Fashion Fusion

Soft Rock for Hard Sales

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Soft rock for hard sales? Gerry Weber hopes aging rocker Bryan Adams can give the brand a boost.
  • Why it matters

    Why it matters

    Leading German fashion company, Gerry Weber, is hoping a high-profile ad campaign shot by rocker Bryan Adams can revive its fortunes.

  • Facts

    Facts

    • Clothing industry sales dropped 8 percent this June, compared to the same period last year.
    • Gerry Weber sales decreased almost 1 percent in May-July this year, compared to 2013. Total sales for the period came to €187.2 million, or about $241 million.
    • An ad campaign on German TV features Bryan Adams’ nostalgic rock classic, “Summer of 69.”
  • Audio

    Audio

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Designer Gerhard “Gerry” Weber is said to have a knack for knowing what women over 35 want when it comes to fashion. Whether she’s athletic or curvy, his clothes hit the mark. But when it comes to money – and the plunging value of the German fashion label’s stock – investors are not at all pleased.

The summer was difficult for the entire textile industry, especially in June and July, when fashion retailers saw business fall steeply. Clothing industry sales dropped 8 percent this June, compared to the same period last year.

Gerry Weber also struggled in the latest quarter, seeing sales decrease by almost 1 percent to €187.2 million ($241.4 million). Earnings before interest and tax shrank to €16 million. In the previous year, they totaled €17.4 million.

Investors showed their disappointment after the fashion company reported these earnings last week and the stock price briefly plummeted to about €32 a share, or about $41.24.

The sell-off might be premature, though. Gerry Weber’s third quarter spans May through July – traditionally a time of slow sales in the clothing industry. In addition, Gerry Weber invested in new stores in Norway and took over 25 new shops there in June.

Uncertainty over the market in Russia has also hampered the company. Even though Russia accounts for just 3 to 4 percent of the fashion label’s business, increasing political tensions in Ukraine hurt overall earnings. And the company halted business with customers with poor credit in southern Europe and Ukraine, which also affected profits.

The fourth quarter looks more promising. The company has found new support from Canada in the shape of rock star and photographer Bryan Adams, who has been commissioned to help sell the label’s new “N.Y. collection” this fall. An ad campaign on German TV features his classic, “Summer of 69”, and Mr. Adams himself photographed models in the new collection against the New York skyline.

The TV campaign and N.Y. Collection are bound to increase the brand’s popularity, said Volker Bosse, an analyst with Baader Bank. “It’s the first time the company has taken such measures. That should generate additional sales.” Mr. Bosse also said Gerry Weber has become an established brand for a growing target group.

“It’s the first time the company has taken such measures – that should generate additional sales.”

Volker Bosse , Baader Bank Analyst

Other analysts seem to agree: 14 of 23 picked Gerry Weber to buy. While the private bank Hauck & Aufhäuser lowered the target price from €43 to €42, it recommended buying. Herbert Sturm, stock analyst with DZ Bank, raised the value from €34 to €37. He expects the company’s new logistics center in North Rhine-Westphalia to lead “to a visible reduction of costs” in 2016.

Gerry Weber is pushing ahead with a rapid expansion of its own chain of stores. Sales in that division reached €293 million ($379 million) over the first nine months. That means the company makes half of its total revenues from its own branded shops. Gerry Weber now has 751 stores in Germany and abroad and plans to expand further. “This can contribute to a gradual increase in the gross yield margin,” said Mr. Sturm.

The end of October will bring more drastic changes: Gerhard Weber, who built the small label into a successful fashion company, will step down and join the supervisory board. The 73-year-old will then be replaced by a trio of executive board members – Ralf Weber, David Frink and Arnd Buchardt – who will manage business in the future.

Gerhard Weber has planned and prepared for this transition for a long time, and analysts don’t expect the change to affect share performance. So despite the recent swoon, it’s very possible the fashion label’s stock price will soon hit home again.

Katharina Kistler is a student at the Georg von Holtzbrinck School of Economic Journalism and a trainee journalist on Handelsblatt Online’s finance desk. To contact the author: k.kistler@vhb.de

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