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Gerry Weber Plans Profitability Gain on Supply Costs

Dec. 8 (Bloomberg) -- Gerry Weber International AG, Germany’s second-largest maker of women’s clothing, aims to improve profitability in the next two years by reducing purchasing costs and expanding its wholesale business.

Earnings before interest and taxes as a proportion of sales will rise to 14 percent in the year through October 2011 and 15 percent in fiscal 2012, Chief Executive Officer Gerhard Weber said yesterday in a phone interview. The margin was 12 percent in 2009 and targeted at 13 percent in the year ended Oct. 31. The company will release full-year figures in January.

Gerry Weber, based in Halle in the state of North Rhine-Westphalia, is increasingly shifting production from China to countries where labor is cheaper, including North Korea, Bangladesh and Vietnam, according to the CEO. The clothier, which ranks second in Germany to Street One-brand owner CBR Fashion Holding GmbH, also aims to boost wholesale operations by choosing fashion collections for more retail partners.

“Other clothiers aren’t able to shift production from one country to another as quickly as we do,” the CEO said. The company’s technical experts have the experience to start production sites quickly while ensuring high quality and labor standards, he said.

Stock Rises

Gerry Weber rose as much as 1.1 percent to 37.50 euros and was up 0.4 percent as of 12:53 p.m. in Frankfurt trading. The stock has risen 65 percent this year, giving the company a market value of 855 million euros ($1.1 billion), in the fourth-biggest gain on the 13-company Bloomberg EMEA Apparel Index.

The company obtained 66 percent of its women’s wear from Asia in 2009, mainly from China, while 29 percent was manufactured in Turkey, according to the annual report. Wages at privately owned companies in China will rise by as much as 17 percent annually in the next three years, according to Deutsche Bank AG estimates.

The clothier generated nine-month revenue of 304.5 million euros at the wholesale business, a decline of 0.4 percent from a year earlier. That compares with a 22 percent revenue increase at Gerry Weber’s own stores to 124.7 million euros. The Taifun and Samoon brands accounted for most of the sales decline at the wholesale unit, the CEO said.

Wholesaling Strategy

Converting more wholesale buyers into “trust limited customers,” who set order limits but don’t decide on the range of clothes they get from the company, will help improve both revenue and profitability at the unit, Gerhard Weber said. The number of retailers buying under trust limited agreements is targeted in two years to rise to 2,800 chains and boutiques, or two-thirds of Gerry Weber’s wholesale customers, from about 800 now, the CEO said.

“The trust limited customer principle is great as it prevents merchandise returns,” which were among the reasons for the insolvency of German clothing company Escada AG, said Klaus Kraenzle, a consumer-industry analyst in Frankfurt at Silvia Quandt & Cie.

To contact the reporter on this story: Holger Elfes in Dusseldorf, Germany, at helfes@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net.

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