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The Business of Fashion

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Advice From Fashion CEOs on Leading in a Recession

The pandemic aftermath, a lingering labour shortage and impending recession have created a challenging equation for leaders who must strike a delicate balance to come out ahead.
Some layoffs are unavoidable when the economy is in peril and nixing job openings is often the first step for many companies.
Some layoffs are unavoidable when the economy is in peril and nixing job openings is often the first step for many companies. (Shutterstock)

Key insights

  • Chief executives are devising strategies to keep workers happy in a competitive labour market as resources get tighter and layoffs enter the conversation.
  • Unlike prior recessions, store roles and diversity and cultural efforts aren’t likely to be the first to see reductions.
  • Brands are prioritising investments in core capabilities such as supply chain, finance and e-commerce and store sales with an eye to innovations that improve customer experience.

On a Thursday morning sitting in his office at the New York corporate headquarters for Xcel Brands, parent of clothing brands Halston and C. Wonder by Christian Siriano, chief executive Robert D’Loren is still contemplating his breakfast order from two hours before.

“I walked into Andrew’s deli on the corner of 7th and 36th this morning and ordered two egg whites and toast, and it was nine bucks,” he said. “How does the average person really handle that?”

It’s a sign of the times that even CEOs are obsessing over the cost of eggs. As the pandemic moves into the rearview and the reality of high inflation and a possible recession comes into focus, fashion leaders are charting their next steps.

They’re weighing how to keep workers happy amid a lingering labour shortage, even though resources are getting tighter and layoffs are on the agenda again at many firms. The social issues and renewed focus on diversity that came to the fore in 2020 remain a factor in decisions about everything from hiring to customer service and branding. And with so much uncertainty, executives will need to prepare for multiple scenarios and ensure they have the agility to pivot on a dime.

For leaders like D’Loren, the cost of a simple breakfast is both a sign of skyrocketing inflation and a predictor of financially skittish consumers during the holiday season. But more than that, it’s a symbol of the all encompassing volatility in retail and the delicate balance they have to strike for their businesses to come out on the right side of a recession.

“I never really thought about things like this but it’s becoming very, very serious,” he said.

The Layoff Landscape

Some layoffs are unavoidable when the economy is in peril and nixing job openings is often the first step for most companies. But, with the labour shortage top of mind, many employers are hoping to make layoffs a last resort and will think twice before cutting jobs (like store roles) that may have been first to go in past recessions. (As of September, there were 1.9 job openings to available worker in the US, per the Bureau of Labour Statistics, and store roles remain among the hardest to fill.)

At Francesca’s, a Houston-based women’s clothing retailer — which filed for bankruptcy as a public company in 2020 and re-emerged as a private firm last year — chief executive Andrew Clarke said layoffs are not something the brand “is considering at this stage.” Instead, the company, which opened 16 new stores this year, is holding firm on plans to open more locations in 2023.

“[Layoffs] are just not where we’re at as a company,” he said. “We’re in growth mode.”

At Xcel, D’Loren said the company’s May decision to sell a majority stake in Isaac Mizrahi, a brand it owned for 12 years, was intended to de-lever its balance sheet and sidestep layoffs ahead of economic downturn. (The Mizrahi sale to management consultancy WHP Global was valued at $68 million, including $46.2 million in cash to Xcel.)

“We’ve already pulled our biggest lever,” he said. “What you don’t want to do is to pull your assets [the people] who are coming up the elevators every morning and driving the business.”

At Obsess, a virtual store platform that works with companies such as Dermalogica, Ralph Lauren and Farfetch to create online stores using augmented reality, chief executive Neha Singh said the company has more than doubled its staff, to 85 employees this year, but has reduced its hiring goal by about 10, to end the year with 90 total employees. Engineering and 3D design roles have been a priority, and the last few hires will be salespeople and account managers.

Saks Off Fifth chief executive Paige Thomas expects the economic downturn — coupled with a budding resale business that’s growing “double digits” — could become a tailwind for the off-price retailer as consumers prioritise discounted prices. Meanwhile, inventory gluts at high-end brands could give its assortment a nudge in time for the holiday season.

Even so, Thomas said the company is watching the economy for signs it will need to pivot.

“We’re thinking about ‘where can we find efficiencies? How do we manage payroll? How do we manage capital?’” she said.

The Culture Component

In the current climate, competitive compensation, job flexibility, remote work, social impact and internal equity rank high among job candidates’ demands. A recession isn’t likely to significantly erode those expectations even if workers start to feel they have less leverage than they did at the height of the Great Resignation when employers were especially desperate, experts say.

For instance, in the past, diversity and cultural efforts — often viewed as expenses that weren’t going to help the bottom line in the short term — were among the first cuts in a recession. Now, the fashion firms that will fare best, said Francesca’s’ Clarke, are the ones that value culture and view diversity, equity and inclusion as an integral part of their broader business strategies.

“Your diversity strategy is no longer hinged upon responding to particular events,” Clarke said. “It now has to be a part of who you are as a company.”

As an example, he cited the company’s decision to issue a statement after the Supreme court overturned Roe v. Wade this summer, knowing the issue was important to Francesca’s workforce, which is 97 percent women, many of whom are under 35.

“As I sat down with the leadership team, we’re like, ‘not saying something is not an option,’” he said, “Our associates expect us to take a point of view.”

A clearly articulated approach to remote work is also essential, even if the particulars differ from company to company.

At Obsess, Singh has required her team to work from the office since September 2021. The decision to eschew remote work limits the recruiting pool, but provides a valuable culture boost, she said.

“We have specifically hired people who want to be in a social environment and who want to collaborate,” she said. “That has had the biggest impact on our growth.”

Saks Off Fifth takes a “moments that matter” approach, where corporate teams decide for themselves what days to meet in person, Thomas said.

Keeping Innovation in Focus

In anticipation of a challenging holiday season, where inflation is expected to drag down consumer spending, companies are focusing on core capabilities like supply chain, finance and e-commerce and store sales. Many brands are already leaning away from experimental technologies in emerging categories like Web3, cryptocurrencies and NFTs. But, investments in “experiences that wow” — in-store and online — could be the ace in the hole for some retailers, said Obsess’ Singh, which this month launched virtual stores for Coach and Maybelline.

“[Companies] might not be so focused on the Metaverse, but I think they’re focused on improving consumer experience,” said Singh. “They know that if consumers are going to spend less this holiday, they need to inspire them and stand out from their competition.”

At Francesca’s, Clarke said the company is investing in technologies and automation that “aren’t groundbreaking” but make shopping the retailer easier and more exciting, including new management systems for its warehouses and stores that enable offerings like buy online, pick up in store and ship from store.

“This isn’t the metaverse or Web3 yet,” he said. “But it’s technology that helps our associates do their job better … and with more job satisfaction.”

Editor’s Note: This article was revised on 10th November 2022. An earlier version of this article stated that Francesca’s workforce is comprised of 90 percent women under the age of 35. That is incorrect. Francesca’s workforce is comprised of 97 percent women, many of whom are under the age of 35.

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