Why it’s time for com­pa­nies to change or be changed

Shift­ing land­scape won’t nec­es­sar­ily be dev­as­tat­ing, Kevin Carmichael writes.

Vancouver Sun - - FRONT PAGE -

It’s a bad time to be a maker of ex­pen­sive clothes — just ask a maker of ex­pen­sive clothes.

“Tailored cloth­ing is prob­a­bly go­ing to be near the bot­tom of peo­ple’s pri­or­i­ties,” said Stephen Gra­novsky, chief ex­ec­u­tive of Toronto-based Lux­ury Men’s Ap­parel Group Ltd. (LMAG), owner of Sa­muel­sohn Ltd., which makes $1,000 sports jack­ets and $1,500 suits in the north end of Mon­treal.

It’s not that LMAG’S core cus­tomers don’t have money to spend. De­spite the COVID-19 cri­sis, the num­ber of men and women work­ing in fi­nance and real es­tate was lit­tle changed from April 2019, while the num­ber of work­ers in Statis­tics Canada’s “pro­fes­sional, sci­en­tific, and tech­ni­cal ser­vices” cat­e­gory was only 2.7 per cent lower. Mean­while, the year-over-year over­all de­cline was more than 17 per cent.

The com­pany’s con­sumers are the type that will power the re­cov­ery’s early stages. Gra­novsky, how­ever, doubts he’ll ben­e­fit much from any pent-up de­mand. His cus­tomers kept their jobs, but they won’t be in the mar­ket for of­fice clothes if the of­fice is now the kitchen ta­ble.

“Re­tail­ers who are open­ing now that sell ca­sual cloth­ing and sports­wear, and even on their on­line busi­nesses, are see­ing lots of ini­tial de­mand,” said Gra­novsky, whose com­pany also owns Rochester, N.y.-based Hickey Free­man Tailored Cloth­ing and Toronto-based Lip­son Shirt­mak­ers.

“If you’re in the sweat­pants busi­ness, we’re all buy­ing more sweat­pants,” he con­tin­ued. “We’re all buy­ing stretch jeans and things of that na­ture. But the stuff you wear to work, the stuff you wear to wed­dings, the stuff

you wear to go to par­ties, the stuff that we make … we’re go­ing to be some­where in the bot­tom half of peo­ple’s con­sumer spend­ing pri­or­i­ties for some pe­riod of time, and we have to be pre­pared for that.”

Eco­nomic down­turns de­stroy com­pa­nies with weak busi­ness plans. The Great Re­ces­sion pun­ished com­pa­nies that had grown com­pla­cent with ex­port­ing to the United States. Canada ended 2009 with about 550 fewer firms than ex­isted at the start of that year, ac­cord­ing to Statis­tics Canada data, a quick snap­shot of what a re­ces­sion can do to an ex­port-de­pen­dent coun­try overly re­liant on a sin­gle mar­ket. The coro­n­avirus cri­sis is dif­fer­ent in that it will also test ex­ec­u­tives such as Gra­novsky, whose strat­egy was en­tirely rea­son­able up un­til a few months ago. The re­ces­sion is re­shap­ing con­sumer and cor­po­rate be­hav­iour, which will cause re­li­able streams of de­mand to run dry.

“We’re al­ready well over two months,” Stephen Poloz, the Bank of Canada gov­er­nor, told re­porters on Thurs­day. “It’s go­ing to be long enough for cer­tain habits to change.”

Poloz made the com­ments dur­ing an hour-long video con­fer­ence, tak­ing ad­van­tage of tech­nol­ogy that ex­isted prior to the cri­sis, but was lit­tle used be­cause pro­fes­sional work was wed­ded to face-to-face meet­ings.

That no­tion has now been erased. Water­loo, Ont.-based Open Text Corp. has al­ready de­cided to get rid of half its of­fice space be­cause it dis­cov­ered that or­der­ing its 15,000 work­ers in 30 coun­tries to stay at home had no ef­fect on pro­duc­tiv­ity. Face­book Inc., Ot­tawa-based Shopify Inc. and Twit­ter Inc. all have set sim­i­lar plans in mo­tion, herald­ing a struc­tural change in ser­vice-based economies that re­volves around com­mut­ing.

“Of­fice cen­tric­ity is over,” Tobi Lütke, Shopify’s chief ex­ec­u­tive, tweeted this week.

As a re­sult, de­mand for com­mer­cial real es­tate, air travel, busi­ness suits and over­priced sand­wiches won’t re­cover with the rest of the econ­omy when the lock­downs are lifted.

That won’t nec­es­sar­ily be dev­as­tat­ing for the broader econ­omy be­cause the money that was once de­voted to those things will be free to go else­where. En­trepreneur­s will emerge of­fer­ing goods and ser­vices that we didn’t know we needed at the start of 2020, and ex­ist­ing com­pa­nies will pivot to­wards the sources of new de­mand, pro­vided their man­agers are tal­ented enough to seize the op­por­tu­ni­ties.

“There are con­straints out there now,” Poloz said. “What are com­pa­nies do­ing in the midst of those con­straints? They are de­vel­op­ing all-new ways of do­ing busi­ness. Peo­ple are adapt­ing. Those are the folks that will do more than just sur­vive. They are go­ing to ex­plode in pos­i­tiv­ity af­ter­wards.”

Gra­novsky and his lead­er­ship team at LMAG have spent “thou­sands of hours” over­haul­ing their Rochester fac­tory to pro­duce face masks and the Mon­treal fa­cil­ity to make hospi­tal gowns.

Lots of other com­pa­nies have answered the call for pro­tec­tive equip­ment by sup­ply­ing rea­son­able fac­sim­i­les with what­ever they had on hand. Gra­novsky de­cided to do it right and learn how to make hospi­tal-grade gear. That meant track­ing down fab­ric that re­sists fluid and bac­te­ria, and re­set­ting fac­to­ries for an en­tirely dif­fer­ent kind of pro­duc­tion.

The for­mer was the most dif­fi­cult, since hospi­tal-grade ma­te­rial is sud­denly hard to find. Gra­novsky made about 40 calls be­fore he found a sup­plier, a source he is so pro­tec­tive of that he re­fused to name the com­pany. “We made huge com­mit­ments up front for this fab­ric, in ex­cess of $1 mil­lion worth of fab­ric right at the get-go to se­cure it,” he said. “We sort of jumped into the deep end of the pool, both in terms of work as well as a fi­nan­cial com­mit­ment. We’re a com­pany, like many oth­ers, where the pan­demic threat­ens our core busi­ness.”

LMAG was re­warded for its ef­forts last month by an or­der for 200,000 hospi­tal gowns from the Que­bec govern­ment, which al­lowed Gra­novsky to re­open the Sa­muel­sohn fac­tory and re­call 150 em­ploy­ees. Rather than death, the COVID-19 cri­sis could rep­re­sent a new phase for Thomas Hickey and Sa­muel­sohn, which share a com­bined his­tory of more than 200 years.

“We took the po­si­tion that for some pe­riod of time, this was our new busi­ness,” Gra­novsky said. “We’re even pre­pared to make some sac­ri­fices in our core busi­ness go­ing into the fall sea­son in or­der to con­tinue man­u­fac­tur­ing (per­sonal pro­tec­tive equip­ment) at what­ever pace is re­quired by gov­ern­ments and the broader med­i­cal com­mu­nity.”

Peo­ple are adapt­ing. Those are the folks that will do more than just sur­vive. They are go­ing to ex­plode in pos­i­tiv­ity af­ter­wards.

DAVID KAWAI/BLOOMBERG

The pan­demic is giv­ing rise to new op­por­tu­ni­ties for busi­nesses in the new COVID-19 era, says Kevin Carmichael. “It’s go­ing to be long enough for cer­tain habits to change,” says Bank of Canada gov­er­nor Stephen Poloz, seen dur­ing a vir­tual news con­fer­ence in Ot­tawa last week.

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