Brands across the retail sector are feeling the squeeze when it comes to sales during the coronavirus pandemic.
At a panel discussion hosted by Backbone PLM, industry executives from U.S. brands spoke about how the virus—and new CARES Act measures enacted by the federal government—is impacting business in this new retail landscape.
What’s available to businesses
But first, Jason Lynch, general counsel for investment body The Foundry Group, walked through some of the basics of the new Phase III bill.
The Paycheck Protection Program (PPP), a large tenet of the bill, is just one of several loans available to businesses at this time, he said. Its aim is to help companies with less than 500 employees keep their staff on payroll. Under the measure businesses are eligible for a loan up to 2.5x their average monthly payroll for the year.
PPP loans will come directly from a business’ existing bank, he said, and if they use the proceeds to fund payroll, rent or mortgage, those funds are forgivable. Anything outside of those use cases that isn’t forgivable becomes a two-year loan with a 1 percent interest rate.
If a business has already furloughed employees, workers can be brought back under the plan. “Your forgiveness amount is reduced if your employee count is less than it was at prior measurement periods,” Lynch said, adding, “You can bring them back, get credit for them in that measurement, and not have the forgiveness amount reduced.”
Additionally, if companies have reduced salary pay, they can utilize the loan proceeds to bring salaries back up and receive the full forgiveness amount.
The Small Business Association (SBA) also has a separate loan program, the Economic Injury Disaster Loan (EIDL), which businesses can apply for separately—though those loans are not forgivable.
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While businesses can’t take both loans for the same purpose, they are allowed to apply for both, Lynch said. If they apply for a PPP loan and use it to fund payroll, rent, utilities or mortgage interest, an EIDL loan can be used for other measures as long as there is no overlap.
Canceled orders
One issue that brands are facing is the cancellation of wholesale orders from major retail partners.
Chris Molnar, founder and co-CEO of Goodlife Clothing, said that retail partner Nordstrom has faced significant inventory issues in the wake of store closures—and the brand has had to adjust its expectations.
“We have been understanding… They’re not going to take in more goods and have them sit in a warehouse,” he said.
From the mid-March store closures through the undecided future date that stores are allowed to open their doors again, much of the inventory the brand was planning on shipping will be sitting in its own warehouses or in its factories in Los Angeles or Peru, he said.
One of the saving graces of Molnar’s businesses is that 80 percent of its product is manufactured domestically. “We have a much quicker turn to market… and we’re able to pivot and have our factory in Los Angeles hold goods,” he said.
Much of the brand’s range is made up of year-round core products, he said, which also enables Goodlife to “pump the brakes” on pushing out more.
Off-shore partnerships aren’t as flexible. “Sometimes you’re already paying into that product,” he said. “It’s thrown a huge wrench into our supply chain in terms of what’s on order, what’s coming in, how much you really need, are you splitting up orders… In our case, our suppliers have been very understanding because they’re dealing with it with everyone.”
Nate Checketts, co-founder and CEO of Rhone, agreed that most retail and wholesale businesses will see inventory issues.
“Much of our clothing isn’t overly seasonal which helps,” he said, adding that wholesale makes up about 20 percent of Rhone’s business, with its own retail stores taking about 5 percent. The vast majority of the brand’s sales are made online.
Still, Rhone is attempting to maintain healthy working relationships with its retailers even amid the shutdown. At Nordstrom and Equinox, where the brand is a top seller, Checketts said Rhone is dropping credit card processing fees to help its partners.
When it comes to negotiating with factories and suppliers, it’s important to “be sensitive to them and take a human approach,” he said. “This can have the ability to impact so many people if we overreact.”
Design inspiration
As product teams move forward in designing for a less dystopian future, attitudes and inspirations have undoubtedly changed.
Kelly Watters, founder and CEO of clothing label Western Rise, said that the brand already focuses primarily on seasonless items. “A lot of seasonality comes from colors and fits, but the focus is on core,” she said, and not chasing fleeting trends.
That philosophy could prove essential in the months and year ahead, as teams will need to decide what to do with unsold inventory that never had a chance to hit store shelves.
Operationally, design tasks like fittings and pre-production sampling has become harder, she said. The brand’s design team has been doing video calls with its fit model to try on garments.
When associates need to cross-reference physical items like swatches and samples, one might drop them off at the office, and another will pick them up the next day.
Christopher Bevans, founder and creative director of DYNE men’s wear, said his team is lucky to have built up an “archive of fabrics” that serves as a canvas for creativity.
The team will hold up swatches on Zoom to show texture, or mail them to designers’ homes. “We’re asking a bit more from partners overseas for samples,” he said, but they understand the need for extra sets.
So far, Bevans said, the team has not faced holdups in its design process, and is on track for 2021.
Bill Mickle, director of product integrity at Peter Millar, said working from home has been convenient for his design team.
“Each person is a vertical silo,” he said, and they are able to have materials sent to their homes.
“We got spring 2021 far enough along that we can manage it,” he added. Sample orders have been placed, but fall 2021 may prove tricky for designers, who have been using virtual meet-ups to collaborate.
The brand is taking a look at the idea of annual and seasonal essentials in the wake of the crisis, Mickle said, and questioning the need to make unnecessary changes to core items, like slight changes in color or material.
Incentivizing the customer
While an economic crisis is looming, many consumers are more concerned about the virus’ health implications. That’s a truth that brands must contend with in their marketing and messaging.
Western Rise doesn’t discount frequently—perhaps twice a year, and mostly around the holidays, Watters said. The current state of retail sees brands across the board discounting heavily as a way to spur sales, she added, “But there’s no end in sight here—it’s not like a holiday.”
Customers quickly tire of seeing promos, she said, urging brands to consider strategies to keep them engaged over what could be a multi-month period. They also need to be sensitive about the seriousness of the situation at hand.
“Our customers don’t respond as well to topline discounts,” she said, adding that Western Rise sees more results from initiatives that incentivize retention.
“The whole [rule book] is out the door, which is great because you get to test everything,” she said. For her marketing team, that means new channels and experimentation.
Like many brands, Western Rise is also reallocating resources and materials to creating personal protective equipment, or PPE, and giving back.
“We do need to be sensitive on tone during this time,” said Rhone’s Checketts, but not so guarded that communication to consumers comes to a halt. If that connection is broken, he said, then sales will drop and it negatively impacts a business and its employees.
Rhone is working to mobilize digitally native brands to give back, he said, in an effort called Brands x Better. So far, the company has reached out to 30 brands, and will make contact with 50 more by the end of the week.
Consumers understand the need to promote during this time, Checketts said, and if done thoughtfully and tactfully, those communications can “increase empathy toward a brand that you love.”
Plus, with big-box retailers like Walmart and mega-marketplaces like Amazon crushing the competition, smaller brands need to garner their own support from shoppers.