NEW YORK — For years, retailers could afford to be sloppy about running their businesses because customers kept buying.
Stung by the worry that shoppers — who cut spending by the most dramatic amount in at least 39 years this the holiday season — might not start spending again for a long time, stores are making drastic changes. They are cutting out marginal suppliers, hiring outside experts to keep inventory lean, holding special events for those who are still buying and making extraordinary efforts to gauge customer satisfaction.
The new discipline will be mostly good news for shoppers, who will find stores less cluttered and see an array of products at lower prices, from ordinary groceries to jeans from brands they could once only aspire to.
Of course, the downside is that consumers who want something out of the ordinary — an olive green prom dress, for example — might have to look harder. Stores are rooting out offbeat, unpopular colors and styles, which will mean fewer choices.
Sales clerks are also checking back with customers to see if they’re satisfied with their purchases.
“We are in a sea change,” said Millard “Mickey” Drexler, J.Crew’s chairman and chief executive and former chief executive officer and visionary of Gap Inc.
Pricing goods within reach of strapped consumers is also a big focus, given the way nervous consumers have stopped shopping. Same-store sales, or sales at stores opened at least a year, fell 2.3 percent in November and December together, according to the International Council of Shopping Centers. And the worsening sales slump in January has many worried about the industry’s prospects over the next few months.
Status denim brand Rock & Republic will ship a new Recession Collection this spring that runs about half the usual $200 price tag for its jeans.
Even supermarket chain SuperValu Inc. has promised lower everyday prices on groceries and more promotions.
Chief executives from Crate & Barrel to J.C. Penney acknowledged during the National Retail Federation meeting this month that they’re navigating new territory, predicting that the fundamental shift by consumers to spend less and save more will linger.
The biggest unknown is when or if shoppers will ever resume spending the way they did when the housing market was booming, credit was easy and jobs were more plentiful.
“Customers wanted and wanted and wanted some more and we sold and sold and sold some more,” said Burton M. Tansky, president and CEO of The Neiman Marcus Group. Now, “frugality is more important.”
This sudden hibernation of customers is leading even the luxury retailer to try new strategies. Neiman Marcus is eliminating some vendors and focusing on serving its best customers. It’s trying to retrain its shoppers to buy regular-price merchandise by throwing more smaller private events for 20 to 30 customers.
Weaning customers off discounts is a big challenge for the industry, as people have gotten used to them — particularly on luxury brands that hadn’t been discounted before sales all but dried up.
For the last two years, many of the best-run nation’s stores like J.C. Penney Co. had been reducing inventories in response to the consumer spending slowdown. But no one anticipated the severe retrenchment that hit in September as the financial meltdown ravaged shoppers’ retirement accounts, reduced credit availability and resulted in massive layoffs across industries.
As shoppers simply stopped buying, stores were forced to discount as much as 75 percent off in some cases even before the official start of the holidays — resulting in the weakest season since at least 1969, when the ICSC index began.
Some companies like KB Toys Inc. couldn’t make it through the Christmas season, and many more are expected to file for bankruptcy in the coming months. Circuit City Stores Inc., which filed for Chapter 11 bankruptcy protection in November, said Friday it will go out of business — closing its 567 U.S. stores.
With no sign of the economy improving soon, and no pressure on people to buy now that the holidays are over, merchants are preparing for times to get worse. Those who have survived face battered fourth-quarter profits and are slashing expenses and hoarding cash. Apparel merchants are cutting inventory by 20 percent to 30 percent for the summer and fall seasons from already reduced levels a year ago, according to Kathryn Deane, president and CEO of Tobe Report, a fashion consultancy.
But it’s just not about slashing how much merchandise they carry. Companies like Polo Ralph Lauren Corp. are turning to outside specialists in areas like sourcing and currency hedging to reduce the impact of volatile foreign exchange rates. They’re working with suppliers to reduce the time it takes to produce an item. And they’re trying to understand the new mindset of shoppers, scrutinizing the products they offer to see whether the prices and quality meet the new standards from consumers who are questioning the real value of things.
Fashion company Nicole Miller is now shipping 80 new styles per month instead of 120. Bud Konheim, president of the business, said even buyers from upscale stores are questioning the prices of its top designers, which top at about $1,600. He said he’s doing more clothing business in the $200 to $300 range instead of the $700 to $800 range.
Michael Ball, founder and creative director of Rock & Republic, said he immediately lowered the prices of the company’s most expensive jeans in September before they hit the floors when the economy imploded. The premium line, which had been priced from $180 to $320, now peaks at $280.
But Ball plans to end the Recession Collection when the economy recovers. For now, he believes he’s doing his part to keep the economy rolling and help shoppers “open their pocketbooks.”
Retailers are adjusting the way they do business, from cutting marginal suppliers to re-evaluating their pricing. Here’s what the changes mean:
SLASHING SUPPLIERS: Stores have been paring inventories for two years. Now they are slashing them. In apparel, retailers plan to cut inventory 20 percent to 30 percent for summer and fall compared with a year earlier, according to Kathryn M. Deane, president and CEO of Tobe Report, a retail consultancy.
RE-EVALUATING PRICING: J.Crew Group CEO Millard “Mickey” Drexler, former CEO of Gap Inc., is working with factories to lower prices on key items such as ballet flats and to offer fewer high-priced items such as $1,300 leather trench coats.
HIRING OUTSIDE SPECIALISTS: Companies such as Polo Ralph Lauren Corp. are turning to outside advice on sourcing and currency-hedging to reduce the impact of volatile foreign exchange rates.
A NEW ATTITUDE: Consumers are already noticing sales clerks are more polite. There are friendlier greeters at the doors, and shoppers are finding thank-you notes in the mail.
FOCUSED STOCK: Stores are ordering narrower selections of goods, so customers who need an offbeat color might have to look harder.