Last year's poor taste costs LPP dearly

Consumer spending on fashion is on the up, and most clothing chains are enjoying the boom. However, LPP, the company behind the Reserved and Cropp Town brands, has yet to record a major lift in its sales.

H1 2006 saw it ring up sales of zł.172.1 million, not much ahead of H1 2005's zł.160 million. The company's Q2 net profit fell by 58.5 percent and reached zł.5.7 million, compared to 13.9 million in Q2 2005.

Marek Piechocki, president of LPP, explains the situation resulted from a bad decision by the board to introduce a more extravagant collection in the fall of 2005. "We made a mistake by increasing the number of very extravagant items in the whole collection. When we realized that last November, the whole collection had already been designed," says Piechocki. LPP expects to make a net profit of zł.5 million by the end of the year.

Sylwia Jaśkiewicz, a CDM Pekao analyst, says that the new collection has been dramatically altered into more traditional products. "The question is, how will the market react to that change? If the collection is successful it will have a chance to improve its results, but I wouldn't expect the company to reach its prognosis," says Jaśkiewicz.

By the end of the year, LPP wants to increase Reserved's retail space by 90 percent and Cropp Town's by 37 percent. The company also plans to construct a 40,000-sqm logistics center. The zł.60-80 million project could be launched next summer and be completed in 2008.