Somebody doesn’t like Sarah Lee. An item from the Reuters news service this weeek notes that quarterly earnings at Sara Lee dropped 10% due to weak sales in its underwear division, caused by the rising cost of cotton, and competition from stores like Wal-Mart. Sara Lee makes Hanes underwear. Wal-Mart is Sara Lee’s biggest customer, but the retailer also sells its own private label underwear, bras and panties that keep profits down at Hanes/Sara Lee. Profits at Sara Lee for the period October through December fell to $312 million, compared to $348 million in the same period last year. Sales of intimates and underwear fell 2.2 percent. Sara Lee said cotton costs rose more than 40% from a year earlier, and “fierce competition” from underwear sales at mass retailers like Wal-Mart meant Sara Lee could not pass on the price increases to retailers. In other words, Wal-Mart sales have taken profits out of Sara Lee.
Just another example of how Wal-Mart-dependent companies are at risk, because they are reliant on sales to Wal-Mart, while Wal-Mart continues to undermine manufacturer profit-margins by importing cheap underwear from places outside the U.S. Companies like Fruit of the Loom were forced to close their American production plants to lower underwear costs to compete with private labels that Wal-Mart imports. The result? Lots of cheap underwear on American shoppers, and lots of lost jobs at American manufacturers. That’s the cheap underwear bargain. Somebody out there definitely doesn’t like Sara Lee.
