Lawson Reports on How Fashion Companies are Measuring up against Business Performance Benchmarks
Study identifies key performance metrics fashion companies should monitor to help achieve operational excellence
Stockholm, Sweden, January 16, 2008 – A new report* commissioned by Lawson Software highlights performance within the fashion industry, by providing a benchmark for companies in EMEA, the US and Asia Pacific to compare their performance with their counterparts. According to the report, fashion industry companies in the EMEA region are outperforming their counterparts in regions on certain key metrics, but there is notable room for improvement. Lawson Software provides enterprise software applications that can help establish, track and report on specific benchmarks for fashion and apparel companies by defining operational excellence, which can help companies evaluate and improve their performance.
The report examined four sectors: general apparel*, sportswear, intimates, luxury goods and three business models: brand owner with manufacturing, brand owner – design, source, distribute, and manufacturers.
Examining the global results for the average and top 25 percent best-in-class performance, the findings show the average performance for these organizations is higher than their counterparts in the US and Asian countries in terms of return on capital expenditure (ROCE), return on assets, asset turnover* and inventory turn rate*. EMEA companies have the highest average inventory turn rate of 5.8 per annum closely followed by US companies at 5.0 per annum (12.8 and 9.5 per annum, respectively for the top 25 percent in each region). Asian companies have the lowest inventory turn rate averaging at 4.2 per annum (7.8 for the top 25 percent). However, a negative average earnings per share* figure for EMEA companies indicates greater challenges ahead. The report further suggests why EMEA companies should invest in achieving or maintaining operational excellence. Asia-based companies perform best on earnings per share while the US performs best on days’ sales outstanding at 49.9 days (14.4 days for the top 25 percent).
In order to meet the average of the global top 25 percent, the report identifies that general apparel companies need to achieve an average of:
- 13.1 percent net profit margin
- 54.5 percent gross profit margin
- 28.9 percent return on capital expenditure (ROCE)
- $4.92 earnings per share (EPS)
In reviewing the business models, the report also found that brand owners who design, source and distribute achieve significantly higher margins than companies which solely manufacture goods. Additionally, it found that focusing solely on brand management or manufacturing achieves a higher inventory turn rate than using a combined model.
Andrew Dalziel, marketing director for discrete manufacturing and the fashion industry, Lawson says, “Fashion companies need to analyse their performance and measure themselves against each other to understand how well they are performing in the industry and where they need to improve.
“Once they have examined their business, they need to create a strategy to achieve operational excellence. The main challenge for fashion companies is staying ahead of the trends in a fast paced industry. They should invest in innovation to differentiate their products in the marketplace and technology, such as the Lawson Fashion solution and Lawson QuickStep Fashion*, for up-to-date information, managing their supply chain, driving down costs and reducing inventory levels. This will also improve responsiveness to market demands, allowing a fashion business to compete with or better the competition,” added Dalziel.
Lawson has supported customers on the path towards operational excellence. With the help of Lawson, Propper International achieved 300 percent improvement in its inventory turn and TAL Apparel recently implemented new advancements in its planning and workflow processes that are expected to help the company cut costs by millions of US dollars a year.
For a full copy of the report, please click here
::: OperationalExcellence
Notes to editors:
*Research methodology
The Operational Excellence Report: Analysis of Key Performance Metrics in the Fashion Industry report was commissioned by Lawson, and produced at The University of Manchester by Patsy Perry, PhD researcher under the guidance of Dr. Neil Towers, senior lecturer in Fashion Supply Chain and Merchandising. Key performance metrics were collected from the published financial data of 304 companies. 29 luxury goods companies were also analyzed.
*Definition of ‘general apparel’
General apparel includes all types of apparel other than sportswear and intimate apparel, i.e. men’s wear, ladies wear, children’s wear and work wear.
*Definition of Asset Turnover
Asset turnover is the amount of sales generated for every dollar's worth of assets and is expressed as a ratio. It is calculated by dividing annual sales revenue by the value of the company’s assets.
*Definition of Inventory Turn Rate
Inventory turn rate is the number of times a company turns over its investment in inventory within a 12 month period. It is calculated as the cost of goods sold in a 12 month period divided by the value invested in inventory.
*Earnings per share (EPS) in EMEA
The calculation of EPS average for EMEA does not include UK companies with revenue <$250 m due to lack of available figures.
*Lawson Fashion solution and Lawson QuickStep Fashion
The Lawson Fashion solution uses the Lawson M3 Enterprise Management system, which helps simplify the management of complex global supply chains. Lawson M3 helps to support the supply chain by streamlining processes while helping to balance supply and demand more effectively and cost-efficiently. Lawson QuickStep Fashion is a preconfigured solution designed to aid fashion and apparel houses to reduce ERP implementation times by up to 50%, which can help lower the cost of implementation services and ultimately provide a faster return on investment. QuickStep does this while harnessing Lawson’s M3 applications to help manage the complex business challenges confronting today's fashion industry. With a total customer count of more than 320 fashion customers globally. A selection of our customers can be found on www.lawson.com/fashion.
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