Blog: Leonie BarrieOnline sales beckon for Zara

Leonie Barrie | 21 September 2009

Europe's largest apparel retailer Inditex, owner of the Zara chain, last week posted an 8% drop in first-half profit – but still beat market expectations after international expansion helped it ride out the storm in Western markets. Sales at the Spanish company were up 7%, boosted by rapid growth in Asia.

The company maintained a tight control of costs, which grew more slowly than its sales during the second quarter for the first time in two years – hailed by analysts as a “major turnaround”.

And it announced a belated but necessary move for Zara to start online sales for the autumn/winter 2010 season, initially targeting Spain, France, Germany, the UK, Italy and Portugal, before progressively rolling out online sales to all Zara markets.

The lure of the internet has also prompted UK department store retailer John Lewis to make a renewed push into the fashion market with a number of new initiatives designed to boost sales both online and in its stores.

With a focus on upmarket labels, the firm hopes to add an extra GBP70m (US$116.3m) to its online fashion sales over the next two years with a relaunched website featuring more than 200 fashion and beauty brands. And in its stores it is rolling out a new luxury shop fit on some of its 27 women's wear floors to showcase new designer labels.

In contrast, cuts beckon at UK-based apparel company French Connection after it swung to a first half pre-tax loss of GBP12.8m (US$21.2m). While turnover rose 4% to GBP116.9m, the company admitted it had been “severely affected” by the difficult retail conditions in all markets.

French Connection has already closed its northern European retail operations and reduced staffing levels at its head office this year, but further cost-cutting measures are set to follow in the second half.

US innerwear, outerwear and hosiery maker Hanesbrands is also continuing to shake-up its business. Under its latest plans it will sell three of its yarn manufacturing operations to Parkdale, and shutter a fourth facility, after deciding there is no strategic advantage to be gained from producing its own yarn.

The move will lead to the loss of around 175 jobs, but will generate $100m from a combination of the sale proceeds, reduced raw material requirements and reduced inventory.

It is the latest in a long line of job losses and cost cuts at the company, which has been restructuring its supply chain to create production clusters that use fewer, larger facilities and to balance its production capability between the western hemisphere and Asia.

There was a lot of scaremongering going on last week, after President Obama’s decision to impose tariffs on imported tyres from China raised fears there will be a flood of new safeguard petitions – especially from the textile and apparel industry.

But while industry experts told just-style there’s a slim chance some petitions will be filed against apparel made in China, they also stressed the likelihood is largely being exaggerated. And encouragingly, there's plenty that firms can do now to prepare themselves for any fall-out.


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