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PVH to Increase Production From Africa to 25%

PVH has big plans for Africa, and the region could soon account for a quarter of the company’s production.

Speaking at this week’s U.S.-Africa Business Forum in New York hosted by the Department of Commerce and Bloomberg Philanthropies, PVH CEO Manny Chirico reiterated the company’s long-term position on the continent.

PVH, which owns and operated brands including Calvin Klein and Hilfiger, has been working with Ethiopia specifically to help build out the apparel industry in the East Africa region.

“The opportunity for us, we believe, Africa today represents about 5 percent of our global production and we think the opportunity is to take that to about 25 percent over the next five years,” Chirico said on Bloomberg Radio.

Chirico started off saying the company will move a tremendous amount, then corrected himself to say some of its production out of Asia, which currently represents roughly 80 percent of its production in order to further diversify its supply chain.

Africa has been touted for its potential, considering its stocked with natural resources and the governments in many countries there are eager to work with the apparel industry and NGO community to build the sector up right from the start.

But more than, there’s a foundation to build from, a place where companies setting up sourcing can think about workers, their impact on the environment and how to make the industry even more scalable, as opposed to in Asia where the commercial aspects of the business can dominate the whole supply chain, Chirico explained.

And factory safety issues and workers rights issues that have plagued nations in South Asia can be avoided since governments in Africa are working to build the foundation up front and get companies to sign on the same code of conduct outlining how they will treat the environment and their employees.

PVH is working on establishing a vertically integrated supply chain in Ethiopia, with facilities in the country’s Hawassa Industrial Park. There, apart from building out all operations in line with its corporate social responsibility requirements, a water treatment plant will ensure 96 percent of any water used can be reused or recycled.

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“We’re really trying to not only develop the economy, we’re trying to develop the society as we move forward,” Chirico said. “And then ultimately, five to seven years from now, we’d like to see these markets not just as manufacturing opportunities, but as consumers, and that’s to try to build a middle class there where our brands will resonate with those consumers.”

PVH’s long view is earning it accolades from analysts too.

Editor of The American Association of Individual Investors (AAII Journal) Charles Rotblut voted PVH Corp. stock as “Buy of the Week” this week, calling it a value company with rising earnings estimates and saying the stock could see a 30 percent potential upside over the next 6 to 12 months, namely because gross margins are staying steady despite the less stable conditions in the broader apparel sector.

The stock was down less than half a percent Thursday to $108.91.