Retailer blames job picture for dismal outlook

Charles Voegele, a Swiss-based chain of of 850 mid-range European clothing stores, emerged Tuesday as one of the first retail victims of high unemployment in Switzerland and in neighbouring countries.

The company, based in canton Schwyz,  reported an annual net loss of 14 million francs, as consumers shied away during the recession.

The chain’s merchandise varies from a basic high street fashion range to a selection of well-known brands in the upper price level.

The retailer’s results were "disappointing,” said Beat Kaiser, analyst at Cheuvreux, a brokerage owned by banking group Credit Agricole.

Charles Voegele predicted in an outlook statement that “the clothing market is unlikely to improve significantly this year”.

It added that rising unemployment will continue to impact consumer behaviour.

At least one analyst anticipated weak figures for the company, in line with generally muted expectations for the retail sector as a whole.

“They were in line with our expectations but below consensus,” said Vontobel bank’s René Weber.

Net sales of 1.371 billion francs were 3.9 per cent below the 2008 level, but after adjusting the figures to factor out currency movements they “were practically the same” as last year, the company said.

More than half the sales were for women’s clothing.

Figures published on Monday by the Swiss federal secretariat for economic affairs (Seco) showed unemployment dropping February for the first time in nine months.

If the trend persists it could mean brighter prospects for retailers although most economists have expected the Swiss labour to deteriorate by the end of the year.

An improved job climate could mean translate in to better sales for Charles Voegele’s denim and floral women’s spring collection.

The company’s results for 2009 were “mainly influenced by the reduction in inventories,” said Weber.

Lower inventory levels – the amount of goods the firm can sell to customers at a profit – cost the retailer 40 million francs last year.

The 55-year-old firm spent much of 2009 clearing out old stock at discounted prices, as shoppers opted to save money for a rainy day rather than go out and buy a new outfit.

Customers, it appears, were more willing to buy a bargain from an older range than splash out on the latest trend.

In 2010, Charles Voegele plans to  increase the number of fashion collections from four to eight, in order to try to boost summer and winter sales. Weber likes this idea and thinks it will have a positive impact.

Another “strong point is the cash flow generation,” which has enabled the company to pay down most of its debt, said the analyst.

With 142 million francs of available, the company’s balance sheet is at least in a pretty healthy state, compensating for the low profits and poor outlook.

Kaiser does not think the stock price will be much affected by the results. “This is the world we live in at this stage,” said the Cheuvreux analyst, suggesting investors will make allowances for the troubled economic climate which has hit retail sales.

The company’s dismal outlook also contrasts with government figures on consumer behaviour published on Tuesday.

The national consumer price index calculated by the federal statistics department (FSO) registered a slight increase of 0.1 per cent in February 2010 and reached 103.7 points, compared with 100 in December 2005.

Retail turnover is at least stable, according to data published on Monday.

Weber points out that the effect of selling older stock and reducing inventories will continue to have an adverse impact on Charles Voegele in the first few months of 2010.

Despite the low economic growth rates forecast for Switzerland, Germany and Austria, the company plans to focus on generating sales in these regions.

The company’s spokesperson did not respond to enquiries on Tuesday morning about why the chain had not expanded its customer base into fast-recovering Asian markets, where the firm already has a number of supply chain relationships.

The main expansion out of German-speaking areas has been into eastern European markets which today account for four per cent of revenues.

Kaiser said it is too late for the company to develop an emerging market strategy which might have created new revenue streams as faster-growing economies speed out of the downturn.

“The brand is not strong enough” for such a strategy, he said.

Furthermore, “supply chain costs would be too high” and there are limited funds to finance big expansions.