Flat Prices at the Mall Belie Roiling Change
What better time than the Christmas shopping season to find surprises and possible investment bargains in the changing ways of the retail business and the defiantly vibrant apparel industry that puts clothing in the stores?
The subject is especially timely in the wake of Congress’ overwhelming approval of a new international trade agreement, because global trade supplies at least a third of the merchandise you see in stores.
News of the season, first of all, is pretty good. Shoppers are turning out in department stores and such specialty retailers as Ann Taylor, Talbotts and Mervyns. But some discount stores in strip shopping centers--Caldor, Bradlees, Clothestime--report sales as flat or down from last year.
“It’s a home-oriented Christmas,” says analyst Joseph Ronning of Brown Bros. Harriman. “Consumers feel confident and are deciding this is the year to buy the big-screen TV or CD player.”
The major department store companies, Federated, May, Broadway, Dillard, Dayton Hudson, “are doing good business--better in fact than their low stock prices give them credit for,” says analyst Lee Backus of Buckingham Research, a New York investment firm.
Backus thinks the market hasn’t yet awakened to a confident consumer and to values in the stores and in the industry.
America’s highly competitive retail and clothing industries are unsung heroes in the fight against inflation. The cost of clothing in the consumer price index has gone up only 1.6% a year since 1990 and only 2.4% on average over the last decade.
And behind those restrained prices lies nothing short of a profound change in the way America moves the merchandise. Retail companies, from department store chains to discount outlets, have become highly efficient thanks to adroit use of computers in ordering merchandise and keeping inventory.
But one result of such efficiency is retail consolidation--notably a shrinkage in the number of small dress shops--with a major impact on clothing makers and other industries and institutions.
“The business will never be as it was,” says George Rudes, owner of St. Germain Inc., a Los Angeles manufacturer of women’s fashions. Rudes, who has been in the garment trade for 40 years, recalls getting a start from his father, who had a fabrics business in New York.
“He handed me an envelope with a piece of cloth and sent me into a building with garment manufacturers on every floor. I’d go to every one, show them the fabric and say I’ve got 800 yards in inventory, do you want to buy?,” Rudes says.
“And if stores that day were demanding more dresses in white twill or brown or whatever I had, then the manufacturers would buy the cloth and turn it into the hot fashion of the moment,” he recalls.
In those days--and until recent years--apparel makers had many and varied customers. “It might be a small dress shop that would come with $4,000 worth of business a couple of times a year,” says Rudes. Sales representatives would call on 200 accounts in Chicago, 150 accounts in Atlanta.
“But the business today bears no resemblance to five or 10 years ago,” says Joel Presser, a Dallas-based regional sales representative who works for Rudes and other manufacturers. Today, major store chains order by computer from lists of approved vendors. The equivalent of the young man with the piece of cloth are fabric houses in Malaysia and Sri Lanka as well as South Carolina and Southern California hooked into a computer network with major store chains.
And in the United States, sales reps don’t call on individual stores but on company headquarters--on Limited in Columbus, Ohio, May Department Stores in St. Louis and J.C. Penney’s in Dallas. “With closed circuit television, they patch you into 1,500 stores,” says Presser.
The results are constant cost reductions for retail companies and a more exacting business for garment manufacturers, who find themselves in direct competition with suppliers in poorer, much lower-wage countries.
That’s how you get restrained prices at U.S. shopping malls.
Change makes casualties. The Chicago Apparel Center has leased 12 floors to the telephone company because they’re no longer needed for manufacturers to display wares to customers; two floors are empty at the Dallas Apparel Mart. And Los Angeles’ California Mart is restructuring its debt and coping with declines in traffic and tenants.
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But change doesn’t mean decline. The U.S. apparel industry, while it has shrunk in total companies from more than 24,000 a decade ago to about 22,000 today, and seen a 20% drop in employment to under 1 million, is not a fading business. U.S. apparel output has risen more than 20% to some $70 billion a year.
“And the work and wages are better,” says Jean Gipe, director of the Apparel Technology and Research Center at Cal Poly Pomona, a major resource of the Southern California garment industry--which actually is growing.
Says Gipe: “Computers and laser cutting machines make producing a garment today a far cry from the old worker at a sewing machine with a bundle of fabrics.” The more skilled contemporary worker typically makes $7 an hour compared to $5 for the sewing machine operator.
To be sure, only some garment makers have joined the technological future; a lot of your clothing is still produced in gritty, low-wage factories. Nonetheless, the industry outlook is confident. At the American Apparel Manufacturers’ recent convention, the hot topic was not fear of foreign competition but how to take advantage of export markets.
Rudes is both optimistic and coldly realistic. He knows that the garment business has become tougher with retail consolidation. The disappearance of the “mom and pop” dress shop has cut in half the number of outlets for his St. Germain line of women’s apparel. “There’s no security in the business,” he says.
On the other hand, Rudes’ company, with about $37 million in annual sales, is doing better than ever because he formed a new division that sells junior clothing to Neiman Marcus and other major chains. In a word, Rudes adapted.
And he is not alone. “The apparel industry today has extremely talented people,” Rudes says. “They are tremendous and I don’t think any industry in the country can tell you more about how to do business.”
News of the season is good indeed: Here are two traditional industries, retail and apparel, adapting to a changing world and offering reassuring proof that many people still have the gumption and energy of the kid with the fabric.
