Fashion can look forward to a second-half boost from lower cotton prices, which are expected to help return gross margins to 2010 levels, according to a new report from Moody's Investors Service.
Wall Street is certainly looking for big things from retailers this year and pushed shares in the sector to another new high today.
Cotton prices peaked just over a year ago and drove the apparel industry's gross margins down 1.5 percentage points to 42.3 percent in the third quarter and 2.1 percentage points to 40.3 percent in the fourth quarter, said the report, which listed debt analyst Scott Tuhy as lead author.
"The decline in cotton prices over the past year will reverse some of the margin declines in the apparel industry, but not all of them, bringing third-quarter margins this year back toward 2010 levels of about 43 percent and fourth quarter margins to about 42 percent," Moody's said.
Cotton prices are back down to 81 cents a pound after peaking at $2.10 a pound just over a year ago, said Moody's, which does not expect further declines.
The margin reprieve could be brief, though, as labor costs start to come to the fore. "Wages in China, a key manufacturer of apparel, are reportedly rising and, with few countries able to provide abundant, cheap labor, labor costs will be a drag on margins," Moody's said.
"We expect apparel companies to explore lower-cost labor markets, such as Vietnam and Bangladesh; however, the switch to these markets will be a gradual process. We think rising labor costs are a longer-term trend, which is the primary reason we expect apparel companies to begin raising prices at retail in 2013, as the benefits of the fall in cotton prices begin to ease."
The report said companies that buy fabrics in U.S. dollars and sell in Europe could also face a weak euro. This includes The Warnaco Group Inc., Quiksilver Inc. and PVH Corp. "These companies have hedged some of this exchange risk, so the negative impact on margins may take a couple quarters to show up," Moody's said.
For now, stock markets are saying that the future is brightening for U.S. retailers.
The S&P Retail Index inched up 0.3 percent, or 1.79 points, to 607.36 — the highest close ever for the broad measure of U.S. retail. That's hardly new since the sector's closed a fresh high 33 times this year.
The Dow Jones Industrial Average gained just 6.51 points to 13,239.13.
Among the day's gainers were The Talbots Inc., 4.9 percent to $3.23; Movado Group Inc., 3 percent to $22.29; The Jones Group Inc., 2.9 percent to $11.76; Quiksilver Inc., 2.9 percent to $4.30, and The Gap Inc., 2.7 percent to $26.08.
In Europe, stocks were generally down. The CAC 40 in Paris fell 0.5 percent to 3,577.88, followed by the DAX in Frankfurt and the FTSE 100 in London, which each fell 0.1 percent to 7,154.22 and 5,961.11 respectively.
The FTSE MIB in Milan was the exception, climbing 0.3 percent to 17,133.42.
The stocks that lost ground on included PPR, off 1.4 percent to 133.95 euros; Carrefour, 1.7 percent to 19 euros, and French Connection, 2.4 percent to 0.51 pounds.
The euro traded at $1.32 while the pound traded at $1.58.
“Azzedine has been one of the biggest influences in my life. He has always been such a strong, loving, fatherly figure to me. I call him Papa. His designs are indescribably unique, they are pieces of art. He knew how to make the female form look its loveliest. I have so many memories of him; my favorite might be during my first show with him in Paris. He liked me and he wanted to help me get more work. He called all his friends at Kenzo and Comme des Garcons, and asked them to book me. They said, ‘But she can’t walk!’ And he said, ‘but she has such a great ass!' His friendship and support has been the great privilege of my career. I can't imagine life without him. Repose en paix mon Papa.” - @stephanieseymour tells @wwd. #wwdfashion (📷: @steveeichner) #alaia #azzedinealaia
Azzedine Alaïa, flanked by two of his closest friends, models Stephanie Seymour and Naomi Campbell.
He designed Seymour’s dress for her 1995 wedding to Peter Brant, and treated Campbell (who famously called him Papa), like a daughter. For more on the legendary designer, tap the link in bio. #wwdfashion #alaia #azzedinealaia
Azzedine Alaïa's “I-did-it-my-way” ethos stood out starkly at a time when brands are experimenting with consumer-facing fashion shows, coed formats and trans-seasonal collections – anything to perk up lackluster sales of ready-to-wear in an age of Insta-everything. “It’s not creation anymore. This becomes a purely industrial approach,” the late designer told WWD in an interview last year. “But anyway, the rhythm of collections is so stupid. It’s unsustainable. There are too many collections.” Read more about the iconic designer’s life and work on wwd.com, link in bio. #wwdfashion #azzedinealaia (📷: @WWD Archive, 1986) #alaia
Sneaker reselling app @goat’s latest exhibit, "The Greatest: New York," tells the story of New York's sneaker culture. To celebrate the exhibit, an intimate crowd gathered on Thursday night at the pop-up gallery space, located at Platform in Culver City, to hear guest speaker and illustrator @esymai talk about her own rise in streetwear and women in the business. "For me I'm just someone who is creative. I like to create things," said Chang. #wwdfashion
Azzedine Alaïa, one of the most iconic couturiers of the modern era whose body-con designs defined Eighties fashion, has died in Paris. The diminutive Tunisian-born designer, known for his structured knitted dresses with fitted waists and impeccably cut, figure-hugging second skin silhouettes was deeply admired by his peers, and counted supermodel Naomi Campbell - his adoptive daughter - among his inner circle, one of a gang of glamazons including Farida Khelfa, Carla Bruni and Stephanie Seymour who became ambassadors of his style. (📷: Alexandre Guirkinger) #wwdblast