The world’s biggest apparel retailers are making unprecedented purchases to shore up margins amid the rising costs of manufacturing and clothing.
“The biggest buyers of clothing are brands that are making a lot of money on their merchandise and are able to capture some of the profits of their own brands,” said Brian Gendreau, a fashion analyst at Sanford C. Bernstein in New York.
The brands are increasingly targeting their best-sellers with massive, massive purchases, which Gendreas said would be especially important for apparel giants like Gap Inc. and H&M SA.
Gap, a US company, has a global apparel empire worth more than $3.2 trillion, and it has been aggressively investing in the luxury goods category.
H&M, which has a U.S. arm, is looking to expand into luxury goods and footwear as well.
It has also opened new stores to cater to a new demographic that has become increasingly interested in brands that have higher profit margins.
H&M’s move to acquire Gap and H & M is expected to bring more profits to the group than the $3 billion Gap already reported for the fiscal first quarter.
Gap said it has earned $7.6 billion in profit for the first quarter, and H+M has earned about $8.5 billion, according to an investor presentation.
Gap’s profit is on track to surpass that of rival H&.
M, and the apparel company said it would earn an additional $2.6 trillion in the first year after its deal.
The two companies share more than 70 percent of the global market.
In contrast, H&m said its profit in the second quarter was $1.7 billion, down from $3 per share in the same period a year ago.
Gap’s profit, on track for the year, was $3,918 per share.
At Gap, profit margins are driven by high-margin clothing and accessories, as well as online sales.
The company has said it will raise prices in the next several years, and some of those costs will be passed on to consumers.
Other companies are also investing in apparel to offset rising costs.
Takata Corp. , the Japanese carmaker that has a Japanese arm, said it bought a stake in American fashion company Tommy Hilfiger and plans to make its own clothes.
A Japanese electronics maker, Softbank Group Corp., plans to invest more than half a billion yen ($430 million) in Japanese clothing maker Suntory Corp. These companies have also made huge purchases of brands like Gap and Gap.
According to Gendrek, the Gap deal will give Gap a strong footing in a world where clothing prices have risen steadily for years.
He said that if you look at what is happening in the global apparel market, it is going to be very tough for them to survive.
Companies that are going to have to survive are those that have huge margins, such as Gap, Gap, H &M, SoftBank, and other Japanese companies, he said.
“The global apparel sector has not been this competitive since the beginning of the 20th century, so the fact that they are buying up brands that they have been investing in for years is going, well, that’s great, but I think they’re going to continue to have some problems,” Gendrieas said.
Analysts expect that the deals will be finalized by the end of March.
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