Zara Owner Inditex Demands Clarity from Cotton Certifier Accused of Standard Breaches

 Shoppers visit a Zara store in a shopping mall the day of its reopening after being closed for more than two years due to Russian full-scale invasion of Ukraine in 2022 in Kyiv, Ukraine April 3, 2024. (Reuters)
Shoppers visit a Zara store in a shopping mall the day of its reopening after being closed for more than two years due to Russian full-scale invasion of Ukraine in 2022 in Kyiv, Ukraine April 3, 2024. (Reuters)
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Zara Owner Inditex Demands Clarity from Cotton Certifier Accused of Standard Breaches

 Shoppers visit a Zara store in a shopping mall the day of its reopening after being closed for more than two years due to Russian full-scale invasion of Ukraine in 2022 in Kyiv, Ukraine April 3, 2024. (Reuters)
Shoppers visit a Zara store in a shopping mall the day of its reopening after being closed for more than two years due to Russian full-scale invasion of Ukraine in 2022 in Kyiv, Ukraine April 3, 2024. (Reuters)

Zara owner Inditex demanded more transparency from a certifier that vets some of the cotton used by the Spanish fashion giant following an investigation that found evidence of malpractice by two Brazilian certified cotton producers.

Inditex sent a letter dated April 8 to Better Cotton CEO Alan McClay asking for clarity on the certification process and progress on traceability practices after the NGO Earthsight informed the retailer that producers with Better Cotton certifications were involved in land grabbing, illegal deforestation and violent acts against local communities, according to a copy of the letter seen by Reuters.

Inditex said it had waited more than six months for the results of an internal investigation by Better Cotton that was promised for the end of March and began in August 2023, according to the letter.

The allegations "represent a serious breach in the trust placed in Better Cotton's certification process by both our group and our product suppliers," Inditex said in the letter. "The trust that we place in such processes developed by independent organizations, such as yours, is key to our supply chain control strategy."

The contents of the letter was first published by Modaes, a fashion business news site. Inditex confirmed to Reuters it had sent the letter.

Inditex does not purchase cotton directly but its providers are audited by certifiers such as Better Cotton to ensure good practices when obtaining their raw materials.

Geneva-based Better Cotton, one of the world's largest certifiers of sustainable practices in the cotton industry, did not respond to a request for comment on Wednesday.

It said in an April 4 statement that it had concluded a third party audit of three farms implicated by Earthsight but that it would not publish its findings until it had seen the full report, which was due to be published on Thursday.

Better Cotton said its strategic partner in Brazil, the Brazilian Association of Cotton Producers, was revising elements of its standards to align with those of Better Cotton.

Created by companies and several nonprofits including the World Wildlife Fund, Better Cotton says it aims to support improved practices in areas like water and soil stewardship and to promote better working standards.

Fashion retailers face increasing pressures from consumers and activist groups to sell products with less environmental impact and made in safe labor conditions.



Gucci-owner Kering's Shares Down 5% after Q1 Sales Disappoint

A model presents a creation by the Gucci Fall-Winter 2025/2026 collection during Fashion Week in Milan, Italy, February 25, 2025. REUTERS/STRINGER/File Photo
A model presents a creation by the Gucci Fall-Winter 2025/2026 collection during Fashion Week in Milan, Italy, February 25, 2025. REUTERS/STRINGER/File Photo
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Gucci-owner Kering's Shares Down 5% after Q1 Sales Disappoint

A model presents a creation by the Gucci Fall-Winter 2025/2026 collection during Fashion Week in Milan, Italy, February 25, 2025. REUTERS/STRINGER/File Photo
A model presents a creation by the Gucci Fall-Winter 2025/2026 collection during Fashion Week in Milan, Italy, February 25, 2025. REUTERS/STRINGER/File Photo

Shares of Kering traded down 5% in European morning trade on Thursday, after the group reported a first-quarter sales drop that was worse than analysts' expectations.

Kering after the market close on Wednesday posted a 14% decline in sales, with a 25% drop at flagship label Gucci, the latest signal the luxury sector faces another tough year.

The sales report confirmed "a weakening backdrop" since February, said analysts at Jefferies, noting "the uncertainties around reigniting Gucci's desirability remain plentiful".

The brand, which accounts for around two-thirds of group profits, is betting on in-house talent Demna to revive sales, but new designs will only arrive gradually at the end of the year, Reuters reported.

The French luxury group flagged worsening sales in North America and Western Europe and said it expected sales to continue to fall in double digits, percentage-wise, in the second quarter, before starting to improve.

This leaves the "heavy lifting" for the second half, which will likely depend on a recovery in Chinese demand, noted analysts at Bernstein.

Prospects for the luxury industry, which had pinned hopes on growth from the United States to help pull it out of a slump as the Chinese market remains weak, have been darkened by recession fears prompted by US President Donald Trump's tariff announcements.

As trade tensions have risen, Bellwether LVMH has fallen 23% and Burberry and Kering have both lost 30% since the start of the year. Hermes and Cartier-owner Richemont, viewed by analysts as better insulated from economic downturns because of their wealthier clientele, are up 1% and 3%, respectively.

First-quarter reports from Kering's larger rivals last week also reflected the sector's slowdown and disappointed investors, with sales at LVMH's fashion and leather goods division down 5% while Hermes, which routinely outpaces expectations with double-digit growth, posted a 7% rise.

Analysts at Deutsche Bank on Thursday lowered their 2025 earnings per share estimate for Kering this year by 13% to 8.65 euros ($9.84), citing the company's cautious outlook for the first half, and noting the slowdown in all regions except Asia was slightly worse than peers.

TD Cowen lowered sales forecasts for Gucci this year by 15% to a 20% decline.

The analysts added that Gucci, as well as another Kering label Yves Saint Laurent, were expected to be slower to raise prices to offset tariffs than peers. The Kering labels have a broader base of less-wealthy clients who are more reluctant to splash out in a choppy economic environment.

LVMH, meanwhile, has raised prices of some Louis Vuitton handbags and leather goods by around 4% according to Bernstein and Barclays, while Hermes said it will pass on the full effect of tariffs to shoppers in the United States on May 1.

US tariffs could include a 20% charge on European fashion and leather goods and 31% for Swiss-produced watches if fully applied, but Trump earlier this month paused most of his tariffs for 90 days, setting a general 10% duty rate instead.

The price hikes from Vuitton are "more than enough" to offset even 20% tariffs, said Bernstein.