Although the devastating impact of September 11 lingers on the psyche of Americans as the economy slowly fights to emerge from recession, the industry is faced in 2002 with the daunting challenge of getting consumers excited about shopping again as retailers work to bolster their bottom line.

As a result, there will be a renewed focus on store-level productivity, brand leveraging and a more consumer-centered marketing approach. For home goods, it also means nurturing a consumer's desire for all things relating to home and comfort. These were some of the issues tackled by industry experts during a recent HFN Financial Forum.

The participants included Anne Maxfield, president of the staffing firm Project Solvers; Elizabeth M. Eveillard, senior managing director in investment banking for Bear Stearns & Co. Inc.; Dana L. Telsey, retail analyst at Bear Stearns & Co. Inc.; Gilbert W. Harrison, chairman of investment bank Financo Inc.; and Abbey Doneger, president of the Doneger Group, a retail buying office.

The panel said the terrorist attacks five months ago exacerbated an already troubled retail environment, which negatively impacted all areas of the industry. "Hiring on a full-time basis just stopped after Sept. 11, and 'hiring freeze' became a mantra until the end of the year," Maxfield said.

Maxfield added she's not sure if this was justified and noted that the hiring freeze has yet to thaw even as companies look optimistically toward a stronger year ahead. She said that many companies sidestepped hiring freezes by using more freelancers. Still, it's been difficult.

Meanwhile, Eveillard offered some good news about the economy. "Our economists see the recession ending by the end of this first quarter; but with a slow recovery toward the end of the year," she said.

Eveillard said she expected consumer spending to remain slow as it continues to get weighed down by unemployment, increasing consumer debt, and psychological and real losses on Wall Street. But in home goods, the "cocooning effect" should boost the industry.

"People are going back to value, family values and conservatism," she said. "They are spending more on the home and the family."

Eveillard added that the past decade has been like a consumer binge. So as the economy improves, she expects people will return to buying goods. Regarding initial public offerings in the retail industry, there haven't been many, she said, adding that the dot-com boom "distracted a lot of people, so valuations slipped."

On the mergers and acquisitions front, Eveillard said, "Given this environment and some of the pressures being put on the weak retailers, we certainly see consolidation as on of the major" themes this year. She said last year was a very busy bankruptcy year, which "cleaned up" the sector. As a result, Eveillard doesn't expect any spin-offs, but some retailers may look to specialty niches as areas ready to grow.

In the area of capital expenditures, Eveillard said the trend is toward store-level productivity, rather than growing the store base. "I think that companies that are pushing growth through store openings ultimately are not going to make it," she said.

But many investors tend to favor retailers that grow their store base. She said it would take time for the productivity message to reach investors. Harrison said this is a critical issue. But he noted that many retailers open 10 or 20 stores each quarter, even as their store-level productivity wanes. "The pressure to continually open stores is, at the same time, continuing to ruin these companies," he added. Telsey said she expects retailers to focus their energies on store-level productivity while closing unproductive stores.

"We have a rule of thumb that there's 400 good malls and 800 good strip centers," Telsey said. "It's just a rule we've used over time as we've seen that retailer's same-store sales can decelerate after you've hit 400 malls. It's our sense that basically the income level goes down as you go beyond 400. We've seen that with many different companies."

Telsey went on to say that for 2002, "the question will be how profitable are the stores that retailers have," she said. "The key questions we keep asking retailers are: How are the stores that you're opening this year doing vs. last year? What are they generating in terms of one year? Are they doing better or worse? What do you see from these stores?"

Harrison said he'd been talking with a company recently that opened 30 stores last year and 25 the year before, which is up from 10 the previous year. "But the productivity in terms of sales-per-square-foot was 50 percent below the stores that were open three, four or five years ago," Harrison said.

Telsey said retailers are shy about closing stores. "Sometimes it is almost as if it could be an ego thing," she said.

She added that it's as if the retailer is saying, "look at how many stores I have compared to how many stores you have."

"We think that closing stores is certainly a positive," Telsey said. "In terms of productivity, I don't think we've ever had a year in which we're going to see as many store closings in terms of square footage as we're going to probably be seeing this year."

Telsey said retailers should tune into styles and employ more focus groups while better leveraging their brands. And they need to listen to their salespeople, whom she described as the "retailer's antenna."

Doneger said that the industry could use more "passionate, energetic and driving leaders."

"We need merchants at the top," he said. "There is a difference in the way a financial person, without a merchandising and retail background, will operate a business. The timing and the understanding of the merchandising flow is key to doing well. It all comes down to having the right people, and there needs to be an emphasis on recruiting talent to the industry."

Maxfield said that people still need help to shop. And it's up to the industry to fuel that need. "We can do this by staffing businesses with creative talent, people who aren't afraid to think outside the box, whether they are retailers, manufacturers or designers," she said.

Doneger said that even "the best merchants can sometimes go cold. Sticking to the basic customer profile becomes key," he said. "That's why specialty concepts seem to working today. Department stores in general are not selecting merchandise with the customer in mind. They're selecting merchandise with the business concepts of the financial issues in mind."

Harrison said a few years ago, be talked with an industry veteran who learned merchandising in a retail company's training program. He complained that there wasn't any good talent around.

"He said to me, 'I was told to go out of the market and buy goods. I learned by the mistakes I made. Today everything's done on the computers. The buyers are basically no more than processors.' He explained that one couldn't train a merchant that way. That was several years ago and it is even worse now," Harrison said.

Doneger said the industry has to grasp newness. "We need that entrepreneurial spirit and activity permeating throughout our industry," he said. "The industry needs to be thinking about that, collectively and individually. We need to execute from a merchandising point of view, not a financial point of view. It starts with understanding who are the targeted customers."

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