Publish date:

Retails' New Woes: Euro, Sourcing

Retailers are expressing concerns over euro crisis and sourcing pressure during the Piper Jaffray Consumer Conference in New York.



--The retail landscape is shifting under the feet of the nation's sellers. While the major concern for the sector has been consumer spending, retailers now potentially face two major headwinds in the second-half of the year: euro crisis and increases in sourcing.

These concerns were the topics of conversation at Piper Jaffray's annual Consumer Conference in New York this.


(GES) - Get Report

, for one, admits that the euro is a significant concern for the company, and as a result management is planning conservatively. CFO Dennis Secor says they are protecting margins through hedging.

The European consumer, regardless of the state of the economy, is more welcoming of the Guess brand, the company said. In Italy, where Guess sees about $350 million in annual revenue, the shopper, according to Secor, is more willing to spend because the savings rate is higher, even though the country is in debt.

Overall Secor expects the euro will impact operations by a penny in 2010.

Commodity prices, specifically for cotton, as well as labor shortages, will also be a drag on Guess' business, offsetting some of the margin gains achieved during the first half of the year. The company is consolidating and diversifying its vendor base and reducing its production time to allow for shipping via vessels rather than airplane, in an effort to cut costs.

Phillips-Van Heusen

(PVH) - Get Report

says it hasn't seen a slowdown in its European business, even though it has a presence in most European countries. Currently, same-store sales in Europe are running ahead about 5% over the past six weeks, CEO Manny Chirico says.

The apparel maker, which recently acquired Tommy Hilfiger, does see apparel inflation impacting business.

Even amid the euro crisis,

TheStreet Recommends



is still making a push to expand its European business. "Even though the economy is not growing in Europe and is particularly shaky, we believe we can effectively integrate ourselves into the group of choices consumer have in key European market as we did in Japan," CEO Lew Frankfort says. "Consumers in Europe, like their counterparts in Asia, are looking for great product that is relevant and priced exceptionally well."

As an accessible luxury retailer, Coach believes it is well-positioned to appeal to shoppers who are looking for quality merchandise at a fraction of the cost of other European luxury brands.

On the sourcing front, Frankfort says the supply chain team has done a good job at securing low production costs for the next several quarters. "No doubt though we are starting to see some increase in raw costs," Frankfort says.

Like PVH, Coach is also moving production to lower-cost regions like Vietnam and India. "We will face headwinds in 2011," Frankfort says, "But we are optimistic for 2012 and beyond and expect modest gross margin expansion."



CFO Michael Nicholson rattled off several upcoming issues, including prices of raw materials, currency exchange rates, oil, freight and wage pressures. The women's retailer began voicing these concerns in the fourth-quarter last year and Nicholson doesn't see them going away in the near term.

Like other retailers, Ann is taking steps to avoid taking hits from sourcing costs; those steps include shrinking its supply base and utilizing technology like e-sourcing. Nicholson is confident in these initiatives, and AnnTaylor still expects gross margin up 150 basis points or 56% this year, even with these headwinds.

-- Reported by Jeanine Poggi in New York.

Follow on


and become a fan on