonal product sold twice a year, we should operate on a moderate discount range with extended dating offered for appropriate categories such as ski apparel and equipment and offer the ability to reorder. For seasonal collections, I see higher discounts as an incentive for four or more product offerings a year that would liquidate after 60 to 90 days in store.
Q: How do you envision this affecting the brands’ and/or retailers’ ability to chase business when a popular style emerges? A: For 12-month and seasonal products there is no change and meeting demand should still be expected. For the 4x product assortments, this is truly collection selling and a rapid sell out is a win for everyone and any reorder would be unplanned. A wholesale brand could decide to offer a key mover again the next season or year. Hopefully we keep coming up with new winners each time. Again, this is the exception and not the rule.
Q: How would the hard goods business fit into this new model? A: Equipment should fit into the replenishment model with retailers picking their styles in the spring for camping and climbing gear. Initial orders are shipped with retailers supplying projections of sales with B2B systems used to keep product in stock. Wholesale brands benefit here when they get to see in season sell-through on their products and retailers manage lower inventories with faster turns. However, this does not work if there is not a mechanism in place to make it happen. Currently we rely on large shipments two times per year with reorder in between orders to stock retailers. Wholesale brands are willing to invest in the appropriate systems if the retailers can get up to speed.
Q: Why not just bring more apparel and/or footwear production back home to reduce lead times? A: The factory base in casual and performance apparel is NOT here. We can make T-shirts and smaller runs of knit products, but stylized apparel, rainwear, and technical equipment are out of the question. If there were factories available, we would have a rude awakening to the prices that we would see compared to Asia. I do believe that there will be growth in domestic production as time goes on, but it will take some time, investment, customs changes and price acceptance.
Q: Why change the model for a temporary financial crisis? Won't things just go back to normal when the financial crisis ends? A: Banks and brands will all require assurances that these issues cannot happen again. Currently, the retailer can cancel any product at any time, but the wholesaler cannot. This leaves a large amount of inventory that still has yet to find a home in 2009. Good business practice will show that we need to change on some level. I also believe what many say will be a lasting change in consumer buying habits. How extensive it will be is yet to be seen, but caution will be the rule in the supply chain going forward.
Q: How would you see vendors’ terms changing under a business model in which brands are breaking up business into four or five production runs and delivery periods throughout the year? A: There would be three tiers under what retailers would buy from. Continuous replenishment of year-round product that would carry 30-day terms at set prices providing reliable margin to the retailer, these transactions are not driven by discounts and dating. For seasonal product sold twice a year, we should operate on a moderate discount range with extended dating offered for appropriate categories such as ski apparel and equipment and offer the ability to reorder. For seasonal collections, I see higher discounts as an incentive for four or more product offerings a year that would liquidate after 60 to 90 days in store.
Q: How do you envision this affecting the brands’ and/or retailers’ ability to chase business when a popular style emerges? A: For 12-month and seasonal products there is no change and meeting demand should still be expected. For the 4x product assortments, this is truly collection selling and a rapid sell out is a win for everyone and any reorder would be unplanned. A wholesale brand could decide to offer a key mover again the next season or year. Hopefully we keep coming up with new winners each time. Again, this is the exception and not the rule.
Q: How would the hard goods business fit into this new model? A: Equipment should fit into the replenishment model with retailers picking their styles in the spring for camping and climbing gear. Initial orders are shipped with retailers supplying projections of sales with B2B systems used to keep product in stock. Wholesale brands benefit here when they get to see in season sell-through on their products and retailers manage lower inventories with faster turns. However, this does not work if there is not a mechanism in place to make it happen. Currently we rely on large shipments two times per year with reorder in between orders to stock retailers. Wholesale brands are willing to invest in the appropriate systems if the retailers can get up to speed.
Q: Why not just bring more apparel and/or footwear production back home to reduce lead times? A: The factory base in casual and performance apparel is NOT here. We can make T-shirts and smaller runs of knit products, but stylized apparel, rainwear, and technical equipment are out of the question. If there were factories available, we would have a rude awakening to the prices that we would see compared to Asia. I do believe that there will be growth in domestic production as time goes on, but it will take some time, investment, customs changes and price acceptance.
Q: Why change the model for a temporary financial crisis? Won't things just go back to normal when the financial crisis ends? A: Banks and brands will all require assurances that these issues cannot happen again. Currently, the retailer can cancel any product at any time, but the wholesaler cannot. This leaves a large amount of inventory that still has yet to find a home in 2009. Good business practice will show that we need to change on some level. I also believe what many say will be a lasting change in consumer buying habits. How extensive it will be is yet to be seen, but caution will be the rule in the supply chain going forward.
A Supply Chain in Crisis: Finding New Ways to Share Risk
The outdoor industry’s chances of emerging stronger than ever from the economic crisis are good if brands, manufacturers, dealers and their bankers can agree in coming months how to reapportion risk in a much faster moving, but slower growing economy.
Consensus is building among outdoor brands that they need to move production and wholesale deliveries closer to need. That will involve moving toward a fashion merchandising model of smaller, more frequent production runs. The goal is less inventory risk, less work in progress and less reliance on credit.
Retailers are already moving in this direction, according to consultants, retailers and industry suppliers.
“We’ve seen huge increases in the reorder side of the business,” said Peter O’Neil, VP of sales and marketing for CenterStone Technologies, which provides a B2B platform that allows reps and dealers to view brand’s inventories and place orders 24/7. “Retailers are loving the fact that they can chase inventory and order when they have one left on the rack. They no longer have to have ten on the rack and wait for them sell. That's driving our business.”
The onus appears to be on brands, their manufacturers and suppliers, who will need to negotiate new terms to ensure a smooth transition. Specifically, brands will have to negotiate with manufacturers and suppliers, such as fabric mills, to lower their minimum product runs or they will have to start paying and absorbing surcharges. That’s something that is also starting to happen with more frequency, according to sourcing experts.
Currently, brands that can’t meet minimum order requirements are assessed surcharges. Until now, brands dealt with the minimums by pressuring their dealers to place larger and larger preseason orders and then liquidating any unsold product at the end of season. But retailers began trimming back preseason orders in early 2008 and have since been canceling orders at an unprecedented rate. Traditional liquidation channels, meanwhile, are having difficulty moving surplus goods at traditional margins because department and chain stores are already selling so much apparel and footwear at up to 70% off retail.
Outdoor brands that can’t convince suppliers to reduce minimums will need to pay surcharges or find more willing suppliers willing to handle smaller runs. The latter has also begun to occur.
Longer term, some experts foresee a shift to a more regional production platform with smaller run/quick turn sportswear production for the North American market moving closer to home.
Horny Toad CEO Gordon Seabury said Zara, a vertically integrated global fashion brand owned by Spanish apparel giant Inditex, provides a glimpse of the future. On average, Zara can deliver goods to its European stores within 24 hours of receiving an order. Orders from America and Asia are fulfilled within 48 hours. The company’s designers receive input directly from buyers at more than 500 stores. Highly automated logistics centers ship product twice a week and each delivery includes new items so that stores are constantly refreshing their offer, according to Inditex’s annual report. In 2006, the company’s EBITDA rose 20% to 2.2 billion, or 22.8 percent of sales.
Despite the clamor from retailers for more domestic production, the bulk of manufacturing is likely to remain in Asia, and particularly China. Asian factories have simply gotten too good at what they do and provide too much value for the dollar, sourcing experts say. It's no longer just the labor differential but the work ethic and willingness to go the extra mile that is separating them from U.S. mills, contractors say.
After all, if Chinese factories can serve the quick turn-around times demanded by the ready-to-wear and fashion industries, they can surely meet the needs of the outdoor industry, experts say.
Horny Toad’s Lizard Lounge retail store in Portland is already moving toward this model. To keep things fresh, the store takes deliveries six times a year and remerchandizes every two weeks. It now turns inventory every six weeks, said Seabury.
“The whole industry is built on the old equipment model – stack it to the ceiling and sell it and then mark down whatever does not sell,” said Seabury. “There is tons of inventory stashed in the back tying up working capital. We need to increase frequency of replenishment to drive traffic through the stores. You are still developing product for two major seasons, but you are staging production and deliveries – phasing it to reduce duration of the cash float.”
Lizard Lounge has taught Horny Toad that in this economy more than ever, edgier more innovative product, rather than core product, is what drives retail traffic and sales. “Even if people are spending less,” he said, “you have to give them a reason to spend. “
Consensus is building among outdoor brands that they need to move production and wholesale deliveries closer to need. That will involve moving toward a fashion merchandising model of smaller, more frequent production runs. The goal is less inventory risk, less work in progress and less reliance on credit.
Retailers are already moving in this direction, according to consultants, retailers and industry suppliers.
“We’ve seen huge increases in the reorder side of the business,” said Peter O’Neil, VP of sales and marketing for CenterStone Technologies, which provides a B2B platform that allows reps and dealers to view brand’s inventories and place orders 24/7. “Retailers are loving the fact that they can chase inventory and order when they have one left on the rack. They no longer have to have ten on the rack and wait for them sell. That's driving our business.”
The onus appears to be on brands, their manufacturers and suppliers, who will need to negotiate new terms to ensure a smooth transition. Specifically, brands will have to negotiate with manufacturers and suppliers, such as fabric mills, to lower their minimum product runs or they will have to start paying and absorbing surcharges. That’s something that is also starting to happen with more frequency, according to sourcing experts.
Currently, brands that can’t meet minimum order requirements are assessed surcharges. Until now, brands dealt with the minimums by pressuring their dealers to place larger and larger preseason orders and then liquidating any unsold product at the end of season. But retailers began trimming back preseason orders in early 2008 and have since been canceling orders at an unprecedented rate. Traditional liquidation channels, meanwhile, are having difficulty moving surplus goods at traditional margins because department and chain stores are already selling so much apparel and footwear at up to 70% off retail.
Outdoor brands that can’t convince suppliers to reduce minimums will need to pay surcharges or find more willing suppliers willing to handle smaller runs. The latter has also begun to occur.
Longer term, some experts foresee a shift to a more regional production platform with smaller run/quick turn sportswear production for the North American market moving closer to home.
Horny Toad CEO Gordon Seabury said Zara, a vertically integrated global fashion brand owned by Spanish apparel giant Inditex, provides a glimpse of the future. On average, Zara can deliver goods to its European stores within 24 hours of receiving an order. Orders from America and Asia are fulfilled within 48 hours. The company’s designers receive input directly from buyers at more than 500 stores. Highly automated logistics centers ship product twice a week and each delivery includes new items so that stores are constantly refreshing their offer, according to Inditex’s annual report. In 2006, the company’s EBITDA rose 20% to 2.2 billion, or 22.8 percent of sales.
Despite the clamor from retailers for more domestic production, the bulk of manufacturing is likely to remain in Asia, and particularly China. Asian factories have simply gotten too good at what they do and provide too much value for the dollar, sourcing experts say. It's no longer just the labor differential but the work ethic and willingness to go the extra mile that is separating them from U.S. mills, contractors say.
After all, if Chinese factories can serve the quick turn-around times demanded by the ready-to-wear and fashion industries, they can surely meet the needs of the outdoor industry, experts say.
Horny Toad’s Lizard Lounge retail store in Portland is already moving toward this model. To keep things fresh, the store takes deliveries six times a year and remerchandizes every two weeks. It now turns inventory every six weeks, said Seabury.
“The whole industry is built on the old equipment model – stack it to the ceiling and sell it and then mark down whatever does not sell,” said Seabury. “There is tons of inventory stashed in the back tying up working capital. We need to increase frequency of replenishment to drive traffic through the stores. You are still developing product for two major seasons, but you are staging production and deliveries – phasing it to reduce duration of the cash float.”
Lizard Lounge has taught Horny Toad that in this economy more than ever, edgier more innovative product, rather than core product, is what drives retail traffic and sales. “Even if people are spending less,” he said, “you have to give them a reason to spend. “
Credit - A Supply Chain in Crisis: The Broken Two-Season Business Model
A scarcity of credit and shrinking sales is taking its toll on the outdoor industry’s two-season business model with its long lead times and reliance on credit.
Healthy growth rates have enabled the apparel and footwear industry to overlook the well known flaws of its business model for years. In that model – inherited largely from the snow sports industry – product managers would essentially order, manufacture and ship apparel and footwear to their dealers twice each season. The system tended to push inventory risk onto retailers, who were enticed by discounts to place up to 70% of their orders a full year in advance. In exchange, brands financed the inventory and offered preseason discounts of up to 10% plus dating of up to 120 days for some winter goods.
This system allowed brands to amass orders to meet the minimum production runs of Asian mills. It also gave them time to shop sourcing for the best price. The downside was that the extended lead times meant brands would tie up valuable cash in greige goods and working capital for up to ten months. Conversely, many retailers got in the habit of relying on lines of credit to finance their preseason orders and take advantage of discounts.
The model functioned as long as the market grew and credit was cheap, but that ended in September when consumer spending dropped off a cliff and banks tightened credit. Often under the guidance of consultants, retailers quickly shifted the ratio of their business from 70/30 percent preseason to 60/40 to become more liquid and nimble.
With banks cutting back their credit and sales plummeting, dealers wisely shifted toward buying closer to need. Many have since learned the tremendous power of placing more, but smaller orders. Some are even reporting their best margins in years on significantly less sales.
Outdoor brands, however, could not respond as quickly, since they order goods a year in advance. They are now scrambling to liquidate spring/summer merchandise landed since January, which has further rewarded retailers who have kept their open-to-buy money ready. Reps report the amount of merchandise available at close-out appears to have grown by 25% this year.
“We’ve been managing it by giving up discounts,” said Lisa Hollenbeck, VP and merchandise manager for the Alpine Shop Ltd. in St. Louis, MO. “With cost of money so low, it’s not really worth it.”
This year Alpine Shop has shifted from ordering $2,500 to $3,000 in sportswear every two to three months to bringing in $500 orders every four to six weeks. This lessens the chance of sitting on dozens of tank tops when there is still snow on the ground and also lowers the need for cash. “We are intentionally buying smaller amounts more frequently to keep the stores fresh,” said Hollenbeck.
Last fall, Alpine Shop still bought core product on a preseason basis, but staged deliveries of new colors for late November and early December. Like many outdoor retailers, Hollenbeck said she disregarded warnings that the colors might not be available, figuring she could always find product elsewhere. Besides, she said, there was no guarantee the brand would ship the items on time anyway.
Retailers who have not cut back significantly on preseason orders, meanwhile, are now struggling to pay their bills. At one rapidly growing brand, the number of wholesale accounts 60 days or more past due has tripled from a year ago. Banks typically will not lend against such aged A/Rs.
One brand executive said bank due diligence is now much more thorough. They are scrutinizing the quality of A/R, future orders and inventory more thoroughly. They are analyzing the health of retailers the brand sells to and are also examining retailers’ trade credits to identify what brands might be vulnerable in case of a retail bankruptcy. In some instances, bankers are calling retailers to confirm future orders. That has prompted some executives to tell their reps to stop faking orders. “We are cleaning up that file right now,” said one executive.
Even the most successful retailers, meanwhile, are bracing for higher credit costs. One said he is hearing that while his bank will likely renew his line of credit, it will raise the interest rate by 200 points. He may have to raise prices to preserve margin – a dicey proposition in the middle of the biggest downturn in consumer spending in decades.
Healthy growth rates have enabled the apparel and footwear industry to overlook the well known flaws of its business model for years. In that model – inherited largely from the snow sports industry – product managers would essentially order, manufacture and ship apparel and footwear to their dealers twice each season. The system tended to push inventory risk onto retailers, who were enticed by discounts to place up to 70% of their orders a full year in advance. In exchange, brands financed the inventory and offered preseason discounts of up to 10% plus dating of up to 120 days for some winter goods.
This system allowed brands to amass orders to meet the minimum production runs of Asian mills. It also gave them time to shop sourcing for the best price. The downside was that the extended lead times meant brands would tie up valuable cash in greige goods and working capital for up to ten months. Conversely, many retailers got in the habit of relying on lines of credit to finance their preseason orders and take advantage of discounts.
The model functioned as long as the market grew and credit was cheap, but that ended in September when consumer spending dropped off a cliff and banks tightened credit. Often under the guidance of consultants, retailers quickly shifted the ratio of their business from 70/30 percent preseason to 60/40 to become more liquid and nimble.
With banks cutting back their credit and sales plummeting, dealers wisely shifted toward buying closer to need. Many have since learned the tremendous power of placing more, but smaller orders. Some are even reporting their best margins in years on significantly less sales.
Outdoor brands, however, could not respond as quickly, since they order goods a year in advance. They are now scrambling to liquidate spring/summer merchandise landed since January, which has further rewarded retailers who have kept their open-to-buy money ready. Reps report the amount of merchandise available at close-out appears to have grown by 25% this year.
“We’ve been managing it by giving up discounts,” said Lisa Hollenbeck, VP and merchandise manager for the Alpine Shop Ltd. in St. Louis, MO. “With cost of money so low, it’s not really worth it.”
This year Alpine Shop has shifted from ordering $2,500 to $3,000 in sportswear every two to three months to bringing in $500 orders every four to six weeks. This lessens the chance of sitting on dozens of tank tops when there is still snow on the ground and also lowers the need for cash. “We are intentionally buying smaller amounts more frequently to keep the stores fresh,” said Hollenbeck.
Last fall, Alpine Shop still bought core product on a preseason basis, but staged deliveries of new colors for late November and early December. Like many outdoor retailers, Hollenbeck said she disregarded warnings that the colors might not be available, figuring she could always find product elsewhere. Besides, she said, there was no guarantee the brand would ship the items on time anyway.
Retailers who have not cut back significantly on preseason orders, meanwhile, are now struggling to pay their bills. At one rapidly growing brand, the number of wholesale accounts 60 days or more past due has tripled from a year ago. Banks typically will not lend against such aged A/Rs.
One brand executive said bank due diligence is now much more thorough. They are scrutinizing the quality of A/R, future orders and inventory more thoroughly. They are analyzing the health of retailers the brand sells to and are also examining retailers’ trade credits to identify what brands might be vulnerable in case of a retail bankruptcy. In some instances, bankers are calling retailers to confirm future orders. That has prompted some executives to tell their reps to stop faking orders. “We are cleaning up that file right now,” said one executive.
Even the most successful retailers, meanwhile, are bracing for higher credit costs. One said he is hearing that while his bank will likely renew his line of credit, it will raise the interest rate by 200 points. He may have to raise prices to preserve margin – a dicey proposition in the middle of the biggest downturn in consumer spending in decades.
Did you hear?...Economy negatively affecting vacation plans but silver lining for outdoor
According to a recent BIGresearch American Pulse Survey, conducted in April 2009, just under 59 percent of Americans say the economy has affected their vacation plans this summer. Many are making changes to their travel behaviors this summer, the survey indicated. Most frequently cited as a cost-cutting measure was reducing the number of days spent in a hotel (30.5 percent), while cutting back on the quality of a hotel registered just over 20 percent. Just over 27 percent said that the solution to save money on travel was to look for a local getaway that did not require long drives or air travel.
The survey question asked, "As a way of coping with the current economic environment, are you making any of the following changes to your vacation travel behaviors?" The survey had 4,023 respondents.
BIGresearch's blog provides a bit more insight and reason for optimism for the outdoor community. One response stated, "My husband and I are trying to regain money we lost in the stock market, so we definitely will not be going on vacation. We plan to take a few days for hiking in the Smokies where we live." Another stated, "The only vacation plan I have will be a picnic at the local park!" Yet another responded, "We are hoping to plan a camping trip to the UP of MI sometime, but that is as far as we are going to get unless the economy picks up."
The survey question asked, "As a way of coping with the current economic environment, are you making any of the following changes to your vacation travel behaviors?" The survey had 4,023 respondents.
BIGresearch's blog provides a bit more insight and reason for optimism for the outdoor community. One response stated, "My husband and I are trying to regain money we lost in the stock market, so we definitely will not be going on vacation. We plan to take a few days for hiking in the Smokies where we live." Another stated, "The only vacation plan I have will be a picnic at the local park!" Yet another responded, "We are hoping to plan a camping trip to the UP of MI sometime, but that is as far as we are going to get unless the economy picks up."
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