Tipping between recession and recovery
2nd November 2009 14:53

Pinpointing that crucial tipping-point between recession and recovery is at best a fine art, and at worst a mug's game. But three sets of results posted last week suggest there is definitely a glimmer of hope on the horizon – or at least that aggressive moves to cut costs and inventories are finally paying off.

At branded apparel giant VF Corporation, CEO Eric Wiseman said: “The worst effects of the recession may be behind us,” after third quarter profit fell 6.8% to US$217.9m on a 5% drop in sales.

However, despite strong growth in Asia and rising sales in its sportswear and contemporary divisions, some caginess remains. “We do not believe that the global economy is out of the woods just yet,” Wiseman added, perhaps in reference to sliding revenues in Europe and in its jeanswear and imagewear units.

Timberland, too, surprised the market with a 23% jump in third quarter profit, helped by strong sales in North America and in its footwear business – but says there is still a lot of work to do before the brand reaches its full potential.

While profit rose to $37.8m, sales remained flat at $421.8m as strong growth in the European boots business and SmartWool brand were offset by declines in casual footwear and Timberland apparel. The company also told investors it hopes its Earthkeepers range of recyclable shoes can help it climb towards consistent and sustainable top-line growth.

And at Hanesbrands the good news continued after the apparel maker posted a 153% surge in third quarter profit to US$41.1m, driven by lower expenses and cost reduction initiatives. The company, whose brands include Playtex, Champion, Wonderbra and Hanes, also said it is ramping up production capacity after securing extra shelf space at retailers like Target, Walmart and Macy's that should add 5% sales growth in 2010.

One of the sectors hardest hit by the global recession, though, is luxury retail, as shoppers defer new purchases, spend less, or simply trade down to cheaper alternatives. And Italian fashion house Versace Group has become the latest victim of the slowdown in spending on luxury items after deciding to cut 350 jobs – around a quarter of its worldwide workforce – in a bid to return to profit.

However, amid signs from some of the large luxury powerhouses that the market is starting to stabilise, retailers are being warned the post-recession luxury market will be far different from the one that came before.

But despite retailers and brand owners working at a frantic pace to produce and sell more and more garments at ever-cheaper prices, this business model seems at odds with steps being taken by many of these firms to build sustainability into their supply chains. However, the keys to narrowing this divide are increasingly held by designers.

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Honduras continues to hurt
29th October 2009 19:14

Four months after the political upheaval that saw the Honduran president forced into exile, the country seems no nearer to finding an end to the dispute.

Talks between ousted Honduran President Manuel Zelaya and the country’s new interim government are making little progress, and until a settlement is reached the political crisis looks set to continue to affect trade across Central America.

The situation isn’t helped by the mixed messages being broadcast about the country’s apparel industry. While Honduran suppliers continue to say that there has been no impact whatsoever on business, trade groups representing US textile firms, retailers and importers are painting a very different picture.

In a letter to Secretary Hillary Clinton they say the situation is causing permanent damage to what once was the most economically vibrant textile and apparel trade platform in the CAFTA region.

US  imports of apparel from Honduras are down 39% in September they warn, credit is at a record low, and there are “increased plant closures, job losses and the crippling of a once booming trade sector.”

It’s hard to tell whether these changes are due to buyer concerns with political stability, or more simply a symptom of disappearing raw material facilities, regional uncompetitiveness, or China’s growing ability to provide fast response in smaller quantities.

But what is true is that while uncertainties regarding the political situation in Honduras are still hanging in the air, buyers will always be cautious about doing business there.

Yes, having a balanced supply chain is a fundamental rule of sourcing, and most firms are constantly assessing their production, but until the US clarifies its stance on the situation in Honduras, the impact on the region as a whole will continue to reverberate for a long time to come.

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Luxury in line for growth?
26th October 2009 12:24

Following hot on the heels of a new report released last week that says the luxury sector should return to growth next year, the latest results from French luxury fashion groups LVMH and PPR last week suggest any signs of a turnaround are still some way off.

PPR, which owns the Gucci brand, blamed a “lacklustre macroeconomic environment,” a drop in tourism and department store cut-backs for an 8% drop in third quarter sales. While fashion brands owned by LVMH continued to struggle as the company reported static revenues for the first nine months of 2009.

However, both firms concurred with the report’s findings that strong demand for luxury goods from shoppers in Asia and online make these areas the main focus for future growth. And significantly, they said results are improving as the year progresses.

Handbag and accessory maker Coach Inc, meanwhile, helped lift first quarter revenues through the introduction of new lower-priced lines, which have not only slowed the decline of US sales but also brought younger shoppers into its stores. Strong demand in China has also prompted the firm to open its first mainland store in the spring of next year.

Coach said its first quarter profit slipped 3.4% to $141m, while sales rose 1% to $761m. Direct-to-consumer sales, which include the firm's China business, soared 10%.

At the other end of the market, UK retail clothing giant Arcadia has posted a 13% increase in full-year pre-tax profit, thanks to a solid sales performance across its brands.

The company, which operates retail chains including Bhs, Topshop, Topman and Miss Selfridge, recorded a sales rise of 2.7% to GBP1.898bn (US$3.137bn) in the year to 29 August, while like-for-like sales were static. But owner Sir Philip Green voiced caution about the year to come, pointing to the potential impact of rising unemployment, the VAT increase and the impending General Election.

There are no such concerns for Hong Kong-based sourcing giant Li & Fung Limited, which is to buy US fashion firm Wear Me Apparel, which trades as Kids Headquarters, for US$100m. The move strengthens the firm’s growth platform, and will help it expand into new markets and categories including young men's and junior's.

And German sportswear company Puma AG is making moves to speed time to market and reduce costs with a landmark product development centre in Vietnam that brings together resources that had previously been spread across Asia. The centre in Ho Chi Minh City will be responsible for 85% of Puma's footwear and 15% of its apparel development needs, and will bring together prototype and sample suppliers.

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Coach eyes the ‘new normal’
21st October 2009 19:30

A new report published earlier this week on the luxury market made the point that sales of bags and footwear this year are holding firm since they offer a more affordable way for shoppers to stay loyal to their favourite luxury brands.

Looking ahead over the next decade, the study by Bain & Company also noted that younger consumers and competitive products will have a key role to play in keeping the sector afloat.

All of which will come as good news to handbag and accessory maker Coach Inc, where one word seemed to be on the lips of executives yesterday as they revealed the firm’s first quarter results: “Poppy.”

Launched in July, this lower priced line certainly seems to have hit the spot, for not only has it helped slow the decline of same-store sales in North America, but has also brought younger shoppers into Coach’s stores.

While the line is by no means cheap, with an average handbag costing around $240, it hits what Coach chairman and CEO Lew Frankfort calls the pricing “sweet spot” of between $200 and $300.

Such has been its success that the company has increased the proportion of handbags priced below $300 from about 30% of its assortment last year to 50% this year.

“This rebalancing gives the consumer more choices at prices she is willing to pay or is able to afford,” Mike Tucci, president North American Retail, told analysts yesterday.

Or, as Frankfort succinctly put it: “We have adapted our pricing and product strategies to be successful in what will become the 'new normal’.”

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Living wage debate continues...
16th October 2009 18:40

For many retailers, the lack of real evidence as to what a living wage constitutes means they continue to refer to a minimum wage in their code of conducts, with only a cursory glance towards the alternative.

UK supermarket retailer Tesco, for example, told the recent Let’s Clean Up Fashion report: “There has long been contention about what this attempt to define a ‘living wage’ means in practice...The lack of a commonly-understood definition means we don’t find it practicable to use the term in day-to-day work.”

Until now, that is. The Asia Floor Wage (AFW) campaign has, for the first time put a figure on what it believes garment workers need to earn if they and their families are to meet basic needs for nutritious food, water, shelter, clothing, education, healthcare and transport as well as providing for a discretionary income.

It doesn’t seem a lot to ask does it?

Well detractors have gone straight to the numbers, arguing that paying the equivalent of a $475 a month minimum wage throughout Asia will decimate the garment industries in countries like Bangladesh, which is one – if not the – world’s cheapest producers.

The figure of $475 is not a literal currency exchange; it is based on the World Bank's Purchasing Power Parity, which was used to work out the wage needed to allow workers to purchase the same set of goods and services that a US consumer can get for $475.

But in local currency terms it still works out at a big increase on the current minimum wages in the six countries taking part in the campaign – Bangladesh, China, India, Indonesia, Sri Lanka and Thailand. In Bangladesh it comes in at more than six times the value of the current minimum wage, and is 2.4 and 1.6 times higher than current minimum wage levels in China and India respectively.

Supporters of the AFW, however, are well aware that that setting out clear criteria for how a minimum wage should be calculated simply gets them over one more obstacle in their campaign for better take-home pay, and is nowhere near the end of the debate. It will also be interesting to see if any retailers heed their pleas to foot the bill from their own profits rather than back-loading the cost onto suppliers.

But setting a living wage level has been the holy grail of what campaigners have been looking for, and while taking discussions to the next level may be all it achieves, that that at least will be a good thing.

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