A cutback in spending - particularly on investments such as information technology - is a natural accompaniment to economic slowdown. Apparel and retail companies are no exception, and the changes that have taken place in this sector over recent months are now showing up in reduced computer and software purchases. By Bob Shallow, MBA.

Since the beginning of the year, stock markets in the USA and overseas have punished the share values of technology-based companies that have revised their sales projections for 2001 to be lower than the figures they had previously forecast. 2000 favorites like Cisco, Corning, EMC, Sun Micro Systems and Oracle are examples of large cap companies that have been affected by the slowdown in new orders.

Some attribute the drop in revenue forecasts to the demise of many of the dot.com companies that were expected to be big customers in 2001. Others claim that a general slowdown in consumer spending, initiated by super-high energy costs on a global basis, is another major factor.

In January and early February, major USA companies announced lay-offs that will eliminate about 250,000 jobs. Automotive giant Chrysler announced 36,000 job cuts over the next three years, communications specialist Lucent continues to make large numbers of employees redundant as part of its turn-around strategy, and even technology companies in California's Silicon Valley have not been immune, with more job losses in January than there were new job gains.

The poor retail climate in the last six months of 2000 resulted in major retrenchments in that industry. So far in 2001, J.C. Penney has announced that it is to close 44 of its under-performing department stores, Federated Department Stores announced the closure of its Stern's division, Ames Department Stores has declared bankruptcy, Montgomery Ward has gone into liquidation with the closure of 252 stores, and Gap Inc continues to struggle in its efforts to reclaim the magic of the past. However, some specialty stores like American Eagle Outfitters are thriving.

Supply chain backlash
As usual, the problems experienced at retail level are being felt by businesses throughout the apparel supply chain. Led by Fruit of the Loom and Warnaco, several USA apparel companies announced cutbacks in the past two months in an effort to adjust inventories to the lower levels now forecast for the rest of 2001.

As a result, retailers and suppliers in the garment manufacturing industry have decided to reduce dramatically the information technology purchases previously budgeted for 2001.

Information technology is often the first target of cost reductions when the economy turns cool, leading to cancellations of orders and a big slowdown in future bookings until the climate improves. And, unfortunately for the IT suppliers, this response is also the norm in many other industries as well.

Consumers can now buy direct from jockey.com

Retail and apparel companies spent tremendous sums of money worldwide in 1999 to make sure that their systems were Y2K compliant. In 2000 the emphasis shifted to building B2C e-commerce websites so that consumers can buy direct from the retailer online. Macy's, Nordstrom and J.C. Penney are examples of large retailers that established websites to cash in on the projected boom in business that is being conducted over the world wide web. Percentage sales increases on the retailer's websites in 2000 significantly outpaced increases at the traditional bricks and mortar stores.

Manufacturers that own major brands initially held off opening their own B2C sites because of fears that this would cause channel conflicts with their major retail customers. However, once it became apparent that retailers were doing business on their websites with the manufacturer's branded products, the manufactures were no longer concerned about repercussions and opened their own websites for B2C business.

One of these brands is Jockey International. Jockey opened its corporate website, Jockey.com, in 1998 as an information-only site with a product catalog and retail store finder directory. In October 2000 the company switched on the functionality to allow consumers to buy direct from Jockey.com.

Jockey and other companies taking a maiden voyage in e-commerce flocked to out-source the entire order-taking and fulfillment process to UPS, FedEx and other major players in the e-commerce out-sourcing business. This strategy enables Jockey and others to test the e-commerce world on a trial basis without having to make commitments for major investments in systems and distribution centers until they have a couple of years of hard results in hand.

Integrated B2B solutions
There has been one bright spot in new systems investments in the retail and apparel industry. This is in increasing acquisitions of software for systems that enable retailers and apparel manufacturers to integrate business-to-business e-commerce solutions. It is anticipated that these joint solutions will enable collaboration between buyers and sellers through access to merchandising, planning, commerce and logistics solutions. QRS and i2 announced one of these strategic partnerships on February 6, 2001. Some of the current customers of the i2 "TradeMatrix" software solutions are Polo Ralph Lauren, Pacific Dunlop, Bali, Federated, J.C. Penney's, Kohl's, Selfridges and Laura Ashley.

On 27 February 2001, Nike, a major i2 customer, blamed troubles with the i2 supply-chain management software for an expected third quarter earning drop of at least 24 per cent from its previous forecast. Nike's stock fell 18 per cent and i2's stock fell 14 per cent as a result of the news announcement.

Phil Knight, Nike's CEO, said that the i2 software implemented in 2000 at a cost of $400 million had not operated properly, caused inventory to swell, and resulted in lost orders as well. The problems are in the footwear division which is managed with i2 software, rather than the apparel division which is managed with software from Manugistics, a competitor of i2's.

In December, 2000 Manhattan Associates, a leading supplier of supply-chain execution and collaborative commerce solutions, announced the formation of a group known as the "Infolink Advisory Board". This group is made up of 25 retailers, suppliers and technology partners including Federated Department Stores, Oxford Industries, Dillard's, Kurt Salmon Associates, Microsoft and QRS.

The purpose of the council is to foster collaboration between leading retailers and suppliers to make sure that they have the systems technology available to be able to exchange information electronically as early in the pipeline as possible.

Bob Shallow earned his MBA at the Wharton School, University of Pennsylvania. He is an information technology consultant and educator specializing in apparel, textile and retail opportunities that enable organizations to perform better through the proper use of IT and e-commerce.