As shoppers stop spending, retailers learn their lessons

NEW YORK — For years, retailers could afford to be sloppy about running their businesses because customers kept buying. No more.

Stung by the worry that shoppers, who cut spending by the most dramatic amount in at least 39 years this holiday season, may 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 — may 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 CEO 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 open 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.

Spring inventory is slim

Belt-tightening is in evidence at Belk, which operates several department stores in Middle Tennessee.

Arlene Goldstein, Belk's vice president of trend merchandising and fashion direction, said the consumer will be "very careful … very strategic about what she buys" in the coming months.

Goldstein said Belk has "definitely adjusted" its inventory for the spring, taking a look at anything that seemed "excessive or duplicative" in its assortment.

Belk suffered a nearly $23.5 million net loss in the third quarter ending Nov. 1, according to a document filed with the U.S. Securities and Exchange Commission. Sales at stores open at least a year declined 9.8 percent in the period.

"Sales are down so the merchant doesn't buy as much," Goldstein said. "Everything is about sales per square foot."

Feast may be over

The biggest unknown is when or if shoppers will ever resume spending the way they once 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."

For the last two years, many of the nation's best-run retailers such as 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 that it will go out of business — closing its 567 U.S. stores, after not being able to work out a sale.

Cutbacks aren't enough

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 are 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.

Apparel suppliers say they have noticed the difference in recent weeks as the buyers for big chains visit their showrooms to order for fall. They want eye-catching pieces that have longevity — and nothing too radical.

"They're not buying disposable clothing," said Allen Schwartz, owner of fashion company A.B.S. by Allen Schwartz.

He noted that store buyers are taking styles with staying power like daytime dresses. But while in years past they would buy one color and three different styles, he said, now they're buying three colors in one style.

Nicole Miller, a fashion company, ships 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.

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