JCPenney VP Janet Fox Says "Only the Fittest will Survive"

By Dennis K. Zhao

On a dry land where grass turns yellow and droopy, the strong bull is served as a nice bite of beef for an even stronger predator, an attacking lion. Yes, that’s the principle of Darwin’s theory – the survival of the fittest.

The photo given by Mrs. Janet Fox, Vice President of JCPenney, who came to Shanghai for an international home-textile conference on the 26th of Aug., is appalling. On a dry land where grass turns yellow and droopy, the strong bull is served as a nice bite of beef for an even stronger predator, an attacking lion. Yes, that’s the principle of Darwin’s theory – the survival of the fittest.

(Yes, that’s the principle of Darwin’s theory – the survival of the fittest.)

“Only the fittest will survive!”

Mrs. Janet Fox’s presentation is titled with this awesome warning, and her admonition is not exaggerated. The dry grassland is, in a figurative sense, the background of the world economy that is still in turbulent winter times despite the fact there comes a sign of stabilization. The prairie of world economy is in its dry shade, far from turning optimistically verdant and green at this time. This view does not stand alone and is in fact shared by many. The recent speech made by Pascal Lamy, Director General of World Trade Organization (WTO), cautioned against excessive optimism as he once again emphasized that the world economy has remained fragile and the economic outlook is still uncertain. Although financial markets have recently shown signs of stabilization, and the trade contraction — now forecast at 10 per cent in volume - seems to be beginning to bottom out, it is unclear how, and how long it will take us, to exit the crisis. He went on saying that “although Asia is starting to see a rebound in trade from the very low figures in the first quarter of the year, I would caution against excessive optimism. Unemployment continues to be on the rise and its full social and political effects are still to be felt. ”

Against this uncertain backdrop, it is encouraging that many leaders from industry and business regimes have an important gathering here in Shanghai to visit the rendezvous of three-for-one trade event that puts together China International Home-textile Exhibition, China International Knitting Trade Fair and Yarn Expo as one-stop business offer. Thought-provoking forum is also important part of the whole event, with the home-textile outlook as leitmotif to discuss the issues that are still challenging the industry and trade.

Business is hard at this time when consumers have changed their habitual spending behavior from a spender to saver. Competition between suppliers is more intensifying, “only the fittest will survive!” at the hard times.

Fundamental shift in consumer spending behavior

US market is an important export destination both for China and for the other exporters as well , the figure for the first five months sees a growth of market share up to 46% in US market share of textiles and apparel import from China. The hard fact is that the total import from China proves 16.74% down as against the same time last year because the local retail market demand is lethargic. “ It is not a weather change, it is a climate change!”, said Mrs. Janet Fox who went on mentioning that that has been a fundamental shift in consumer spending behavior that led to an unpleasant result in the latest sale figures where high-end retailers are suffering double digit losses, mid-tier single digit and discounters have slight gains. “Everyone is looking for deals!”, she said.

 The fundamental change of buying behavior has its root reason as is found with the structural issues in the US economy
 Loss of House Value
 Low personal savings, chronic federal and trade deficits
 Credit Card Debt
 Underfunded social security, medical and pension plans

These losses in home values coupled with income uncertainties have driven consumers to an upside-down or inside-out shift in lifestyles.

This fundamental shift is obvious in limiting: spending less and saving more, in deal-seeking: looking for bargains and discounts, and in trading down: willing to accept lower quality and value.

Global consumerism at the cross roads
Many aspects of the change in consumer behavior that has occurred as a result of the current economic meltdown are expected to be permanent as behavior has changed not out of necessity, but also from a change in the psychology of consumers.

The global consumerism is at the cross roads now, for the consumer behavior change is fundamentally and psychologically if we see the fact that US customers are still burdened by a loss in the values of their homes, have borrowed heavily on credit cards, at high rates and have seen declines in their investments and right now are saving more money than they are spending.
 
Even as the economy improves, consumer spending may be slow to return to previous levels. This current recession has taught consumers to adopt new sustainable lifestyles:
“CONSUME LESS – SAVE MORE”
 
US home prices and home textiles

Home textiles business has a lot more dependence on new housing market. US new home sale has been a downturn since its peak sale in July in 2005 and its growth rate was seasonally adjusted all the way down to the first half of 2009 and its existing home prices plummeted as the following graph indicates.

The decline in housing turnover year to year has moderated significantly a decline of -2%, better than -6.6% in May. June home turnover was driven by a -21.3% decline in new home sales vs. -32% in May. There was a +.02 increase in existing home sales. So what does all this mean for the home textile market in the US?

In 2008 home textile results were a decline of 11.8 from 2007, and the first half of 2009 has shown little improvement. The hardest hit area has been sheets with a decline of – 15.2% followed by bed coverings down -13.7%.

The bath area has shown the smallest drop at -7% while window (curtains, window shades) is down -12%.

US Home Textiles Market in Some Important Category

Sheets   - 15.2% 
Top of Bed   - 13.7%
Bath     - 7%
Window    -12%

Breakout of Channels for Home Textiles

MASS MERCHANT 49% WAL-MART, TARGET, KMART
NATIONAL CHAINS  21% JCPENNEY, KOHL’S
SPECIALTY     15% BED BATH&BEYOND
DEPARTMENT STORES    3%  MACY’S, NORDSTROM, JCPENNEY
OFF PRICE   3% BIG LOTS, ROSS, TJ MAXX
DIRECT TO CONSUMER   3% VARIOUS MANUFACTURERS
WAREHOUSE CLUBS   2%  SAMS, COSTCO
OTHER    4%

(Source: NPD)

Home-Textile Market Share (bed, bath, kitchen, dinning)

What retailer needs and what are the requirements to be a supplier?

At the meeting, Mrs. Janet Fox points out that the key factors of success in the coming upturn rests with riding the industry consolidation, production flexibility and bringing value beyond the product.

What Retailer Needs: Flexibility and Quick Response

 New products/novelties
 New products to appeal to customers
 More test orders and samples
 One-stop shop service from suppliers
 Shorter lead time / Quick response
 Smaller initial buy and quicker replenishment
 Reduce inventory and markdown risks

--Value to Buyer beyond the Product

 Merchandising and design services
 Product development capabilities
 Supply chain solutions
 Insights on market trends and sourcing landscape
 Quality and delivery performance
 Supplier lab accreditation
 Commitment to CSR and sustainable development

-- Cost Containment and Efficiency are Essential

 Seek cost effective expansion and retain skilled workers to get ready for economic rebound
 Reduce inventory and working capital
 Prudent cash management and capital investments
 Factoring and credit insurance arrangements on receivables
 Close communication with customers and suppliers

--Prudent Financial Management
 Seek cost effective expansion and retain skilled workers to get ready for economic rebound
 Reduce inventory and working capital
 Prudent cash management and capital investments
 Factoring and credit insurance arrangements on receivables
 Close communication with customers and suppliers

What’s the outlook?

According to Mrs. Janet Fox, the outlook for 2009 continues to be soft, with little improvement in sight for 2010. Until the housing market rebounds and unemployment is reversed, there is very little incentive to spend money on textiles.

“Some feel that ‘the stay at home’ mentally should drive more home sales, but this has not been evident in the market. Retailers are planning the business carefully, buying less and maintaining more, focused assortments, reacting to sales rather than building inventories.

Item testing has been more important than ever as there is less room for error when profit margins are tight and costly markdowns have greater impact.”

Advice from Mrs. Janet Fox for suppliers is the highlights not only for China, but also for all suppliers in developed and developing countries that wish to continue their export to USA in this turbulent times.

Source form China Textile Magazine

Subscribe this magazine for more fresh information on Chinese textile and apparel trades, in English, monthly!

T: +86 10 8522 9751
F: +86 10 8522 9277
M: china.textile.serve@gmail.com