Hansae hits snag in North American market on slowing economy

Hansae Co. logo [Courtesy of Hansae]

South Korea’s fashion company Hansae Co. is seeing sluggish sales this year after posting a record of more than 2 trillion won ($1.5 billion) last year as new orders plunged with the economic slowdown in the U.S., the company’s largest export market.

The industry is pessimistic about Hansae’s overseas strategy as orders from Central and South American factories remained stagnant although Kim Ik-hwan, the company’s chief executive officer, had worked hard to diversify production bases since taking office.

According to the fashion industry on Thursday, Hansae posted sales of 410.8 billion won in the first quarter, down 29.3 percent from a year ago. Operating profit fell 26.7 percent to 35.9 billion won in the same period. This decline comes after last year’s record earnings to become part of the 2 trillion won club for the first time.

This bodes ill for the company as the slowdown is likely to last longer coupled with prolonged U.S. economic recession. Hansae is an original equipment manufacturer (OEM) of apparel and OEM production accounts for 97 percent of its entire sales. It is heavily influenced by the U.S. economy given its structural limitations as its sales mostly come from the U.S. market.

Hansae has been targeting the U.S. market more aggressively rather than seeking stability through diversification. Kim announced a vision dubbed “Hansae 2.0” and launched investments to diversify production bases by expanding facilities in Central and South America. However, entities in the region fell short of expectations. Sales in Haiti dropped to 6.4 billion won in the first quarter from 8.7 billion won a year earlier, and that in Guatemala fell to 1.9 billion won this year from 2.4 billion won last year. Skepticism prevails over Kim’s global strategy as Latin American factories are less competitive in terms of labor costs and skills than those in Southeast Asia and logistics cost savings are not so great.