Business Implications of Climate Change

The Case of Phillips Van-Heusen Corporation

2/28/2012

INTROUCTION
Along with the stresses of making a business profitable for investors, minimizing costs, raising revenues, and forecasting for growth, one factor that is especially difficult to predict are those incurred by human caused climate change, commonly known as global warming. It is expected that the effects of global warming will greatly affect numerous aspects of the business world. However, not all of the effects are necessarily bad. In fact, it allows for opportunities to better these companies. In this case, the focus will be on global warming’s effects on Phillips Van-Heusen Corporation (PVH). In order to properly attend to this topic, a brief description of PVH, possible threats, opportunities, and an overall conclusion of global warming’s effects on the company will be addressed. To start, we will take a brief look into PVH Corporation as a whole.

PHILLIPS VAN-HEUSEN CORPORATION PVH is a large clothing company that owns popular lines such as Tommy Hilfiger, Calvin Klein, Arrow, Van-Heusen, and many more. The major focus is marketing moderately high end clothing. This company tends to focus its clothing lines towards males, however, there are a few lines focused towards women. These clothes range from lounge wear to business suits and everything in between. PVH also produces and sells clothing accessories such as belts, wallets, sunglasses, scarves, etc. This is a well rounded corporation in the clothing industry that makes clothes for every style and taste, for every season. Keeping with the idea of global warming, PVH faces challenges ahead that should be taken into consideration. The biggest concern would be the threats that would result from these pervasive changes.
THREATS
There exist numerous threats that climate change can cause for this company. I have narrowed it down to two of what I understand to be the most influential effects. These threats are those involving the weather patterns, and those involving the land and agriculture with respect to cotton. Over the century’s, the air temperature has been steadily on the rise. In particular, the decade of 2000-2010 reported the highest average temperatures to date since 1880 when statistics were first recorded (Scientists, 2011). This analysis leads to multiple negative trends. With respect to PVH and the clothing industry as a whole, extreme heat and increasing temperatures cause consumers to purchase clothes that are made of less material to combat the heat. As this occurs, PVH will see a decline in sales due to fewer “big-ticket” items (including winter-wear, business suit coats, etc.) being purchased. The costs to produce the items will increase because of the agricultural effects of the extreme heat. There is a potential for the clothing industry to take a big hit as these weather changes occur due to human caused climate change. As stated in a recent study by Lifestyle Monitor, “75% percent of all consumers say better quality garments are made from all-natural fibers such as cotton, and 53% are willing to pay more for it…” (Lifestyle Monitor, 2012). It is inevitable that climate change will greatly affect the cotton industry. External factors of weather changes and increases in natural disasters, cotton will become increasingly difficult to grow. According to climatehotmap.org, increased costs in land for irrigation and fewer yields of crops due to drought and extreme heat waves are highly likely to occur (Scientists, Food Impacts, 2011). As a result, this will increase the costs to consumers as clothing prices will increase to cover the cost that the industry incurs.
OPPORTUNITIES
With respect to the threats of climate change, there lies opportunity for PVH to capitalize on. There are many that come to mind, however, I will focus mainly on those that directly correlate to the threats stated above. These opportunities consist of the changing market to weather-appropriate outerwear and other real options to look into. The externality of the unpredictable weather patterns is sure to cause changes in the market for weather appropriate outerwear. Because the threat of increasing temperatures exists, winter clothing and outerwear are changing to less and lighter materials. This is a prime opportunity to capitalize on these changes. PVH has the opportunity to create lines of clothing that use less materials and more fitting for the weather patterns. By using fewer materials, costs are reduced and more would be sold, thus, increasing revenues. This increases the markup per item and raises the bottom line of the company. Higher temperatures can prove to be beneficial to those in the clothing industry because it truly is a “less is more” business lately. With the way the weather patterns are going, the cotton industry has the potential to become difficult to manage and produce. As this occurs, price of cotton will increase as it will become a scarce commodity; thus, externally affecting the clothing industry. This leads to various options to reduce the risks of this devastating PVH as a whole. These options, though not comprehensive, are consolidating agricultural suppliers and/or using different materials to produce clothing items. Consolidating agricultural suppliers would be greatly beneficial due to the fact that PVH currently contracts with numerous suppliers of cotton all over the world. By consolidating, costs could be greatly reduced in many ways ranging from shipping to market price hikes from various suppliers. Because less cotton would be used per item because of weather conditions, the demand for cotton is reduced. This makes it possible to use fewer suppliers and would benefit PVH greatly. There exists the possibility to develop or use different materials in which to make clothing items out of. Because we are currently still in a relatively manageable phase of global warming, there is time to research and develop these new materials. By using this option, the need for cotton could be reduced. There is great potential for ways to avoid the coming price increases in the cotton industry.

CONCLUSION After looking at the threats caused by climate change of weather and agriculture, it is easy to see that it does not look promising for a company in the clothing industry. However, with the opportunities of capitalizing on the market change to weather-appropriate clothing lines, consolidating agricultural suppliers, and using different materials, these risks are greatly reduced. Global warming imposes large amounts of risk to the clothing industry as a whole and makes it more challenging to be profitable in the long run, but not impossible. It is important for those within the clothing industry to understand the coming risks and plan accordingly. PVH is no exception to this rule.

BIBLIOGRAPHY

Lifestyle Monitor. (2012). Cotton's Wild Ride. Retrieved 2 27, 2012, from Lifestyle Monitor: http://lifestylemonitor.cottoninc.com/LSM-Issue-Holiday-2011/Cotton-Pricing-2011/
Scientists, U. o. (2011). Air Temperature Impacts. Retrieved 2 27, 2012, from Climate Hot Map: http://climatehotmap.org/global-warming-effects/air-temperature.html
Scientists, U. o. (2011). Food Impacts. Retrieved 2 27, 2012, from Climate Hot Map: http://climatehotmap.org/global-warming-effects/food.html