Blog: Leonie BarrieStrong dollar makes for weak results

Leonie Barrie | 30 March 2009

The impact that fluctuating currency rates can have on even the best-made buying plans came to the fore last week when three of Europe’s leading fashion retailers posted their results.

The rising strength of the dollar sent first quarter profits at Hennes & Mauritz (H&M) down 12%, despite an 18% increase in sales. And Next reported a 15% fall in net profit and warned that sales and margins will continue to fall this year as the pound's fall against the dollar is pushing up prices from suppliers. At Inditex, annual profits were EUR1.25bn, largely flat with the year before.

All three remain bullish though. H&M plans to open 225 new stores this financial year, Inditex is seeking growth from its international markets, and Next expects to deliver net margins of more than 10%.

US fashion company DKNY is also eyeing international expansion and will open its first retail stores in India early next month after reaching an agreement with newly-formed DLF Retail Brands. The company hopes to benefit from its brand awareness in the country, as well as India’s reputation as the next big destination for luxury fashion.

Meanwhile, Gap Inc's upmarket Banana Republic chain is to trial a new store selling accessories priced at less than $100 to appeal to shoppers seeking a quick-fix wardrobe update. Edition by Banana Republic will open in San Francisco in May, and will sell limited edition women's handbag and jewellery collections along with the best of Banana Republic accessories. Crucially, the majority of pieces will be priced at under $100.

Weak consumer markets, as well as restructuring costs in the US and start-up costs in Europe, combined to push sourcing giant Li & Fung to a 21% slide in full-year profit, despite a 20% rise in turnover.

However the Hong Kong-based company is still targeting further acquisitions and outsourcing deals – like the one signed recently with Liz Claiborne. In a special analysis, just-style asks if the move by Liz Claiborne to wind up its sourcing department and buy all its offshore garments through Li & Fung marks the end of the trend for sourcing direct?

Apparel companies in Hong Kong come under the spotlight in a report from the local office of charity Oxfam – which says many still lack transparency on labour standards. While acknowledging that companies are responding to mounting global consumer pressure and increasingly providing information on labour standards and social compliance, it also said there is still plenty of room for improvement.

 


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