Apparel Firms Feel Brunt of Downturn In Retailing Sector
By DEBORAH BELGUM
Kids aren’t the only ones ruing the back-to-school season this year.
As retailers began reporting sluggish July sales last week, raising fears of a recovery petering out, two of L.A.’s biggest apparel companies felt the squeeze.
Hot Topic Inc. and K-Swiss Inc. announced that after consecutive months of growth, orders would be declining in the coming months.
City of Industry-based Hot Topic was hit especially hard by the news, as investors rushed to sell shares, sending them down 30 percent on July 31.
“Low interest rates don’t prompt people to buy a shirt or a dress, although it does get them to buy a home or a car,” said Edward Leamer, director of the UCLA Anderson Forecast. “We see sluggish growth for retail.”
Southern California consumers are expected to spend about the same amount of money on back-to-school shopping this year as last. About 80 percent will do their shopping during August, the principal month for back-to-school sales, according to a survey by Deloitte & Touche LLP.
But parents are in a bargain-hunting mood. About 40 percent of Southern Californians surveyed said they would be doing their back-to-school shopping in discount stores, compared with 33 percent who shopped at discount stores last year.
“Families usually spend a lot of money during the back-to-school season,” said Brent Schoenbaum, a partner at Deloitte & Touche. “But with an uncertainty in the economy, people are pulling back to the basic necessities as it relates to apparel.”
Sensing the pullback, orders are being cut.
“Retailers have been burned by overbuying in the past. Trying to figure out how much you need is not an exact science but a rationalized guess at best,” said Schoenbaum.
Labor Day has been a good indicator of how holiday sales will shape up. This year, retail experts expect that Labor Day sales will be soft. Britt Beemer, chair of America’s Research Group, a consumer research group in Charleston, S.C., noted that Memorial Day and Independence Day sales were weak as people stayed home.
“Consumers we talk to aren’t concerned about losing their jobs, but say they are in a job where they don’t expect to get a pay raise,” Beemer said. “So Christmas could be kind of squishy.”
That’s not good news for clothing manufacturers, already having a hard time eking out a profit.
Elizabeth McLaughlin, president and chief executive of Hot Topic, announced on July 31 that same store sales for the month ended Aug. 3 would decline as much as 4 percent compared with the like period last year. The actual July decline was 2.2 percent, but the announcement sent Hot Topic shares into a slide.
Its stock, which closed July 30 at $22.45 on volume of better than 1 million shares, was down 31 percent to close at $15.55 on July 31 on volume of more than 11 million shares. It closed at $15.64 on Aug. 8.
“As we previously announced, July sales were below our previous expectations, principally the result of disappointing business in men’s tops and men’s bottoms,” said Jay A. Johnson, Hot Topic’s senior vice president.
Sports shoe and apparel manufacturer K-Swiss, based in Westlake Village, said in its quarterly report that domestic future orders for goods to be shipped between July and December will be down 3.2 percent compared with the like period last year.
Another retailer, Orange-County based Wet Seal Inc., which operates 586 stores under the Contempo Casual, Arden B. and Wet Seal name, announced that July same store sales would show a modest decline due to lackluster sales in Florida and Texas. This came after same store sales rose 5.6 percent in June and 7.3 percent in May.
The dip was part of a sluggish national retail picture.
Federated Department Stores Inc., parent of Macy’s and Bloomingdale’s, has seen same store sales decline over several months. In June, comparative store sales of outlets open at least one year were off 0.4 percent. Same store sales in July were down 5.2 percent over the like period in 2001.
Consumers who have been keeping the U.S. economy above water for the past year appear to be pulling back after consistently bad news about corporate misdeeds and a weak stock market.
“Consumers continue to be concerned with the uncertainty on Wall Street and drops in the stock market and the continued recession,” said Aubie Goldenberg, a retail expert and partner with Ernst & Young.
Still, not all analysts are downbeat.
Retail analyst Lauren Cooks Levitan of SG Cowen just initiated coverage of Hot Topic with a “strong buy” recommendation. In a research report, Levitan said the company’s “long-term growth prospects and our expectation that the near-term issues can be addressed fairly quickly” would help shares company rebound.