eCommerce Fashion Seller Zalando Pivots To Luxury Apparel - pymnts.com |
- eCommerce Fashion Seller Zalando Pivots To Luxury Apparel - pymnts.com
- Rockets of Awesome Slashes Staff, Closes Store - The Wall Street Journal
- Toy, apparel supply chains face tipping point in March amid coronavirus spread - S&P Global
- Tech, Apparel Profits Could Be Hardest Hit by Supply-Chain Shocks - Barron's
| eCommerce Fashion Seller Zalando Pivots To Luxury Apparel - pymnts.com Posted: 28 Feb 2020 06:52 AM PST Zalando, Europe's largest online fashion retailer, is making an ambitious foray into the €38bn luxury clothing market. The company plans to double its eCommerce offerings from premium makers like Moschino and Alberta Ferreti within three years, according to a report in Financial Times. The retailer is aiming to capitalize on the growing trend of shoppers making high-value purchases on the internet. David Schneider, co-chief executive at Zalando, said he's seen younger shoppers mixing and matching high-value brands with sports and designer pieces. He added that premium items have been the company's quickest growing category recently. Zalando also recently announced a 20 percent rise in full-year revenues, hitting €6.5bn, and its adjusted core earnings reached €225m, which is up from €173m in 2018. The company's number of active customers rose from 26.4 million to 31 million year on year. Orders increased from 116 million to 145 million. Zalando's shift to selling premium goods came along with a plan to also focus on secondhand goods on its platform. By combining the two, the retailer has positioned itself as a sort of two-pronged "starting point" for European customers interested in eCommerce fashion. The company's approach is reminiscent of the success of other online giants like Netflix and Spotify. Co-CEO Rubin Ritter said the aim was to become "the one app" that customers utilize for their clothing needs. In 2020, Zalando expects revenues to continue climbing at a slower rate from previous growth spurts, rising 15 to 20 percent this year. Adjusted core earnings will likely reach €225m-€275m. The retailer said it has not yet seen any impact from the Coronavirus outbreak, though it did take precautions on Thursday (Feb. 27) by canceling its annual results press conference in Berlin. Chief financial officer David Schröder said the company considered itself well prepared for any changes, and had taken the necessary precautions thus far. Though Zalando has been expanding its operations, other companies want a piece of the pie, as well.   |
| Rockets of Awesome Slashes Staff, Closes Store - The Wall Street Journal Posted: 28 Feb 2020 02:02 PM PST  Rockets of Awesome, a children's apparel startup, is laying off about half of its staff in a retrenchment focused on shifting away from high-paced growth and toward profitability. "This is a difficult moment, but it's necessary for the long-term health of the company," founder and Chief Executive Rachel Blumenthal said in an interview. The...  |
| Toy, apparel supply chains face tipping point in March amid coronavirus spread - S&P Global Posted: 28 Feb 2020 03:39 PM PST Factories that make products for some of the major U.S. retailers and consumer companies are reopening in the wake of the coronavirus outbreak. But whether they return to normal operations in the first weeks of March or in April could determine whether the virus is a limited or an extended downside for those retailers and their suppliers. Retailers including Walmart Inc. have already warned that the virus, which originated in the Hubei province of China and kept many factories and some ports closed beyond the normal Lunar New Year break in February, could hit earnings early in 2020. While many facilities are open again, few are firing on all cylinders thanks to continued travel restrictions, which continue to keep some workers from returning. How long manufacturers and retailers have to wait before China's factory and logistics workforce returns in full will determine whether retailers have to find alternative sources for seasonal products, such as back-to-school apparel for children, said Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation. "Folks are starting to see that factories are opening," he said in an interview. "The question is: 'How quickly are workers returning?'" Apparel in peril? Retailers rely on Chinese producers for a wide range of goods, Gold said. But product selections that change every few months are at particular risk of being delivered later. Already, apparel selections for spring and early summer are set, for instance, but whether future shipments make it to shelves in time is unclear, analysts at Coresight Research wrote in a Feb. 19 note. China accounted for about 30% of seaborne apparel imports to the U.S., or $25.66 billion, in 2019, according to data from Panjiva, a business line of S&P Global Market Intelligence.
Coresight wrote that there is a 50% chance that production will return to full capacity by the beginning of March, a scenario under which companies would face few long-term effects. The report assigned a slightly lower chance — 45% — to factories returning to normal operations by the end of March, which would delay shipments of some summer apparel items. Coresight gave a 5% likelihood to the worst-case scenario: factories not returning to normal operations until mid-April. "We expect the production of summer collections to be impacted if factories are not operating at full capacity by the end of March, with knock-on effects on the timelines of the back-to-school, fall and eventually winter collections," the report said. Rising wages in China and President Donald Trump's trade war have led many consumer companies to look for manufacturing options outside the country, Gold said. Still, he added, raw materials, such as textiles, remain difficult to source outside China, meaning that even companies that have reduced their dependency on China for manufacturing by moving to other countries in the region could be held up by the virus. Fast Retailing Co. Ltd.'s Uniqlo, for instance, has grown its manufacturing footprint in Vietnam, with one-fifth of its seaborne imports to the U.S. coming from the nation in 2019, up from 11.5% in 2016, according to Panjiva. China still accounted for over half of imports to the U.S. Other apparel names that rely on Vietnam for manufacturing include Under Armour Inc., adidas AG and PUMA SE, per Panjiva. Fast Retailing said Feb. 28 that a majority of its partner facilities had reopened, but not all employees were back on the job. Factories are not the only element companies need to keep an eye on. The spread of the COVID-19 virus has also kept port workers at home, leading to hangups for companies both buying from and selling to China. Tyson Foods Inc. CEO Noel White told analysts in early February that virus's spread was causing "disruption at the ports," making it difficult for the meat processor to get shipments to China. "It's making sure that you've got the transportation piece," Gold said. Not playing around
Middle- and small-scale toy producers also are at risk of delays if factories take longer to return to normal service. China produced 84% of the toys imported to the U.S. in 2019, or $12.34 billion worth, according to Panjiva. The largest players, such as Mattel Inc., own at least some of their own factories in China, giving them direct control of manufacturing. But smaller companies, such as Canada-based Spin Master Corp., rely on contract manufacturing, said Jaime Katz, an analyst with Morningstar. That means that toy companies with revenues of $2 billion or lower will have to compete with other manufacturers for capacity to get their production back into form. "Everybody else that's using these factories is also backlogged now," she said in an interview. Disruptions due to COVID-19 are "a lot more detrimental to the smaller players," she added. Toymakers are also likely to suffer from port disruptions, Katz said, since alternative transport methods, namely air freight, are likely to eat into toymakers' profits. For manufacturers of higher-value or higher-margin products, such as furniture, importing by plane might make more sense. Toy releases tied to specific movie or entertainment releases are even more at risk of disruptions since toy companies have to coordinate their arrival on store shelves with premiere dates for movies or television shows. "You want them shipping two to three weeks before you need them in the store," Katz said, but right now, "you don't have the visibility to determine" when they will arrive. Shipments for Easter also could take a hit, she added. Mattel's China facilities reopened Feb. 17 after a delay, Executive Chairman and CEO Ynon Kreiz said at an industry conference Feb. 21. But he cautioned that "overall employee return rates have been impacted by quarantines and transportation limitations."  |
| Tech, Apparel Profits Could Be Hardest Hit by Supply-Chain Shocks - Barron's Posted: 28 Feb 2020 05:10 PM PST   Tariffs gummed up global trade routes over the past two years. The coronavirus has now frozen them. This has the potential to cause an economic shock unlike those that led to recessions in the recent past: the oil spike in 1991 that hit consumer wallets or the credit crunch in 2008 that seized up lending markets. The coronavirus has severely disrupted nearly every link in the global supply chain, from raw materials to components to finished goods, which could lead to curtailed production, product shortages, and financial stress across a range of industries. How manufacturing delays ripple through the economy isn't so straightforward, however. Tech companies, apparel makers, and industrial-equipment manufacturers are likely to be hurt most, given that they are most reliant on inputs from China and Southeast Asia. A prolonged delay in parts procurement not only would threaten corporate earnings, but could imperil companies' ability to make debt payments. Among individual companies, Apple (ticker: AAPL) and Microsoft (MSFT) warned investors in February that they would miss sales estimates because of supply-chain problems, but didn't put numbers on the impact. Expect more such warnings in coming weeks. "In the last two decades, China became the factory of the world," says Girish Rishi, CEO of supply-chain software provider and consultant Blue Yonder. "Consumer packaged goods, automotive, apparel, high-tech. I can't tell you which sector is not getting impacted." That is particularly true now that the virus has spread to other major manufacturing hubs such as South Korea, and Japan, and is starting to move through Europe. China, South Korea, and Japan together account for more than a quarter of U.S. imports—and more than half of American imports of computer and electronics products. On Thursday, Goldman Sachs revised its U.S. corporate earnings growth estimates down to zero, largely because of supply-chain worries. February survey data show that shipment times from Japan and Europe are already "increasing substantially," Goldman noted. Analysts initially quantified the direct impact of the coronavirus on the economy, expecting it would almost exclusively affect China and not spread widely in other nations. The economic dent in that case was relatively simple to pinpoint. Estimates tended to range from $150 billion to $400 billion, or less than 0.5% of global gross domestic product. Under that scenario, the industries most affected would include travel and tourism providers, and consumer companies selling into China. Shares of the two U.S. companies with the most direct exposure to China as a percentage of sales— Yum China Holdings (YUMC) and Wynn Resorts (WYNN)—have fallen more sharply than the broader market. Oil companies are reeling, too, because China is the world's largest petroleum importer. Crude has fallen more than 20% since the start of the year. Consumers, who account for 70% of U.S. economic activity, might not see the impact of supply-chain disruptions immediately. Instead, inventory shortages would start to show up in company sales. "If your sales are slipping, you're going to be more reluctant to bring on new workers," Wells Fargo economist Sarah House says. An earnings shortfall might also hit balance sheets. "We've seen the financial position of the corporate sector deteriorate over the past couple of years," she says. "Interest coverage on debt has been eroding. A potential shock to earnings could influence their ability to cover that interest expense." More than a dozen companies in myriad industries—from technology to toothpaste, agriculture, and toys — have told investors that the coronavirus is disrupting their supply chains. Some have said they are expecting an impact on earnings, but few have quantified that. "Trying to size perfectly the coronavirus impact at this point is incredibly difficult," CEO Corie Barry said on Best Buy's (BBY) fourth-quarter earnings call Thursday. The impact on earnings could vary widely by sector. "Where industries are more balanced in their global footprint for suppliers and manufacturing, they have options," Rishi says. The auto industry is relatively insulated from supply disruption, for instance, because several companies have built regional factories to serve local markets, he noted. "My concern right now is really for consumer packaged-goods companies and retailers who have a higher concentration of goods coming from China," he says. Apparel and footwear companies are in particular trouble, says analyst John Kernan, an analyst at Cowen. They source about 30% of their goods from China, and other countries in the chain often get raw materials from there. "The supply chain emanates out of Southeast Asia, and China in particular," Kernan says. "It's not just the factories. A lot of the materials that go to Bangladesh and Vietnam and other areas emanate from China. It's a mess." So far, retailers' shelves aren't going empty, but that might not be far off, he warns. "Eventually, you'll have a slowdown in goods coming into the country." Apparel companies were trading at high valuations coming into the year, adding to the risk in their stocks. "A lot of companies across my space will have to issue guidance reductions," he says. Consumer products manufacturers already are discussing delaying product introductions. Normally, they start ramping up new fall launches in January or February, says Suketu Gandhi, leader of the digital supply-chain group at the consulting firm Kearney: "The whole thing is pushed out at least four months." Newsletter Sign-upManufacturing companies are also likely to be affected. Engine-maker Cummins ( CMI), Lincoln Electric Holdings (LECO), and industrial-equipment maker Terex (TEX) said at a recent conference that the virus could hurt first-quarter earnings and "spoke to something much more broad-based (i.e. supply chain, customer start-up issues) if it's not contained in weeks, let alone months," writes Barclays analyst Adam Seiden. "The virus has flipped a positive to a likely negative that's not yet reflected in most estimates." Tech is threatened, too, and it's not only big companies such as Apple and Microsoft. Tech equipment maker Jabil (JBL), an important cog in the supply chain for companies including Amazon.com (AMZN), withdrew its financial guidance Tuesday and said that impacted factories were running at just 65% to 70% of capacity. Potential disruptions could be worse had companies not been paying more attention to their supply chains due to the U.S.-China trade spat. Multinationals have been working on diversifying them for the past three years as U.S. tariffs ramped up. "At least compared to prior periods of supply-chain disruption, companies seem to be better prepared in terms of their inventory levels," House says. "That suggests that there's a little bit more time for this to get sorted out and for shipping and production to resume before we start to see it in the data." Write to Avi Salzman at avi.salzman@barrons.com  |
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