Ronald Friedman, Co-Leader, Retail/Consumer Products Industry Group, Quoted in Women's Wear Daily Article "Bright Spots Seen in U.S. Economy."

Excerpt:

Not too hot and not too cold.

That’s the so-called Goldilocks economy, where it’s not so hot there’s inflation risk and not so cold that the economy is in danger of a recession.

As the U.S. begins 2015, consumer confidence was up in December, boosted by pump price declines since early July. IHS Global Insight’s director of U.S. consumer economics, Chris G. Christopher Jr., said consumer spending is looking bright for 2015. “We expect 2015 real consumer spending growth to outpace 2014, and real median household income is likely to gain some traction in the New Year. This is good news for middle-income households since, between 2008 and the end of 2013, most of the income gains have been in the upper income brackets.”

The even keel between inflation and recession risks is likely to continue at least for the first half of the year, helping to boost confidence as the equity markets continue their steady course.

But not everything in 2015 will be rosy. Ron Friedman, the retail practice leader and partner-in-charge of the Southern California region for financial services firm Marcum LLP, expects there could be a few more bankruptcies on the horizon, keeping company with the firms – Deb Shops, Delia’s Inc. and Mexx – that filed in 2014. Alco Stores, which filed its Chapter 11 petition in October, is in the process of liquidating.

Friedman also noted that, given the softness in apparel sales, apparel manufacturers in particular are likely to see an increase in chargeback requests from retailers this month. However, he doesn’t expect 2014 – the retail calendar ends for many at the end of January – to count as one of the worst post-holiday years because retailers are “no longer storing the chargebacks and waiting until year end. Manufacturers have been managing their inventory and dealing with this throughout the year because [retailers] have been taking [chargebacks] all year long.”

Friedman forecasted one by-product of the difficulties in retail for wholesalers that could lead to a new trend on the horizon: “You’ll see [a number of] manufacturers start to go vertical and open their own brick-and-mortar stores, as well as having an online e-commerce presence.”

According to Friedman’s rationale, “Some of the smaller manufacturers are making $3,000 to $6,000 every month or every other month with their wholesale accounts. Let’s say they can get 75 percent gross profits from a store. Their payroll cost will be 20 percent and rent costs of between 10 percent to 15 percent. If you include everything else, they’ll have a 40 percent overhead. That results in them making 35 percent to the bottom line. They don’t need many stores, just a few to control their destiny and not rely so much on their wholesale accounts.”

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