Fashion Company Mistake? Blame the Weather
(Bloomberg Opinion) -- On Tuesday, companies as different as the German luxury clothing maker Hugo Boss AG and the U.K.-based, low-cost retailer Primark became the latest fashion industry players to attribute their worse-than-expected quarterly performance to the weather. These complaints aren’t a good sign, even in this era of climate change awareness: The weather is the same for everyone but some companies deal with it better than others.
Hugo Boss’s third-quarter sales came in lower than expected at 710 million euros ($810 million), unchanged from the same quarter last year. Profit undershot expectations, too. On an earnings call, the company’s chief financial officer, Yves Mueller, blamed Europe’s beautiful, never-ending summer.
”The extraordinary long and hot summer, along with the late start into the fall winter season, put a strain on the overall apparel market,” he said. “In particular, traffic in continental Europe was below our own and market expectations with increasing promotional activity, putting additional pressure on that region.”
Primark’s excuse for missing analysts’ revenue expectations was more general, though also weather-related. George Weston, chief executive officer of Associated British Foods PLC, which owns Primark, complained about “unseasonable weather during three distinct periods this year.” He added, “We were trying to sell autumn-winter in Spain when it was 85 degrees in November last year.”
Earlier, Zalando SE, the German online fashion retailer (and a major distribution partner of Hugo Boss), and the large Polish footwear manufacturer and retailer CCC SA also blamed the weather for worse-than-expected sales.
It’s true that the many overlapping influences of weather on the fashion industry aren’t easy to analyze and predict. On a bright summer day, shoppers are relatively unlikely to go online, but they might be tempted to go shopping on Main Street. The effects of different weather conditions in different markets can cancel each other out. Climate change can affect both production (by driving up the cost of materials or affecting labor productivity in key manufacturing countries) and consumption (in the last few years, there has been talk in the industry of disruption to the traditional model of seasonal collections, driven as much by increasingly unpredictable weather as by the “see it, buy it” mentality of mobile shopping).
According to Planalytics, a company specializing in helping companies “weatherize” their business, consecutive years have the same weather only 20 percent of the time, making planning based on last year’s sales trends useless, and not just in the fashion industry.
But, despite all these difficulties, some companies always do better than others in the same markets, and thus in the same weather conditions. At the higher end of the market, where Hugo Boss operates, Kering SA, the French luxury conglomerate, reported strong third-quarter sales for its fashion brands, which include Gucci; weather didn’t get a single mention on the recent earnings call.
At the lower end, Hennes & Mauritz AB, Primark’s direct competitor, beat expectations with its third-quarter sales (though the company’s quarter ended in August, thus avoiding any adverse effects from the long summer). Again, no complaints about the weather. “It's always quite volatile between months depending on weather and so on,” Chief Executive Officer Karl-Johan Persson said on the most recent earnings call, in September. “But we have good statistical and analytical tools and comparability between markets.”
It’s not as if Kering and H&M haven’t missed expectations before; when they did, both have complained about the weather, too. Last March, Persson blamed an “unusually cold winter” for weak sales and profit at the start of 2018. That was before H&M managed something of a comeback later in the year.
Blaming the weather for poor performance would make more sense if all competitors did it in unison. They never do, however. So the best way to interpret these complaints is that they reflect inventory planning mistakes. That’s how Hugo Boss appears to have treated its most recent slip-up, which marred what looks like a successful turnaround for the brand. “To ensure that inventory levels come down towards year end, we have taken immediate action and implemented short-term as well as structural measures,” Mueller said on the earnings call. “We have not only adjusted the merchandise by for the remainder of the year, we also realigned our internal processes to further optimize demand planning going forward.”
As long as a company draws the right conclusions, it’s mere politeness to let its executives talk about the weather rather than the specific mistakes they made.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Leonid Bershidsky is a Bloomberg Opinion columnist covering European politics and business. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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