Blog: Leonie BarrieTipping between recession and recovery

Leonie Barrie | 2 November 2009

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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