Taking Stock: Retailers Puzzled on Health Care

HEALTH CARE CONFUSION: The footwear industry was digesting — and subsequently reserving judgment on — President Obama’s new health care bill, the Patient Protection & Affordable Care Act, which was signed into law last Tuesday. While admitting the impact the law will have on the market remains uncertain, Nate Herman, senior director for international trade at the American Apparel & Footwear Association, said in an interview that “something needed to be done” because “the current [health care] system was broken.” He cited one small footwear company that is struggling to pay a whopping 29 percent increase in its health care premiums for this year. “Will [the law] be good for a lot of smaller footwear companies out there? It’s unclear,” Herman said. He noted, however, that most of the changes regarding small businesses will not go into effect until 2014. As a result, “For any company that’s offering health insurance now, it’s the wait-and-see game. The problem is that some are facing traumatic increases in premiums for the next year. So they’re not sure what they should be doing, or if this [law] is going to make it harder or easier,” Herman said. He did note that firms with fewer than 50 employees would be exempt from the bill’s coverage requirements. Gary Weiner, president and CEO of retailer Saxon Shoes, said he did not expect to know how the bill will affect his business until much later in the year. “There are 1,300-plus pages of legislation in this health care bill,” he said. “The devil is really in the details.” For Bob Schwartz, president and CEO of comfort retailer Eneslow, one of the best aspects that could come from the law would be the ability for small businesses to pool together to buy employee health insurance. “We hope there will be a change so small businesses can band together,” Schwartz said. “That’s what we need.”


LI & FUNG ON THE HUNT: Li & Fung Ltd. reiterated last Wednesday that acquisitions — including those in the footwear market — are a priority for the retail conglomerate. “We have a lot of deals in the pipeline in terms of acquisitions. We have a lot of cash,” William Fung, group managing director, said on the company’s fourth-quarter conference call. “Our focus will be in the health and beauty side, footwear, our European onshore business and even some more into the U.S. onshore business. So all I can say is watch this space. We have a lot of announcements coming up even in the next few months.” Li & Fung said effective cost controls and timely acquisitions resulted in a 39 percent increase in profit attributable to shareholders to 3.37 billion Hong Kong dollars, or $434.6 million, on a 6 percent decline in sales to 104.48 billion Hong Kong dollars, or $13.48 billion, in the year ended Dec. 31. This compared with profits of 2.42 billion Hong Kong dollars, or $311.1 million, on sales of 110.72 billion Hong Kong dollars, or $14.22 billion, the previous year. (All currency conversions were made at average exchange rates for the respective periods.) Fung attributed the company’s results in one of the “worst years of trading history” to the drastic measures taken to slash operating costs and the growing onshore business in the U.S. and Europe. “[Revenue] declined due to overall market weakness and we lost a lot of our larger clients due to bankruptcies, such as Woolworth’s and Arcandor,” he said. “This was exacerbated by very weak consumer sentiment that led to an overall price deflation of about 9 percent. But we fought against this by turning our attention to acquisitions and sourcing deals to gain market share.” Earlier this year, Li & Fung inked a major sourcing deal with Wal-Mart Stores Inc. Other outsourcing deals signed during the year included ones with Liz Claiborne Inc., The Talbots Inc., The Hudson’s Bay Co. and Wolverine World Wide Inc.


NEW GIFT CARD RULES: The Federal Reserve has issued the first federal regulations governing gift cards, limiting the fees and expiration dates that have been commonly used by credit card companies and retailers. Under the Fed’s new rules, gift card issuers will only be able to impose fees on gift cards in specific circumstances. The guidelines, handed down last Tuesday, go into effect Aug. 22. Fees will be allowed only if a card has not been used for at least a year, if proper disclosures about the policy have been made to consumers and if no more than one fee is charged a month for a card. The regulations also require the expiration date of a card be at least five years after the card is issued or five years after money is loaded onto the card.


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