When one of Japan’s biggest apparel groups decides to close 500 stores, the impact on the industry is never going to be small. But World is not the only apparel firm to take an axe to its brand portfolio – TSI Holdings has closed 900 stores in the last three years alone. This is actually positive news from the old apparel conglomerates as they at last accept the need to focus, but there is still a long way to go before they can be said to be flourishing.
Leading apparel group World will close 500 stores during this financial year, 20% of its store portfolio. It will also slash 10-15 brands. The move is part of a project to tighten up the group’s operations following several years of disappointing results.
World is facing increased competition from more focused specialty retailers in shopping centres and online stores on the one hand, as well as the growing appetite for private brands and directly managed sales areas among department stores on the other, the net effect of which is less space and more competition for World’s brands.
World hopes to increase operating profits by ¥10 billion in FY2016 as a result of these measures. In FY2014, it posted sales of ¥298 billion, down 3.5%, and operating profits down 43.4% to just ¥5.3 billion.
While World has made a big issue of the latest cuts, it has in fact been cleaning house for several years. Sales declined from ¥358 billion in 2008, to just ¥305 billion in 2010. By 2011 sales had risen again to ¥329 billion thanks to consolidation and its better brands posting same store sales up a combined 6%. Sales have now fallen below ¥300 billion, partly due to poor performance, but also due to continuous rationalisation.
World still has plenty of room to make further cuts. It has some 90 brands across its wholesale and retail divisions and just over 2,800 stores, including concessions in department stores. World’s leading labels include department store brand Untitled, which had sales of ¥22 billion last year, HushHush (¥15 billion) which is aimed at younger women, men’s department store label Takeo Kikuchi (¥14 billion), and Index (¥10.5 billion).
These are solid brands but their share of capital resources is poor because of the sheer quantity of different labels in the group over which funds have to be spread. Given the competition from agile specialty apparel firms that concentrate all their financial and marketing resources on just a few fascias, it is equally essential for World to find its focus too.
World’s problems are distinct from its apparel conglomerate competitors like Onward and Sanyo Shokai, which have suffered particularly badly from an over-dependence on the department store market (see Page 3), with as much as 80% of sales coming from this channel. Worse, their market presence is weighted towards regional department stores where the decline has been particularly sharp.
World itself is less dependent thanks to recognising the contraction of department store apparel sales much earlier, and today only an estimated 30% of sales come from this channel. But it is still under pressure from growing competition within SC fashion retailing and from both domestic and overseas chains. Cutting more brands should mean more focus, but it will need to cut up to 20% of remaining brands to really make a difference.
World is not the only group attempting to fix a lack of focus. Indeed the performances of other major apparel groups make World’s results over the past five years look positively benign. It still has too many stores and brands, and it experiments with new formats and concepts at almost the same dizzying pace as a convenience store does drinks, but it remains the strongest of the old apparel conglomerates in terms of brands, retail know-how and strategic direction. Slashing stores and brands may look bad and mean further falls in sales, but longer term it’s a real positive. JC
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