Question-and-Answer Session
Operator
Thank you, sir. (Operator Instructions) For our first question we go to Omar Saad with Credit Suisse.
Omar Saad – Credit Suisse
Good morning.
Frederick Rowan, II
Good morning.
Michael Casey
Good morning.
Omar Saad – Credit Suisse
Quick question on the new model and I think it was very instructive laying out of that kind of five pieces to that model. On the sourcing side, especially as you look to increase customer profits and giving them better in that for margins and lowering pricing, how do you balance that on the souring side? There has been a lot of talk about inflation coming out of the Far East and you kind of always used that the agency model with you sourcing and restructuring. Have you thought about reconfiguring that or can you kind of give me your current thoughts on that side of the business?
Michael Casey
Omar this is Mike. There is no question of cost in China, are going up. We’ve been staying very close to Li & Fung specifically; that agent model is kind of important part of our success and will continue to be. Because the costs are growing up in China, we’ve reduced our sourcing mix in China and we have shifted to lower costs countries like Bangladesh, Indonesia, Vietnam and we are seeing some very good performance from those countries. Our fabric as we talked about in prior calls, that’s the largest component of our product costs. So, for the past year we’ve been focused on nearing the scope of our fabrics, leveraging fabrics over multiple products and brands where appropriate. We equate complexity with costs, so we’ve been attacking complexity in the product development process, we’ve been narrowing the number skews particularly at OshKosh. We still feel as though the assortment for the consumer is too broad at OshKosh, for spring 2009, we’d estimate that we’ve cut the skews by about 20%. We’ll see a similar opportunity for fall, 2009 and the skew reduction enables a crisper point of view for the OshKosh product assortment for the consumer. It increases the efficiency in sourcing, enables us to increase our forecast accuracy and it also enables us to carry less inventory so there are a number of good initiatives that we feel so enables us to continue to lower cost structure and improve our margin. So I would say, we are making good progress and have a number of opportunities in the sourcing area and else where in the company to offset the rising costs in China.
- To read the full transcript on Seeking Alpha, click here »
