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Retailers and brands face another challenging year, but innovation and differentiation will lead strong companies to thrive once consumers are comfortable buying again, two panels of analysts said at a recap session of the ICR Xchange today.
I've summarized the highlights here and consolidated the thoughts of the seven panelists.
So I should tell you that the retail panelists were Randy Konik of Jeffries, Neely Tamminga of Piper Jaffray, Sam Panella of Raymond James and Richard Jaffe of Stifel Nicolaus.
The brand panelists were Todd Slater of Lazard Capital Markets, Mitch Kummetz of RW Baird and Jeff Mintz of Wedbush Morgan. Marshal Cohen, chief industry analyst at the NPD Group, moderated the two panels.
Consumer behavior - Consumers want value, and the analysts blanch at brands and retailers who don't recognize that price is part of the value decision. Yet they also see that consumers will pay for differentiated products, and shop beyond promotions and low-price stores for a differentiated experience. "Wants" buying is dormant and conspicuous consumption is dead, but consumers will pay for quality in their "needs" buying.
Cost controls - An upside of shrinking revenues is the consistent attention to operational efficiencies that CEOs and CFOs have talked about at the conference. That's the right strategy to weather the downturn, and will help companies emerge stronger on the other side. The best positioned companies are debt free and cash heavy.
How to grow - The consensus of retail analysts is that the U.S. is over-inventoried in store count, even with estimates of as many as 300,000 total store closings in 2008 and 2009. So growth will come from product differentiation - and taking market share from competitors.
For brands, the growth areas look to be in international distribution and direct-to-consumer ecommerce and retail. Again, analysts called for more product differentiation.
Retail - Urban Outfitters, Kohl's, Abercrombie + Fitch
Brands - American Apparel, Ugg, Volcom
"The U.S. market is very saturated in terms of brands and retailers. The easier, greater growth potential is international." - Jeff Mintz of Wedbush Morgan.
"2009 is going to be a challenging year for vendors. The business is driven by pre-bookings, and since ‘08 was such a hard year for retail, ‘09 orders are going to be tough." - Mitch Kummetz of RW Baird.
"There's a real desire by consumers to keep things very real, to lay low. The bling is out." - Neely Tamminga of Piper Jaffray.
"Department stores have basically become large apparel retailers without any significant differentiation from one another or specialty retailers. Led by Macy's, they need to start with a clean sheet of paper and reinvent themselves." - Richard Jaffe of Stifel Nicolaus
"This industry is not a growth industry anymore. We're value investors now, and that means we've got to get these managers focused on return on capital, cash flow, and not on adding stores and growth for growth's sake." - Randy Konik of Jeffries
"You can't just cut expenses to drive profits. There has to be some risk taking to inspire consumers." - Sam Panella of Raymond James
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