BERLIN — Underscoring a weak retail climate in Germany, and the plight of its mainstream companies, middle-of-the-road fashion-maker Gerry Weber International has filed for insolvency.
It’s the latest German middle-market giant to be felled amid the rise of online retail, overextension in brick-and-mortar, and intensifying competition from budget supermarket clothing lines and the likes of Zara, H&M and Primark.
“Fundamentally, the German apparel industry has been registering declining sales for some time now,” Beate Hölters, a partner in Düsseldorf-based retail consultancy, Tailorit, told WWD. “In the first instance, this impacts mainstream vendors like Gerry Weber, Esprit and s.Oliver. High-end brands like Gucci or Louis Vuitton are still performing well and smaller traders are also getting along well. But we can assume that brands like Tom Tailor and Esprit will have to keep on fighting. Their products are often too similar and fail to have any clear signature.”
According to the German economics ministry, consumer spending on clothing, shoes, textiles and leather wares fell 3.2 percent in the third quarter of 2018 versus a year ago. Textile industry association BTE has already said that it believes turnover in 2018-19 will end up around 2 percent lower.
And according to the Ifo Institute for Economic Research based in Munich, business confidence was also at the lowest level in several years in January, while the German government also adjusted its forecast for growth in 2019: Instead of coming close to 2 percent as previously expected, Germany is now only expecting 1 percent growth.
Mainstream fashion-makers’ problems also have to do with complacent attitudes in Germany, industry analysts suggest.
“The industry in Germany was doing very well for a very long time,” Achim Berg, a senior Frankfurt-based adviser at consultancy McKinsey & Co. and specialist in the sector, said at a conference this month. “The pressure to change was low.”
So mainstream fashion firms capitalized on Germany’s stability, choosing to focus on opening more retail sites. They did this at the expense of improving design, quality or online sales. For many long-running German labels, fashions have aged along with the customers, leading to blandness and lack of brand identity.
According to the industry association GermanFashion, the country has anywhere between 80 million to 100 million square meters given over to fashion retail; in 2017, the association’s manager, Thomas Rasch, suggested that there might be a 40 percent to 50 percent oversupply. Sector analysts have said the best thing Gerry Weber could do now is shutter more stores — the brand had already announced plans to close 230 of 820 outlets — and focus on wholesale and digital.
The negative trend also has to do with the slow-moving ways of what Germans call Mittelstand — medium-sized companies considered the backbone of the country’s economic success. Often these multi-million-euro firms are family-owned or managed. But as McKinsey’s Berg has pointed out, with a high proportion of private ownership in the local apparel industry, it is possible to run a company down for a very long time without upsetting anybody — until it’s too late.
In Gerry Weber’s case, founder Gerhard Weber was in charge from 1973, when he started the company, up until November 2014. The families of the cofounders, Weber and Udo Hardieck, remain majority shareholders with around 51 percent but relinquished day-to-day management late last year, when son Ralf Weber gave up the top job to current boss, Johannes Ehling.
Weber senior started to focus on the company’s own retail after listing on the stock market in 1989. And soon, Hölters says, there was a Gerry Weber on every corner: “Too much of the same label. It got boring,” she notes.
Gerry Weber had a turnover of 795 million euros in 2017-18 but closed that year down about 150 million euros as debts rose. The company filed for insolvency on Friday because it couldn’t guarantee financing beyond 2020.
Mainstream fashion firms don’t manufacture in Germany and their costs are rising as wages in countries like China go up. Additionally, as increasingly disloyal consumers buy less, or buy online, there are more discounts and sales, and margins fall further.
Mid-market brands like Gerry Weber, Esprit and Tom Tailor are being squeezed from both ends of the market, and by online retailers like Zalando. At the low-cost end, they are fighting supermarkets and the likes of textile discounter KiK and Primark. Towards the other end of the spectrum, they’re competing with firms like H&M and Inditex’s Zara to win over fashion-conscious customers.
Among other recent setbacks in Germany, fashion retailer K&L announced it would be closing 14 of its 54 outlets while department store chain Galeria Kaufhof, which sells Gerry Weber and its ilk, announced it was consolidating its headquarters and cutting 2,600 jobs.