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Analyst UBS predicts Burberry – and other major luxury names to see a very slow recovery due to the global decline in tourism caused by the coronavirus pandemic.
The investment bank sees the unwillingness of many key consumers to travel as the biggest single risk to earnings in the luxury goods sector” and reiterated its belief that investors should sell their Burberry shares.
It thinks the company won't be achieving the mid-term growth targets that it has set itself beyond 2021, with the entire luxury sector at risk of seeing its growth aims curtailed.
The Swiss bank cited studies that show around 80 per cent of consumers being unwilling to travel in the next three or four months. That could have a huge impact as around 40 per cent of spending in the luxury sector is accounted for by tourist shoppers.
UBS originally expected some weaker consumer sentiment after the outbreak but are now thinking that the tourist issue is an additional negative factor that needs to be taken into account.
UBS thinks the overall luxury sector will see its earnings estimates lower by an average of 5 per cent, but with the risk of greater declines. And it sees Burberry as being at the greatest risk.
Though retail spending in the United States took the steepest nosedive in March, industry biggies on the 18th annual Forbes Global 2000 list—which uses market value, sales, profits and assets to determine the world’s largest public companies—seem poised to survive.
Atop this of the world’s largest apparel companies is LVMH Moët Hennessy Louis Vuitton, with brands like Louis Vuitton, Christian Dior and Givenchy. Run by French billionaire Bernard Arnault, LVMH has a $194 billion market value and assets exceeding $108 billion, making it the 73rd largest public company in the world.
Sportswear giant Nike finished in a distant second among apparel companies, climbing 35 spots to become the 244th largest public company in the world. Fellow footwear maker Adidas also made strides, cracking the top 400 with more than $25 billion in sales.
Canada-based Lululemon, which came in 1209th overall, maintained last year’s momentum, clocking nearly $4 billion in sales, up from $3.2 billion last year. Thanks to the athleisure brand’s e-commerce surge and strong balance sheet, some analysts predict that the company may actually end up in better shape than it was prior to the pandemic.
Still, for others on this list, the bad news may outweigh the good. Ranked 1490th, Nordstrom, for example, recently announced the permanent closure of 16 stores, striking fear that the department store may go the way of Neiman Marcus, Bergdorf Goodman and Barneys.
Textile industry and micro, small and medium-scale enterprises (MSMEs) in Coimbatore and Tiruppur districts have welcomed the announcements by Union Finance Minister Nirmala Sitharaman. Coimbatore District Small Industries’ Association president R Ramamurthy appreciated the announcements for meeting most of the demands of the associations in Coimbatore, especially related to definition for MSMEs.
President of Coimbatore and Tirupur District Tiny and Micro Enterprises’ Association C Sivakumar welcomed the announcements and said micro units can start operations and depending on need seek further support from the government. The government should look at waiver of loans for micro units, he said.
J James, President of Tamil Nadu Association of Cottage and Tiny Enterprises, added micro sector, which is peculiar to Coimbatore region, needs more focus. There should also be clarity on how the announcements will be implemented.
In the textile sector, CITI chairman T Rajkumar said the move to redefine MSMEs will benefit the sector. The Rs 30,000-crore special liquidity scheme will supplement the measures announced by the RBI Governor to augment liquidity.
On similar lines, AEPC chairman A Sakthivel said the measures will give more money in the hands of people and factories and spur economic growth. Disallowing global tenders will give opportunities to local industries.
Tiruppur Exporters’ Association president Raja M Shanmugham welcomed continuance of Pradhan Mantri Garib Kalyan package and payment of 12 per cent of employer and 12 per cent employee contributions into EPF accounts of eligible establishments for another three months to salary months of June, July and August 2020 also.
Oxfam Australia is calling on clothing brands in the country to pay their workers' salaries during the pandemic. Oxfam labour rights spokeswoman Sarah Rogan told these brands that the wage component of production cost is very small and as these workers were employed by factories, brands had to be accountable for their wages. She further said more than 2,000 people used an online platform set up by the organization, to ask brands how they intended to deal with the Covid-19 crisis but none of the brands had responded to consumer requests.
Clothing brands in Australia have been delaying payments, cancelling orders or asking for big discounts on millions of dollars' worth of orders from Bangladesh, with potentially catastrophic consequences for the women who make the clothes.
Major Australian retail company, Mosaic Brands, is delaying payment, holding or cancelling orders worth $15 million, says the Bangladesh Garment Manufacturers and Exporters Association (BGMEA). Another brand, Cotton On has also backed down on its decision to cancel orders worth millions of dollars. Cotton On had earlier told suppliers it would cancel products worth $18 million, but that decision was reversed later.
Bangladesh Foreign Minister Dr AK Abdul Momen sought a two-year duty-free access for its readymade garment products to the US market as the pandemic put the major export-earning sector in trouble amid cancellations of global orders.
Bangladesh Garment Manufacturers and Exporters Association (BGMEA) claimed that over $3 billion worth orders have been cancelled over the last couple of months. Bangladesh, the top garment exporter in the world after China, is heavily dependent on European and American orders.
Momen reminded that other countries in the region should also share the burden saying it is not the sole responsibility of Bangladesh to give them shelter. He also urged other countries to take back over 1.1 million Rohingyas sharing responsibilities who have given shelter by Bangladesh.
The Foreign Minister also sought US investment in the ICT sector saying some 28 IT parks are being built in Bangladesh. Momen said the US can import medical products, including medicines, from Bangladesh in a larger quantity, and mentioned that Bangladesh is now producing Personal Protective Equipment (PPE) and masks.
US Deputy National Security Adviser Matthew Pottinger assured Bangladesh of continuing US support to deal with the challenges of Covid-19. Trump's Adviser also appreciated Bangladesh for accepting Rohingyas who floated at deep sea for weeks.
Sales at Italian luxury brand Tod’s dropped almost 30 per cent in the first quarter of the year as the pandemic forced many of its stores to shut down. Chairman and Chief Executive Diego Della Valle said the brand’s sales were very strong in all regions at the beginning of the year but the group remained very prudent for the rest of the year, controlling costs and limiting inventories.
The brand’s first quarter sales fell by 29.4 per cent to €152.8 million ($165.60 million) at current exchange rates year-on-year, compared with an analyst estimate of around €162 million. Though Tod’s revenue fell slightly in 2019, marking a fourth straight annual decline, it picked up in the last quarter of the year, in a sign that the strategy to re-launch the group’s brands was starting to bear fruit.
The coronavirus emergency has, however, complicated efforts by the management to push sales.
Iconix Brand Group, a US-based premier brand management company, has posted 22 per cent dip in its revenue to $28.0 million in the Q1 of FY20 ended on March 31, 2020 compared to sales of $35.9 million in same period prior year. Operating loss of the group during Q1 FY20 was $4.9 million compared to operating income of $18.4 million.
While the group focused on continued stabilization of its business and its operational cost structure in the beginning of 2020, the COVID-19 pandemic has had a meaningful near-term impact on its business and licensees. Revenue from the brand’s women segment declined 23 per cent due to a fall in licensing revenue from its Mudd brand. Revenue from men’s segment fell 38 per cent to $6.8 million compared to $10.9 million due to decrease in licensing revenue from Buffalo and Umbro brands.
Home segment sales declined 9 per cent due to a decrease in licensing revenue from Royal Velvet brand. It’s international segment revenue declined by 12 per cent due to decreases in Latin America and Europe.
Clothing manufacturers in developing countries have been left reeling as international brands are refusing to pay for collections that have been completed and in some cases shipped. This has forced factory owners to let millions of their garment workers go, many of whom are young women supporting families.
A recent report by Pennsylvania State University in the United States shows, 80 per cent of factories in RMG manufacturing countries have reduced employment as a result of buyers cancelling orders; nearly 60 per cent have shut down most or all of their operations. Meanwhile, four out of five fired workers haven’t received severance pay, and hardly any fashion brands have offered them financial support.
However, there are some brands that are upholding their promises. Adidas, H&M, Nike, Target and Uniqlo, etc, have committed to paying for orders in full, including those currently in production. On the other hands brands like Arcadia – the owner of Topshop– ASOS, Walmart, Gap, Primark, etc have refused to pay, putting factory workers, mostly women in danger of falling into poverty.
After years of difficulties and previous rescue attempts, Gas Jeans, the historic denim brand owned by Grotto SpA is reaching encouraging financial results that may bring it to a recovery. In the first three months of 2020, the brand registered revenues of €11 million while its EBITDA was €1.4 million. Its cash reserves also increased to €6.6 million.
By moving the assembly for the composition with creditors from July 16 to September 17, the brand is earning more time and more actual possibilities to be saved. The company has to pay its debts to Dea Capital and Amco whose main exposures are respectively €34.6 million and €12.7 million.
Respecting anti-Covid 19 measures like all other companies, Gas, which employs 108 people, has started short working procedures, closed stores and outlets and reduced in part its activities, though without stopping them entirely thanks to smart working and other new projects. In June, for instance, it will start producing CE approved masks and aims to reach a production of about 20 million masks per year to be sold at competitive prices of €0.30 each.
Hikari (Shanghai) Precise Machinery Science & Technology, a leading Chinese sewing technology provider, has launched hot air seam sealing machine in India to produce the body coverall, a major product in PPE kits. The launch has come at a time when the manufacturing industry is witnessing scarcity of seam sealing technology in these unprecedented times of COVID-19.
Hikari has launched the machine under model number *QILi*-XL-A2, and the same is available in the markets wherever Hikari operates, including India. It’s worth mentioning here that the apparel manufacturers are now transitioning into PPE manufacturing in India to cater to not only domestic demand, but also the huge queries they are receiving from other countries.
One Hikari QILi-XL-A2 machine can seal seams of around 6 body coveralls per hour and, depending on how operators operate the machine, the output can be increased by 10 per cent. In an eight-hour shift, the machine can process 48 pieces.
The cost of this machine is 30 per cent less than what its competitors are offering in India in current situation. A few of the early adopters of Hikari seam sealing machines are Honeywell creation, CAREON Health Care, Sulochana Mills and Facctum Wears.
