Italy's OVS sees room for clothing price cuts as inflation eases

By Elisa Anzolin

MILAN, Feb 2 (Reuters) - Italian mass-market clothing retailer OVS plans to keep prices steady or even cut them in 2023 as it sees inflationary pressures on logistics, raw materials and energy easing.

Freight costs have fallen drastically in the last three or four months, OVS Chief Executive Stefano Beraldo said.

Beraldo told Reuters in a telephone interview that he expected a reduction of around 30% in freight costs and OVS had already kept them under control through medium term contracts.

Cotton and other raw materials prices are dropping too and OVS, whose competitors include H&M, is expecting a weighted average commodity decline of around 20% for the group and lower energy prices this year.

"We will not increase prices, we will keep prices steady in some cases and in some others we will be able to pass down a part of these benefits to customers, especially in the child segment," Beraldo said on Thursday.

OVS, which last year increased its prices, reported a net sale increase of 11% to 420 million euros in the October-January quarter, with core profit up more than 10% year-on-year.

The only cost that is expected to increase this year is labour, with national contracts under discussion for renewal.

"We believe that these increases will occur but they will be limited given that the inflationary scenario is on the way down" Beraldo said, adding that wage costs could increase around 2-3%.

Beraldo added there will be no layoffs at OVS, which has a 9.4% market share in Italy.

H&M's profits were almost wiped out in the September-November quarter by soaring costs, which the Swedish company held back from passing on in full to cash-strapped customers.

Beraldo expects demand to hold up as a loss of purchasing power has pushed more customers into the value segment.

OVS, which earlier this week called off talks to acquire department store group Coin, will keep looking at organic growth and other smaller M&A opportunities, he said.

"We will open other stores this year, but probably fewer in number compared to the past", Beraldo said.

"And I keep looking at external targets that can be brands or small networks to continue with our consolidation of the Italian market". (Reporting by Elisa Anzolin, editing by Alexander Smith)