By Barbara Thau
Merchants at the recent National Retail Federation’s annual show in New York said they are ruthlessly cutting the fat from their home assortments, pruning inventory levels since consumers are simply not buying.
While merchants have enjoyed a few bright spots in their home mix—from cookware and food storage to exclusive brands—the category will continue to feel the pain of the housing crisis, credit crunch and sour macroeconomic picture for at least the first half of 2009, CEOs said.
Almost unilaterally, retailers called the current state of retail, scarred by bankruptcies, liquidations and massive store closings, unprecedented.
The sector, which boasts about 25 million jobs, is the largest private employer in the United States and lost more jobs than the car industry in 2008, said Myron Ullman, chairman and chief executive officer of J.C. Penney, during an NRF session entitled “The Sky Has Fallen: Now What?”
“If that doesn’t impress upon you the economic impact of our industry in terms of our economy, I don’t know what would,” he said.
J.C. Penney’s home business was tough all last year, and the retailer is planning for the business to continue the downward trend for the first half of 2009, Ullman told HFN during Financo’s cocktail party following the investment bank’s annual CEO seminar.
The big priority is to get home inventories lean, he said.
Still, Ullman expects its private brands such as Linden Street, the soft home collection with a casual, young aesthetic, and its Cooks housewares collection—both strong holiday performers—to generate solid sales this year.
Like J.C. Penney, Macy’s has sharpened its focus on getting inventory “back in line with consumer demand,” Terry Lundgren, chairman and CEO, told HFN.
Macy’s is already making headway on that push: Inventory is down 7.5 percent compared with last year, Lundgren noted.
The home business is tracking in line with the store, Lundgren said. December sales at Macy’s fell 4.0 percent.
“Home is going to be tough,” he said. With the economy being what it is, “We’re not going to take a lot of risk in home” for the first half of the year.
However, exclusive merchandise, including the Martha Stewart Home Collection, is outpacing the rest of the mix. “And there’s less discounting on exclusive brands,” he said.
Exclusive brands account for about 20 percent of Macy’s mix today, and separately, about 13 percent of the retailer’s assortment is private-label. Lundgren said that about one-third of Macy’s assortment is proprietary, and “There are many more opportunities for exclusives.”
In home textiles, exclusive merchandise has swelled to more than 50 percent of Macy’s assortment, he said.
Crate & Barrel is “dramatically” cutting SKUs and underperforming vendors to keep its inventory in line with lackluster consumer spending, said Gordon Segal, founder and chairman of Crate & Barrel, during the Financo seminar.
This economy is like “a pail of cold water on your head,” he said. “Now we’re looking at a whole different world.”
Segal anticipates that there will eventually be 20 to 30 percent fewer stores in the home furnishings retail space.
However, Crate & Barrel, notoriously slow and steady when it comes to store openings, is accelerating the expansion of CB2. The six-unit, lower-priced spin-off chain will open two stores in California, one in Los Angeles and one in Berkeley, and another store in Miami this year.
At its core Crate & Barrel stores, CEO Barbara Turf expects decorative accessories, such as new wall art, mirrors and pillows in bright colors, to lift sales this year. The retailer introduced vibrant, springlike colors in January—earlier than usual “coming off all the negative [news],” Turf said.
Crate & Barrel will also stoke its bridal business, which has been robust. Taking a cue from the recessionary climate, it will be adding things like colorful, inexpensive dinnerware for the bride, she said.
For 30 years, Kip Tindell, CEO of The Container Store, has been able to plan the company’s revenues within one percentage point. That’s no longer the case.
“I’m optimistic in the sense that things are stabilizing,” he said. While 2009 won’t be a good year for business, the sales dips that began last October seem to have leveled off, Tindell said.
The Container Store feels fortunate to have been posting single-digit declines while the furniture industry is seeing decreases between 25 and 30 percent, he said.
“We’re hoping and praying that people start nesting again,” Tindell said, noting the nesting trend that emerged after Sept. 11.
Closet and kitchen storage are steady sellers and should help steamroll business this year. “Food storage is also getting better and better with huge innovation,” such as longer-lasting materials and advances in dishwasher safety coming out of places like Japan, Tindell said.
With more people entertaining at home, kitchenware has been a bright spot at HSN, Mindy Grossman, CEO of the television retailer, told HFN. Product lines from celebrity chefs Todd English, Emeril Lagasse and Wolfgang Puck have helped fuel that business, she said.
Adding to its roster of personality-driven home lines, HSN recently added an exclusive soft home line from designer and Oprah protegee Nate Berkus, as well as a gift program from wedding and entertaining guru Colin Cowie.
These days, the customer needs to be egged on to buy. HSN does just that by playing up limited-time offers. “Scarcity drives demand,” Grossman said during the Financo seminar. “In today’s environment, we have to make her want new product.”