FW
"Fung Global Retail recently analysed fashion titans Inditex and H&M to understand the business strategies and USPs that set them apart. H&M produces just 20 per cent of its clothing range in-season, in contrast to 60 per cent at Inditex. Similarly, only 32 per cent factories that H&M uses are located in or close to Europe, compared to 59 per cent of Inditex’s factories. H&M’s revenue growth is being supported entirely by new store openings, and its sales-per-store growth is negative."
Fung Global Retail recently analysed fashion titans Inditex and H&M to understand the business strategies and USPs that set them apart. H&M produces just 20 per cent of its clothing range in-season, in contrast to 60 per cent at Inditex. Similarly, only 32 per cent factories that H&M uses are located in or close to Europe, compared to 59 per cent of Inditex’s factories. H&M’s revenue growth is being supported entirely by new store openings, and its sales-per-store growth is negative. Inditex continues to report positive comparable sales growth and sales-per-store growth. H&M’s product offering is strongly focussed on basic apparel items.
Inditex growth ahead of H&M
Inditex has been growing much more strongly than H&M, and this is due to Inditex’s more comprehensive fast- fashion offering. For products manufactured in proximity markets, Inditex has lead times of around five weeks and the company claims to replenish stocks of existing designs in two weeks while H&M can get fast-fashion products to market in around two to six weeks, reveal Morgan Stanley research. Talking about Asian market, it takes between three and six months for H&M’s Asian-sourced products to reach store shelves. The lead times at Inditex for Asian-manufactured garments are almost the same. By revenue, Inditex is 14 per cent larger than H&M.
H&M does not own factories, while Inditex is vertically integrated. In Arteixo, Galicia, where its head office is located, Inditex owns 11 factories focused on skilled work such as cutting out garment pieces. Third-party factories then stitch such pieces into finalised garments. Zara alone employs around 350 in-house designers, while the company website reveals that the group has design teams of over 700 individuals. H&M, on the other hand, has a much smaller design team, employing 160 designers.
Performance matrix
Inditex is growing much faster than H&M. In the companies’ most recent respective fiscal years, Inditex grew euro-denominated sales at almost double the pace that H&M did. And the growth gap has widened in the first half of the current fiscal year: In first half of 2017, Inditex total revenues grew by 11.5 per cent year on year and comparable sales grew by 6 per cent while H&M grew total revenues by 5.2 per cent in euros, or by 8.6 per cent in Swedish krona. Even though H&M has seen sluggish sales growth, it has continued to grow its orders with suppliers very strongly. As a result, H&M is growing its inventory at a much faster pace than it is growing its sales.
H&M’s revenue growth is being supported entirely by new store openings, and its sales-per-store growth is negative. Inditex continues to report positive comparable-sales growth and sales-per-store growth. The research concluded that a strong fast-fashion positioning is supporting growth at Inditex. H&M’s product offering is focussed much more strongly on basic apparel items, which provides it with less differentiation in the market. Analysts say, H&M will continue to find it tough to maintain underlying sales growth, in the context of heightened fast-fashion competition, including from ultrafast-fashion players such as Boohoo.com and Missguided while Inditex is better placed to compete with such upstart rivals.
Apparel reporter Vishnu Clothing Company (VCC) has launched a new office in Rainham (UK) to expand its business and attract more buyers. At present, the Tirupur-based 15-year-old company exports 70 per cent of its garments to the UK market and 30 per cent to other European countries.
The exporter expects the newly launched office to help the buyers and agents in the UK and European markets connect better with the company’s representatives in person and discuss possible business collaborations.
A team of seven has already been appointed by VCC at its UK office to look after this new development and make it a successful venture for the company. The exporter is Sedex- and Disney-certified and produces an extensive range of kids, women and men’s apparel. It expects 40 to 50 per cent growth in the current fiscal post the steps taken to amplify its business. Currently, the company has an annual turnover of Rs 45 crores.
The establishment of the office in the UK is a bold initiative taken by the company seeing the current challenging scenario of Indian apparel exporters in the UK market post-Brexit. Rajesh Kumar, Marketing and Merchandising Manager of the company says even though the market is sluggish, the company is positive of achieving the targets.
For the first half of the year, House of Fraser’s comparable sales were down 5.2 per cent. Sales were hurt by web disruption as it moved to a new platform, which sent e-tail sales down 9.8 per cent. But the benefits of its transformation program are already beginning to come through in the first seven weeks of the second half, with better sales and margin performance. The company also expects a full recovery in e-commerce sales, originally expected to be complete by the end of the summer but now set to take a further four to six weeks.
The new own label women’s collections have been launched including the acquired Issa label and customers’ response to date has been very encouraging with initial sales exceeding expectations. The new web platform has greatly improved customers’ experience and online margins. Good progress has been made in recovering sale volumes and the group expects to be trading normally by the beginning of the important final quarter of the year.
House of Fraser is an UK department store giant. Its investment in the distribution center will deliver cost savings through improved operational efficiencies. The group is optimistic that it can deliver growth over the key trading final quarter of the year.
Honduras is Central America’s top textile exporter. The industry is one of Honduras’ main export and employment generators, comprising nearly 260 companies operating in 16 industrial parks. Strategic investments have helped transform the country into one of the world’s major players in the booming synthetic yarn and active wear market. Some 83 per cent of Honduran textile exports are destined for the US. The country is the US’s top supplier of cotton T-shirts and second largest supplier of fleece wear.
Honduras’ goal is to surpass Indonesia and Mexico to become the US’ fifth most important apparel provider. US, Chinese and European investors are investing both in synthetic manufacturing facilities and in distribution centers to service e-commerce. Several plants in the country have already incorporated new technologies for the use of recycled synthetic fibers. One such plant is slated to begin operations in the summer of 2018. The plant will have the capacity to produce more than 25,000 tons per year of drawn texturized yarn in a range of dimensions and textures to be used for the elaboration of synthetic sport, moisture-wicking, stain-resistant and other high-performance fabrics for clothing and footwear.
Synthetic textile manufacturing lead times and costs will become even more competitive once the high-tech yarn is produced locally instead of imported.
The global fiber sector is in a state of volatility with considerable ups and downs, significant overcapacity in a number of fiber segments and the backlash from slowing global demand at retail. The fiber market is in need of greater transparency and improvements along the textile value chain. Though synthetic fiber growth is up, and cellulosic fibers are enjoying strong growth, polyester saw the slowest growth in 80 years, and natural fibers are stagnating.
There is a global shift towards manmade fibers while natural fibers, mainly cotton, have lost market share. Manmade fibers occupy 70 per cent of the global fiber market versus 55 per cent some ten years ago, and this trend may continue for years. Between 2006 and 2016, synthetics occupied 51 per cent of the global market share, and now that number is 64 per cent.
When it comes to cellulosics in particular, like lyocell, the fibers have seen above average production growth of six per cent. China has lifted its volume of stable fibers by two per cent, due only to gains in manmade fibers. In India, output advanced two per cent thanks to increases in all categories. Bangladesh is fully focused on cotton products and as of today is not able to supply manmade products. But in time manmade fibers may have a growing share in Bangladesh.
North Korea exported about $725 million worth of clothing last year, according to South Korea’s trade-promotion agency, making it a significant source of income for the cash-strapped country. With the United Nations Security Council prohibiting North Korea from exporting labour and textiles, things will turn bad for the textile industry and more so for workers. As per economists, the country will be lose revenues to the tune of $800 million.
North Korea does not export fabrics instead produces labour-intensive articles of clothing, essentially it would be a garment ban that the country would face in times to come. Countering the decision, Paul Tjia, a Dutch consultant who helps businesses operate in North Korea, especially in the garment industry, said when you make simple clothes like T-shirts, the machinery is important. The labour is not so important, so it makes no sense to do things like this in North Korea. But for garments that require a lot of manual work, like bras or winter sports clothes, it makes a lot of sense to make those in North Korea because the price-to-quality ratio is very attractive.
It’s a known fact that all of North Korean-made clothes are exported through China, the onus lies on Beijing to enforce it. As Andray Abrahamian, a visiting scholar at University of California at Berkeley’s Center for Korean Studies, says if a container coming from North Korea says it contains sweet potatoes, is the Chinese customs department going to crack it open to check that it does not contain underpants? If Beijing is serious about stopping North Korea’s exports of apparel and workers to sew garments in Chinese factories, it would have a significant impact on the North’s economy. The reason this is important is not only because apparel exports are a significant number but because it’s the one non-resource area that’s really growing.
Six major fashion brands have joined the SBTI, which seeks to reduce greenhouse gas emissions and bring global warming to below 2°C. The SBTI now has over 300 companies signed up to the initiative, and claims the fashion brands have the potential to reduce their 750 million tonnes of emissions per year, in line with the goals of Paris agreement.
So far, the fashion brands to have completed their targets are: Kering and Marks & Spencer. Kering commits to reduce emissions from upstream transportation and distribution, business air travel, and fuel and energy use by 50 per cent per unit of value added by 2025, from a 2015 base-year. The company says it is also committed to curb emissions from purchased goods and services by 40 per cent per unit of value added within the same timeframe.
Marks & Spencer has committed to reduce emissions from operations by 80 per cent by 2030, and has a longer-term vision to achieve 90 per cent emissions reductions by 2035, from a 2007 base-year. In addition, the company commits to reduce value chain emissions by 13.3 megatonnes of CO2 between 2017 and 2030. According to SBTI scientists identifying the reduction goal in line with a notion of keeping global temperature increases below 2°C. 71 of over 300 SBTI companies have already had their targets independently verified.
Cynthia Cummis, Member of the Science Based Targets Initiative steering committee says the fashion industry is known for innovation and these companies are using that spirit to tackle climate change. Setting ambitious value chain targets will open up a great deal of opportunity for collaboration, innovation and efficiency across the industry.
UN Global Compact chief of programmes, Lila Karbassi adds more and more companies see the advantages of setting science-based targets, the transition towards a low-carbon economy is becoming a reality. Businesses now working towards ambitious targets are seeing benefits like increased innovation, cost savings, improved investor confidence and reduced regulatory uncertainty.
Fashion group Esprit’s full-year profit saw a threefold rise. The Europe-focused clothing retailer is undergoing a multi-year revamp that includes store closures, trimming operating costs, price adjustments, new return policies, and technology and distribution upgrades.
The company expects controlled retail space to shrink by single digits in percentage terms in the new financial year, while revenue is seen falling marginally.
Growth is expected only progressively as the group still faces a downsizing process in its wholesale and retail space as loss-making retail stores still need to be closed. However, the retailer forecasts an improvement in gross profit margin as it continues to cut down on discounts and promotions. Operating expenses are expected to come down by single digits in percentage terms. Shares of Esprit have fallen more than 20 per cent so far this year.
Esprit earns the bulk of its revenues in Europe. Its largest market is Germany. It feels the operating environment appears challenging amid volatile financial markets and economic uncertainty that might dampen consumer sentiment. The company remains confident of heading in the right direction and is laying the necessary foundation to restore competitiveness and long term growth. Esprit offers high quality fashion for men, women and children as well as the latest fashion accessories and furnishings.
Cotton importers in Bangladesh are facing problems due to port congestion. Spinners import cotton from India, the US, African countries and many other countries, and they have to wait for eight to 10 days for the cotton to be released from the port. Cotton is an essential raw material for the garment sector, the country’s main export earner.
Even six months ago the spinners could get the cotton from the port within three days. The longer waiting time at the port means paying fees as berthing charges. And the fees have increased the cost of doing business. In such a scenario, importers are bringing in more raw cotton than they need at present and stockpiling them at warehouses.
The problem has arisen because two gantry cranes at the Chittagong port have broken down. Repair might take six to seven months. Bangladesh is the world’s biggest cotton importer. In 2016, Bangladesh imported 6.5 million bales of cotton. Bangladesh's cotton imports will creep up to 7.1 million bales in 2017-18. Cotton growers in Bangladesh can only supply less than three per cent of the yearly demand. The 430 local spinning mills can supply nearly 90 per cent of the yarn for the knitwear sector and 40 per cent of the fabrics needed by the woven sector.
Bangladesh will remain the top apparel sourcing hotspot for international retailers and brands over the next five years followed by Ethiopia, Myanmar, Vietnam and India.
Being the second largest apparel exporter worldwide after China, Bangladesh exported garments worth $28.14 billion in the last fiscal year, registering 0.20 per cent year-on-year growth. However, with higher demand from retailers and brands, garment exports rebounded again and grew at 14.05 per cent year-on-year in the first two months of the current fiscal year.
The garment sector has improved workplace safety and other compliances after fixing the structural, electrical and fire loopholes. But it still needs to ensure shorter lead times, high standards of compliance, higher productivity and capacity at factory level and competitive prices for remaining the top choice of retailers and brands.
In addition Bangladesh needs to keep an eye on emerging competitors like Ethiopia and Myanmar since they are also coming up with big growth potential. Ethiopia is not a major competitor now. But it could pose a big challenge for Bangladesh in the future as it is receiving a lot of foreign direct investment for producing low-cost basic garment items. Also, while China appears to have passed its zenith as a low-cost sourcing country, it would remain indispensable because of its bigger export value.
