Feb 20, 2014
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Puma seeks to source goods closer to Western consumers

Feb 20, 2014

HERZOGENAURACH, Germany - German sportswear firm Puma SE is looking to produce more goods closer to customers in Europe and the Americas, but will not abandon Asia in the next few years despite rising labour costs and political unrest, its chief executive said. Puma, which has 178 suppliers in 32 countries, sources 79 percent of its goods from Asia, mostly from China, Vietnam, Indonesia and Cambodia - the latter where a violent crackdown on garment workers striking over pay has disrupted production at its suppliers. CEO Björn Gulden expressed frustration that industry lead times are so long, with ranges being designed now only going on sale in autumn 2015.

Michael Lämmermann. Chief Financial Officer, and Björn Gulden.

Puma is looking into producing more goods closer to consumers to be more responsive to demand, including in Turkey and eastern Europe, and in Mexico to serve the Americas, he said, without giving further details. Over 70 percent of the firm's sales were in Europe and the Americas last year. But the chief executive said his first priority was to revamp Puma's products before overhauling its supply chain. "Everybody is looking at how to improve the speed and flexibility of sourcing but for the next three to four years the majority will come out of Asia because of the infrastructure," Gulden told Reuters on Thursday after Puma's annual news conference.

"Yes, there are issues in Cambodia and Bangladesh but to run away from it and pull out of the country cannot be the answer," he said. "You can't say this is a very poor country and so we shouldn't go there. It's the opposite."

Rising labour costs in China in recent years have prompted brand to seeks lower-cost markets in Asia such as Bangladesh, Vietnam, and Cambodia, countries where demands are now mounting for better pay. A factory collapse in Bangladesh last year that killed more than 1,100 people has put pressure on big brands to improve working conditions for those making products for the West. Election-related violence there earlier this year also disrupted the garment sector.

Puma, which ranks a distant third in the sports apparel industry in terms of sales behind Nike Inc and Adidas AG , reported that sales slumped in the last quarter of 2014.

Adidas has set up a "Speedfactory" team to look into setting up mini plants closer to consumers, the Handelsblatt daily reported on Thursday.

Hennes & Mauritz, the world's second biggest fashion chain which sources most of its clothes from Asia, said last month it is considering producing more goods in Africa.

Gulden, a 48-year-old who joined Puma last July from Danish jewellery company Pandora, started his career at Adidas, working in apparel design and sourcing, spending months visiting factories in Asia.

"The factories we work in are clean, nice. They cannot be compared to what we saw in Asia 20 years ago," he said.

"In this industry we all go to the same places because we are dependent on the infrastructure ... We all have the same interests. We don't want to be dependent on one or two countries."

Rather than shifting production to Africa to take advantage of lower labour costs, Gulden expects the future to be driven by innovative technology such as 3D printing, which the company is already using for prototype shoes. "Technology is changing so we are more independent of labour," he said, adding that many of the latest soccer boots no longer need stitching.

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