Bob's Blog

Economics 102
5th October 2009

I read an article a little while back that indicated that Macy's in the US planed to 'lay-off' 7000 workers in the near future.

In 2008 retail in general eliminated 500,000 jobs - and I've seen estimates that say that 2009 has been at least twice that number as retail sales continued to falter.

I also read another article even more recently that indicated that Macy's current philosophy toward inventory is to eliminate all risky or marginal inventory - but just the same - isn't the crux of retail based in inventory - or as one of my professors used to say "you can't sell what you don't have …".

That's the retail side of the value chain - of course there is an equal or even greater impact on the supply chain side. I've seen numbers of articles - and - talked with numbers of friends that are on the verge of bankruptcy - bankers are unwilling to loan the operating capital that they need for funding the build of inventory or the cash required for ongoing operations. Fashion manufacturing organization are considered to be just to 'risky' - a marginally profitable business model with high risk - just not what bankers are looking for these days.

I've seen quotes related to the supply chain side of Fashion - indicating that 1/3 to 1/2 of all Fashion companies will be of new ownership at the end of this recession. And it has been said that more than 20,000 factories in Asia that support the Fashion supply chain have gone out of business (it's impossible to verify these numbers).

As most of you know - the apparel industry (for the most part) is not 'self-funded'. Most establish a revolving line of credit that they use throughout the year to fund their operating capital needs - - which (if everything goes right) - - by the end of the year the bank is paid off - and they are happy. This has been the way the industry has worked for decades - well - for as long as I've been in it.

So here we have... unprecedented lay-offs (retail) - along with huge cancelations of supply orders - coupled with credit strangulation (wholesale) during a time where we need just the opposite to ever produce growth in this industry again.

I'm no economic genius - but, it seems to me that we're making all the wrong moves if we ever hope to actually turn this recession mess around. People are out of work and those numbers are growing - retail is choked with merchandise - suppliers are being driven out of business by bankers (who have the money they won't loan from the US taxpayers) and soon - no one will be have any disposable income to use for the discretionary purchase of items like apparel and footwear.

I'm sure there's something that I'm missing here... I'm just not sure what it is.

And the latest incredible attitude attributed to major retail in both the US and Western Europe - "We'd rather lose sales - than get stuck with inventory." It seems to me (again) that we've missed the point. Isn't the key to surviving this economy based in the creation of strong supply networks - working in a collaborative manner - with open communication at the center? What we need now is the investment in proper business processes and policies that will allow retail to finally attain the "Right Product, Right Place, Right Now …" status they have been looking for since the beginning of time. Rather than this silly "turtle syndrome" we've got going.

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