TONY C. CHERBAK : Retailing ‘Blood Bath’ Begins : Innovation Called Key to Survival Now, and in the ‘90s

If the season gets any worse, retailers will probably look back on the holiday season of 1990 with all the warmth they reserve for a bounced check.

Many merchants are reporting weaker-than-expected sales so far this holiday season. They’re hopeful, however, that shoppers will hit the stores for a last-minute buying binge, defying some forecasters who predict 1990 will turn out to be one of the poorest holiday shopping seasons in years.

To try to foster the comeback, retailers are slashing prices, cutting inventories and boosting their promotions to lure shoppers back.

Some seek advice on how to cope with a tough economy, and Tony C. Cherbak is one of the consultants who dishes it out. Cherbak, 36, is director of the retail-apparel industries group for Deloitte & Touche in Irvine, one of the nation’s largest accounting firms. The group, with two other partners and a staff of about 25, advises businesses on a range of issues, from marketing strategies to bookkeeping.

Cherbak specializes in the surf and swimwear, sporting goods and furniture industries. His clients have included Quiksilver, Krause’s Sofa Factory, Leo’s Stereo, Chick’s Sporting Goods, Hobby Shack and Crazy Shirts.

Cherbak says that many retailers need to tough out the Christmas season and continue to innovate and shape their businesses. Central Orange County is saturated with competitors, raising the specter of a rash of failures among small businesses over the next few years.

He was interviewed in his office by Times staff writer Chris Woodyard.

Q. What can retailers do to pull through this difficult holiday season?

A. Since the holiday season makes up such a high percentage of a retailer’s sales, they have to get through in good shape. One thing that a lot of retailers are doing right now is increasing the activity in their shops on promotions. Promotions are a very good short-term fix. They can differentiate a retailer, drawing customers into the shop by offering some unique item of perceived value.

For instance, cosmetic stores sometimes try to lure shoppers by offering them a bag of cosmetics at a loss-leader price to get them into the store. Then they can shop around for other products at full value.

Another promotion we’ve seen is the little pocket calendar that Brooks Brothers gives to people who come in during the Christmas season. You see two-for-one sales. Retailers who have access to an unlimited supply of a popular item can offer that item at a discount if the customer buys a certain number of other, less-popular items. So it’s building promotions to get customers into the store. They want to build the traffic.

Q. Can retailers do some of these promotions without cutting a lot off the bottom line?

A. Well, typically promotions do cut into profits. But what they are designed to do is get people into the store so they can look around and buy other products at full value. The promotion itself is cutting into the bottom line, but, hopefully, the incremental sales it generates will improve the profits.

Q. You named a few of the promotions that are popular. Which do you consider most effective?

A. I think the more effective promotion involves that one item that the customer perceives as unique, gives them value, makes them remember the store and will draw them back time after time. The promotions are going to be a short-term fix. There are other things the retailer can do to build up long-term customer loyalty. But right now, they just want to get the foot traffic through their stores.

Q. What kind of items make good promotional items?

A. I will give you an example. In the current year, Roller Blade skates are very popular. And they are going to probably be in somewhat limited supply among all the sporting goods retailers. So they might offer a promotion on the Roller Blade. Now that’s an item that’s not just incidental, but one that people want to get. So they will go out of their way to travel to a store that has it. The store might build up a promotion offering a very good price on it. The retailer is getting the customer into their store, hoping they will come to specifically buy this product. And while they are there, there will be various other displays attractively laid out that will cause the customer to spend that incremental dollar to buy other products.

Q. What else can retailers do?

A. There are other items retailers can use. For example, some of the department stores offer a very nice shopping bag, and in the shopping bag they will have maybe a $10 coupon for free merchandise or they will have some gift wrap. For the holiday season, shoppers are going out and taking a look around to see what bargains they can get.

Q. You mentioned some long-term things that retailers can look at.

A. I think one key thing that retailers need to build long-term customer loyalty is service. Consumers yearn to be served. When you go into a retail shop, you want to deal with competent individuals who know what they are talking about. Consumers look for service, value and they look for competitive prices. As we look at the trend in retailing, it’s getting so competitive. It’s not only competitive for the foot traffic and the customers, but it is very competitive in attracting and retaining labor.

Q. What about seasonal help? How does a retailer encourage seasonal workers to give good service to customers?

A. One of the incentives they can give the seasonal employees is a variable compensation rate. In essence, offer a base rate of pay and then add incentives or commissions based on what they sell. If you are offering someone $6 an hour to come in and be a salesperson, there is no incentive for them. All they have to do is get through their eight-hour day. There is no incentive for them to really hustle and to really try and help the customer.

I went into a record store the other day to try to find a videotape for my children. The person has no idea what I was looking for. I asked, “Don’t you want to ask someone back in the video department?” The employee who had some motivation would have taken me back, found the videotape and showed me a selection of videotapes. They would say, “Here are some other videotapes along the same lines.” It’s the well-trained employees who look to serve the customer and to sell that additional incremental sales dollar.

So many customers go into retail shops knowing they want something. But there might be something else in the back of their minds that they don’t know they want. And if you have an experienced salesperson, they will be able to sell.

Q. How important is service?

A. I think it has always been important, but I think it is a distinguishing feature today. In the retail industry right now, there is not that much good help. When you go into the stores, it’s tough to find someone who is knowledgeable about the products. I think some people will tend to pay a little extra to go back to a place where they have been treated well--where they have been met with a smile--as opposed to going into one of these mass-merchandise, high-discount shops where you get no service at all, where you cannot find someone to wait on you, where you stand around looking lost trying to find a product.

Q. How about employee training? Is it important?

A. Absolutely. From the employer’s perspective, the amount of training they give the employee is going to have a direct impact on how those employees perform. We’ve seen quite successful programs with the Japanese recently in their running of the 7-Eleven shops over in Japan. They have extensive employee training. It runs from how the employee greets the customer at the door to when they try to sell them film-developing services as the customer is ready to leave. Without training programs, employees who come in fresh off the street are not going to be nearly as successful as companies that have formal training programs.

Q. Discounters seem to be the winning the retail wars so far this holiday season. What can speciality retailers not known as discounters do to increase their business?

A. I think the speciality retail shops should not necessarily try to compete with the mass discounters because the discounters are basically offering only price. They are offering price and some brand-name goods, but typically off-brand goods. Manufacturing outlets are typically offering seconds. Speciality retailers really attract their customers by giving them service and knowledge. They are going to get a lot less foot traffic than the mass discounters, but they are typically going to get the repeat business from consumers seeking out special products. The discounters are making up their profits and their margins based on volume. The speciality shops are not going to be able to compete on that basis.

Q. For retail shops, positioning is everything, right?

A. Positioning is everything. But some retailers that are not in prime locations in the malls are really going to have difficulty. In the current economic environment, we’re seeing a lot less foot traffic in some malls. The less people are willing to go out and shop, the less willing they are to walk to the far ends of the malls. So those retail shops are going to have a real rough go.

Q. If shoppers are avoiding the malls, where are they going?

A. I think everyone is playing a waiting game this season. The sentiment out there is the longer they wait, the lower prices will go. We’ve already seen discounts to 20% and 40%. I think based on the siege mentality the retailing industry is going through right now, consumers feel those prices will go even lower as we get to the end of the Christmas season. The feeling is retailers are not going to want to get stuck with inventory, and they are going to want to blow it out at any price they can sell it for. In this economy, cash is king. And the retailers are not going to get caught with last year’s merchandise going into the new year.

Q. A big problem during the holiday period is shoplifting and employee theft. What can retailers do to reduce that?

A. There’s a couple of different things. If they have the money to spend, a security guard on site works as a deterrent. Also, they can post signs in the store that indicate the company’s intent to prosecute shoplifters. Employee theft is probably the biggest area of shrinkage for any retailer. It’s a good idea to have written policies indicating the consequences to the employee if they involved in theft. Another measure is having one employee entrance, preferably right by the supervisor or in an obvious place. Company policies that limit taking merchandise off the racks and into the back room are going to help. Also, security in the receiving area, or anything to make it difficult for somebody to put the merchandise in a sack or under their coat and carry it out the door.

Q. Are the holidays the worst time of year for theft?

A. I think any time you have more traffic than normal, where the push is to get merchandise out the door and you cannot see everyone in the store, (theft) is going to be greater. At Christmastime, when people are concentrating on selling goods to the customer and can’t watch 15 customers, it’s going to be a little bit tougher.

Q. What do you expect we’ll see from retailers after Christmas?

A. I think right after Christmas, you’re going to see massive discounting like we’ve never seen before to get rid of all the excess inventory. People want to get new product into their shop. They want to build that fresh look for 1991. So converting old merchandise to cash will be key to the retailer.

Q. How about controlling inventories?

A. Retailers are purchasing their inventory closer to the selling season. In the past, retailers tended to stock up on merchandise. This year, in this tough economy, they have bought much closer to the season and they have stocked up on those two or three items they know are going to sell. It has caused a lot of manufacturers of third- and fourth-quality products to wonder if they are going to be in business.

Q. What’s the advantage of buying inventory closer to the sales season?

A. It means the manufacturer is going to finance the holding of the inventory as opposed to the retailer.

Q. But don’t manufacturers have a lot more leverage over retailers on their most popular items?

A. They do to some extent. But you have to bear in mind the manufacturer is still going to have to deal with the retailer after the season. And so the manufacturer wants to sell that retailer. They are going to work with whomever is buying their product. There are certain products that might give the manufacturer some leverage over the retailer. But in tough economic times, you are going to look at who puts the butter on your bread.

Q. What is the future of the department store?

A. The department store, I actually think, is going to remain strong. It is going to be the store that people go to shop for a lot of different items. The reason I feel it is going to remain strong for long time is in the current environment, we see people with a lot less discretionary time. They don’t have time to spend a lot of their leisure hours shopping. I believe that we’re going to see more department stores do quite well. I think that catalogue shopping is going to get more popular.

Q. So there really has not been a shift away from department stores?

A. We’ve seen a move away from full-price retail. Everything is discounted now. Several years ago, when we had our last recession, there weren’t nearly as many retailers around. The competition has gotten so fierce because we have so many regional malls. We have a strip center on every block. And every new retail establishment is bleeding off customers from the big retailers, from speciality shops. It’s a blood bath out there.

Q. Do you expect a retail shakeout here in Orange County?

A. There will definitely be a shakeout of some retailers. Some analysts believe that 50% of all the retail companies in business today will be out of business by the end of the 1990s. The ones that remain in business are going to be the ones that constantly change their look. Customers do not want to go to a shop that has the same look year-in, year-out.

It’s going to be the retailers who are constantly renovating, redoing their merchandising and bringing in new products and new ideas who stay at the forefront of keeping the hot products on the shelves.

Q. If I were a retailer hearing this, I would probably say, “Where am I going to get the money for all of this?”

A. Life in business is tough. And it’s probably tougher for the retailers now than any other business. If you are not a very well-capitalized company and don’t have the ability to renovate and change, you are not going to be in business too long.

Q. What does that mean for the smaller guy?

A. It depends on their niche. If they can offer the consumer some unique service or some unique product, they are going to be OK. But to the extent the smaller retailer is just a general merchandiser, they are going to have a great deal of difficulty competing with the big, more established companies.