Retailers’ woes extend beyond store walls
The well-known woes of brick-andmortar merchants are being felt well beyond the walls of Kohl’s, Macy’s and Sears.
As sales and traffic continue to migrate online, companies that furnish the goods that fill the shelves and racks of America’s department stores and other retailers have been striving to adjust to the changing scene.
“The pace seems to be picking up exponentially,” said Thomas W. Florsheim Jr., CEO of Glendale-based Weyco Group Inc., a shoe designer and distributor that has seen sales slump recently as retailers tighten inventories and close stores.
“It’s an interesting time right now,” said Tom Wheeler, CEO of Wigwam Mills Inc., a Sheboygan manufacturer of premium socks. “It is unprecedented, I think, in terms of the challenges of trying to figure out how to negotiate these shark-infested waters.”
Among Wigwam's challenges has been the bankruptcy of an important customer. Merrill-based Weinbrenner Shoe Company Inc., meanwhile, has had to readjust its warehouse operations to respond more to the rhythms of e-commerce and less to the demands of brick-and-mortar retail. And in Glendale, Weyco, a designer and distributor of footwear, has been experimenting with jazzier styles — because they stand out in the online world.
Given what’s happening in traditional retail, standing out online is becoming increasingly important.
Last year, Weyco’s North American wholesale business — selling Florsheim wing tips, Nunn Bush loafers and such to retailers — declined by 9%. In the first quarter of 2017, wholesale revenue for the
Manufacturers and distributors also feel the pain
Stacy Adams brand fell 16%. For Nunn Bush, it dropped 19%.
That has happened amid a wave of store closings that Rick Helfenbein, leader of a major trade group representing clothing and shoe manufacturers, characterized as unparalleled in recent decades.
In just the first three months of 2017, an April report from Credit Suisse analysts said, retailers announced 2,880 store closings. That suggests the fullyear total could top 8,600 — a new record.
Don’t expect it to stop there. It’s not just that Amazon and other online retailers have shaken up the brick-and-mortar world, or that millennials would rather spend their money on experiences than sweaters. A fundamental issue, many observers have said, is that the U.S. simply has built too many stores — many more per person than other developed countries.
“It’s reminiscent of the real estate collapse, if you will,” said Helfenbein, president and CEO of the American Apparel & Footwear Association. “We bought too much space, and we don’t need it and we’re paring down.”
Bob Nolan, president and chief operating officer of Kenosha-based Jockey International Inc., another Wisconsin apparel manufacturer navigating the turbulent retail waters, agrees.
“We can see that the U.S. is definitely over-stored, that there are more square feet of retail space per capita than we need,” he said.
It all amounts to what Helfenbein calls a “seismic” reshaping of retail.
“It’s stressing people out, quite frankly,” he said.
Contributing to that stress is a soaring number of retail bankruptcies. According to a tally by S&P Global Market Intelligence, 23 retailers have filed for bankruptcy since January. That already exceeds the annual totals in each of the last four years.
Wigwam knows about the problems that can create. Wheeler said his firm sold socks “in a major way” to Sports Authority, a 460-store chain that liquidated last year after declaring bankruptcy.
Sports Authority owed Wigwam nearly $1.3 million, according to an unsecured claim the Sheboygan company filed in the case. That’s the sort of situation that gets a firm’s attention.
“We spend a lot more time judging credit worthiness in the retail environment so we don’t get caught in a bankruptcy — more so today than ever,” Wheeler said.
The rise of online sales, meanwhile, has spawned a proliferation of rogue e-commerce retailers who don’t honor suppliers’ pricing rules and can degrade their brands.
Weinbrenner, known for its Thorogood work boots, is “constantly” monitoring retailers’ compliance with its minimum advertised pricing, company President Patrick Miner said.
“I had to put somebody on board just to be able to do that,” he said.
Wigwam also now has an employee dedicated to checking how third-party sellers present the company’s socks.
“That’s a problem for, I would say, almost every brand,” Florsheim said. “That’s a problem with the internet in general.”
Violating pricing standards can hurt a supplier by cheapening the image of a brand. It also can discourage honorable retailers from carrying a line because they fear being undercut by those who don’t play by the rules, Miner said.
And low-balling on price can pay off for some online retailers because they don’t necessarily have to spend money on inventory; they can simply take an order, pass it along to a supplier such as Weinbrenner and have it shipped directly from a Weinbrenner warehouse.
“If you get on the internet, it’s so easy for somebody who sits in their pajamas to try to become an account,” Miner said.
But for those who adapt, online retailing offers opportunity, too. Weyco now ships thousands of single pairs of shoes a day from its million-square-foot warehouse directly to people who ordered them from the websites of companies such as Macy’s. The retailer never touches the shoes. Weyco maintains the inventory and arranges for shipping.
“It’s almost becoming standard in the industry to be able to do that,” Florsheim said, “but the people who can do it well are going to do better in that environment.”
The increase in so-called drop shipping forced Weinbrenner to reconfigure its warehouse operations.
Formerly, they were set up to accommodate shipments of big bunches of boots to retailers buying anywhere from 1,000 to 20,000 pair a week, Miner said. Today, warehouse workers, like their counterparts at Weyco, often are fetching and shipping one pair at a time.
The good news is there have been lots of those single-pair shipments. Sales rose 5% for the Merrill company last year and continued a dramatic migration from brick-and-mortar customers to online, Miner said.
Five or six years ago, not a single online retailer was among Weinbrenner’s 30 biggest accounts, he said. Now they represent four of the top five.
“We’ve learned to adapt,” Miner said. “That’s why we’ve been able to survive for 125 years.”
Weyco, meanwhile, has been using what Florsheim described as a good balance sheet to invest heavily in design and efforts to strengthen operations companywide.
“We’re just basically looking at everything we’re doing and trying to do a better job,” he said. “I know that sounds simplistic, but that’s what we’re doing, because the people who are successful in this industry are going to have to adapt to retailers having a smaller footprint, because that’s what’s happening.”