Sunday, June 27, 2010

Apparel costs to rise: Perry Ellis CEO

Clothing maker Perry Ellis International sees a 10 percent rise in industry wide apparel prices over the next two years amid rising commodity prices and higher labor costs in China.

Prices have to go up at some point. The American consumer will have to pay higher prices... It's only apparel and electronics, the items that keep coming down, everything else in life has come up," Chief Executive George Feldenkreis told the Reuters Consumer and Retail Summit in New York.

Feldenkreis said the push for higher wages in China and the government's recent move to relax controls on the yuan would further contribute to price increases.

"Beijing is 30 million people. There is a movement to bring some of that prosperity to the midwest region in China. That is also creating more issues with labor costs... you have seen some unrest," he said.

The company, which sells branded merchandise in department stores such as Macy's Inc and Kohl's Corp  and also licenses its brand to retailers, is also looking to migrate more toward direct ownership.

"We have announced we are taking back the dress shirt license, and (there's ) another we haven't announced but we will take back," Feldenkreis said.

Perry Ellis has considerably reduced its business with discount chain Wal-Mart Stores Inc due to price issues, and Feldenkreis said eventually even Wal-Mart will have to raise apparel prices.

It is now doing business worth $3 million to $4 million with the world's largest retailer, down from $60 million within the last three years.

About 90 percent of Perry Ellis' revenue comes from its men's business, and the CEO said the men's business performed much better than the women's segment during the recession.

However, many men have traded down, opting for cheaper options to dress shirts and costly suits, he said.
"Men are wearing less suits... men are buying cheaper suits, Feldenkreis said. "Even the $200 suit has actually been growing ... but what really has suffered the most is that suit between $300 and several thousand (dollars)."

The company, which ended the quarter with $31.8 million in cash and no borrowings against its senior credit facility, is also up for buying a mid-tier women's brand, he said.

"We have been interested in making an acquisition in the women's space. A well-managed company... I don't want to buy anything I have to turn around anymore," he said, adding the company has some credibility with older women who recognized its namesake top designer in the United States.

In 2008, Perry Ellis spent $33.1 million to acquire the women's wear lines C&C California and Laundry by Shelli Segal from Liz Claiborne Inc, and has been reworking those brands to resonate with shoppers.

Feldenkreis, a member of a group vying to bring the World Cup to Miami, also said there was a possibility the company might soon become involved with a soccer brand that it would license.

SOURCE: Reuters

For other stories on this topic see:

Rising labor costs in China

Production Costs Rise - Who will pay in this tough economy?



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