Fashion is considered a popular aesthetic expression at a certain time and context. The industry depends on this characteristic to manufacture the right products to be sold and survive in such a competitive environment. Fashion captures changes in the social, cultural, economic and political environment. To be successful, all the game players must quickly react to the market’s volatility, velocity, and variety. A healthy financial condition is paramount to staying alive in the market. The industry has to be attentive to trends in fashion that change all the time; for that reason, it is considered one of the world’s most dynamic industries. The companies are Hêrmes, Christian Dior, ASOS and Puma. In essence, each company reaches different market segments and has other added value prepositions that differentiate it from competitors.
Hermès International is a French luxury goods manufacturer which has been consistently ranked as the world’s most valuable luxury brand and fashion leader. Out of all the competitors, it has the highest ROE (26%) and ROA (17%), respectively. The company is demonstrating consistent growth due to its working capital and a healthy amount of Total Assets that align with shareholder interests and have no negative outliers. The ROE remains steadily high due to lesser fixed expenses and low non-current liabilities.
Puma SE is a German multinational company that designs and manufactures athletic and casual footwear, apparel, and accessories. In recent years, its ROE grew from 2% to 11% due to increased efficiency, gearing, and finally, the driving force of profitability, which doubled to 4% while maintaining similar operating expenses. The ROA for Puma has also grown from 1% to 6% in a span of five years. This resulted from unprecedented growth in net profit and revenue, which Puma sought to use in acquiring new assets such as new stores in profitable regions and introducing new products.
ASOS plc is an online fashion and cosmetic retailer based in the UK, which is aimed at young adults. The company’s website sells over 850 brands together with its own range of clothing and accessories and ships worldwide. The company experienced consistent growth, except for a slight dip in net revenue with the CEO change in 2016. Total assets have grown 108% and the ROA is at a stable 8%. The company’s ROE is at 19%, dropping slightly from the 22% of the previous year due to investments in expansion. In 2017-2018 the company sought a strategic expansion using excess cash without debt. It will potentially positively impact the company’s ROA and ROE going forward. To achieve a healthy ROE over the years, their financial strategy has been to ensure continuous operating efficiency with a 5-year efficiency ratio of 2.4x.
Christian Dior SE is a group of companies that drives revenue from several groups in multiple luxury industries. The conglomerate holds a 3% ROA and a 7% ROE. The company has consistently been reducing its assets at an average of 2.75% annually and has had periods of major cutbacks to fixed assets. It also maintains relatively low equity, both due to low net profits of 5% and 46/54% split between equity and liability. Dior pushes its strategy and success based on the company’s size, scale, and diversity.
As evident, all these companies in the fashion industry, each representing a distinct segment of the market, approach their ROA and ROE strategies differently based on their respective diversified strategies. None of the companies share similar ROEs and only ASOS and Puma share similar ROAs, potentially due to their mass retail approach to business and similar strategies in managing assets. Trends in data suggest that companies are striving to increase their ROEs and ROAs, respectively, as it benefits the financial success and stability of the firm. However, companies rely on different strategies to do so. While Hermes embraces brand loyalty and its luxury image, Dior chooses diversification through its conglomerate and massive size, meanwhile, more accessible brands such as Puma and ASOS focus on operational efficiency and increasing retail footprint.
Fashion and clothing retail is considered one of the top industries for ROA and ROE due to net income growth. While fashionable clothing is almost always in demand, the industry is volatile and dynamic and requires constant adaptability from these companies to shift towards trends both in their products and business models. Future prospects, particularly after the COVID-19 pandemic, is the massive shift towards online retail, which will likely result in a decrease of assets across the board, but an increase in equity, impacting both returns respectively (Orendorff, 2021). Firms should also attempt to embrace the aspects of technology to drive efficiency in e-commerce while adapting to appeal to the emerging middle class worldwide with significant spending power to drive revenues and brand loyalty.
Reference List
Orendorff, 2021, The State of the Ecommerce Fashion Industry: Statistics, Trends & Strategy. Shopify plus, Web.