abrupt closures of retail environments vendors. Happily this trend
appears to have finally eased in 2013. Through the first nine months
of 2013 we have seen only a handful of closings. However, given
the ongoing pressure on pricing that allows virtually no margin for
error for industry participants, recent improvements in this area
could prove illusory.
We also continue to hear concerns from supplier companies
about the impact of tight lending standards pushed by bank regulations and regulators. When that is coupled with the continuing
reluctance of some retailers to pay for inventory that they have
insisted be built and kept “in reserve,” there is a fertile environment
for more vendor company failures in the future.
The general business media seems to enjoy writing about the
“re-shoring” of manufacturing back to North America from China
and other low-labor-cost countries. In the retail environments
industry we see little evidence of this to date. There is some anecdotal evidence that labor costs have increased for some skilled
positions in China, while energy and some other input costs associated with manufacturing retail environments have stabilized
or decreased in North America. But recent surveys by A.R.E. have
failed to find re-shoring in our industry.
Instead, the situation is better described by one executive from
an A.R.E. member steel fabricating company who said, “We have
gone from being a manufacturer that did some importing to being
an importer that does some manufacturing.” Likewise, Paul Pinkus,
a longtime industry consultant and national director of the in-store
marketing and store design industry services practice at McGladrey
LLP, does not see evidence of re-shoring yet in the retail environments industry. He notes, “This industry was slower than many
others to go to China, and will be slower to pull back.”
THREE “MAYBE TRENDS”
In a highly competitive industry like retail environments that is
dominated by privately held companies, data to substantiate trends
can sometimes be difficult if not impossible to come by. One example is the ongoing pressure for shorter lead times and the consequent trend of companies competing based on speed to market.
We’ve heard of a number of vendor companies that have tried to
re-engineer their processes to achieve shorter lead times. Clearly the
ability to turn around a project quickly gives vendors an advantage
over Asian alternatives. The potential dark underbelly of retailers
insisting on short lead times is the temptation for vendors to start
building before they have a valid purchase order. A common element
in many failed retail environments providers was excess new goods
inventory for a key customer. The supplier didn’t have a valid purchase order and when the customer refused to pay for it, the supplier
ended up in bankruptcy.
Another trend that may be ahead (although we can’t prove it) is the
return of strategic acquisitions of fixture manufacturers and other
suppliers of retail environments products and services. Recently
acquisitions in the store fixture segment have been largely distress
sales. And despite the highly fragmented structure of the industry in
North America, buyers and sellers have struggled to agree on price.