Wholesaler Pacific Brands could place over 200 of its labels on the chopping block, after a strategic review revealed they accounted for just two per cent of sales.
The Melbourne-headquartered company generated 49 per cent of sales for the first half of fiscal 2009 from its 10 largest brands. This meant more than 200 brands contributed less than two per cent of revenue for the six months ended December 2008, or generated less that $500,000 in net sales.
It is understood leading brands under the company umbrella included underwear giant Bonds, Holeproof and Berlei and offerings under its workwear and hoisery categories.
Chief executive Sue Morphet declined to name underperforming labels but said they would be divested, sold off or folded back into the company. The move would be part of a broader program aimed at saving $150 million in costs per year by 2011.
"We are applying resources and time to these according to each brand's role and opportunity in the market," Morphet said. "We are exiting non-core brands and businesses, refining the portfolio, rebalancing and targeting our resources."
The strategy was challenged by a financial analyst at the company's half year results announcement, who questioned whether it was prompted by banks panicking over the company's debt level and flat pre-tax earnings. In return for "carving" up the group, the terms of its $1.05 billion debt facility had been successfully renegotiated with banks, with a six month extension of $550 million in debt due this year.
Morphet denied the allegations.
IBISWorld industry analyst Raghu Rajakumar said the company would do well to retain its middle-market brands, with the sector expected to grow by 9 per cent to $11.55 billion this year.
"IBISWorld projects that because a significant portion of discount apparel shoppers, more nervous about economic circumstance, will tighten spending habits and trade up from high volume, low quality purchases to middle market or better quality," he said. "There will [however] be a much lower volumes of purchases."
He said growth in the lower end of the market would rise to by a modest 6.7 per cent while the luxury end would fall by 19 per cent.
"If Pacific Brands can attract the 'middle market' consumer, they may, to an extent, counter the falling sales volumes that higher prices in a declining economy are expected to bring.
"The change in spending patterns may mitigate some of the decline caused by the lower volumes Pacific Brands should be expecting."
Pacific Brands posted a first-half loss of $149.8 million for the six months ended December 2008.