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As recession reshapes consumer and corporate behaviour, smart companies will seize chance to change

It’s a bad time to be a maker of expensive clothes — just ask a maker of expensive clothes.

“Tailored clothing is probably going to be near the bottom of people’s priorities,” said Stephen Granovsky, chief executive of Toronto-based Luxury Men’s Apparel Group Ltd. (LMAG), owner of Samuelsohn Ltd., which makes $1,000 sports jackets and $1,500 suits in the north end of Montreal.

It’s not that LMAG’s core customers don’t have money to spend. Despite the COVID-19 crisis, the number of men and women working in finance and real estate was little changed from April 2019, while the number of workers in Statistics Canada’s “professional, scientific, and technical services” category was only 2.7 per cent lower. Meanwhile, the year-over-year overall decline was more than 17 per cent.

The company’s consumers are the type that will power the recovery’s early stages. Granovsky, however, doubts he’ll benefit much from any pent-up demand. His customers kept their jobs, but they won’t be in the market for office clothes if the office is now the kitchen table.

“Retailers who are opening now that sell casual clothing and sportswear, and even on their online businesses, are seeing lots of initial demand,” said Granovsky, whose company also owns Rochester, N.Y.-based Hickey Freeman Tailored Clothing and Toronto-based Lipson Shirtmakers.

“If you’re in the sweatpants business, we’re all buying more sweatpants,” he continued. “We’re all buying stretch jeans and things of that nature. But the stuff you wear to work, the stuff you wear to weddings, the stuff you wear to go to parties, the stuff that we make … we’re going to be somewhere in the bottom half of people’s consumer spending priorities for some period of time and we have to be prepared for that.”

Economic downturns destroy companies with weak business plans. The Great Recession punished companies that had grown complacent with exporting to the United States. Canada ended 2009 with about 550 fewer firms than existed at the start of that year, according to Statistics Canada data , a quick snapshot of what a recession can do to an export-dependent country overly reliant on a single market.
The coronavirus crisis is different in that it will also test executives such as Granovsky, whose strategy was entirely reasonable up until a few months ago. The recession is reshaping consumer and corporate behaviour, which will cause reliable streams of demand to run dry. “We’re already well over two months,” Stephen Poloz, the Bank of Canada governor, told reporters on May 21. “It’s going to be long enough for certain habits to change.”

Poloz made the comments during an hour-long videoconference , taking advantage of technology that existed prior to the crisis, but was little used because professional work was wedded to face-to-face meetings.

That notion has now been erased. Waterloo, Ont.-based Open Text Corp. has already decided to get rid of half its office space because it discovered that ordering its 15,000 workers in 30 countries to stay at home had no effect on productivity. Facebook Inc., Ottawa-based Shopify Inc. and Twitter Inc. all have set similar plans in motion, heralding a structural change in service-based economies that revolves around commuting.

“Office centricity is over,” Tobi Lütke, Shopify’s chief executive, tweeted this week.

As a result, demand for commercial real estate, air travel, business suits and overpriced sandwiches won’t recover with the rest of the economy when the lockdowns are lifted.

That won’t necessarily be devastating for the broader economy, because the money that was once devoted to those things will be free to go elsewhere. Entrepreneurs will emerge offering goods and services that we didn’t know we needed at the start of 2020, and existing companies will pivot towards the sources of new demand, provided their managers are talented enough to seize the opportunities.

“There are constraints out there now,” Poloz said. “What are companies doing in the midst of those constraints? They are developing all-new ways of doing business. People are adapting. Those are the folks that will do more than just survive. They are going to explode in positivity afterwards.”

Granovsky and his leadership team at Luxury Men’s Apparel Group have spent “thousands of hours” overhauling their Rochester factory to produce face masks and the Montreal facility to make hospital gowns.

People are adapting. Those are the folks that will do more than just survive. They are going to explode in positivity afterwards

Stephen Poloz

Lots of other companies have answered the call for protective equipment by supplying reasonable facsimiles with whatever they had on hand. Granovsky decided to do it right and learn how to make hospital-grade gear. That meant tracking down fabric that resists fluid and bacteria, and resetting factories for an entirely different kind of production.

The former was the most difficult, since hospital-grade material is suddenly hard to find. Granovsky made about 40 calls before he found a supplier, a source he is so protective of that he refused to name the company.

“We made huge commitments up front for this fabric, in excess of $1-million worth of fabric right at the get-go to secure it,” he said. “We sort of jumped into the deep end of the pool, both in terms of work as well as a financial commitment. We’re a company, like many others, where the pandemic threatens our core business.”

LMAG was rewarded for its efforts last month by an order for 200,000 hospital gowns from the Quebec government, which allowed Granovsky to reopen the Samuelsohn factory and recall 150 employees. Rather than death, the COVID-19 crisis could represent a new phase for Thomas Hickey and Samuelsohn, which share a combined history of more than 200 years.

“We took the position that for some period of time, this was our new business,” Granovsky said. “We’re even prepared to make some sacrifices in our core business going into the fall season in order to continue manufacturing (personal protective equipment) at whatever pace is required by governments and the broader medical community.”

Financial Post

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