Esprit Turns To China For Growth

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Clothing retailer Esprit Holdings Ltd. will tap the Chinese market to help propel the company's future growth even as it has embarked on comprehensive investment program over the next four years with capital expenditures set at HK$18 billion.

Despite the store closures in North America, Europe and Asia Pacific, the company remains bullish of China as a strong market for the Esprit brand. The company expects that turnover for China will double over the next four years to around HK$6 billion, with the store network increasing from approximately 1,000 to 1,900.

"We have also planned to expand our e-shop platform coverage to include China in the second half of the new financial year. In Asia, Esprit will concentrate its expansion in the growth markets of Taiwan, Singapore, Malaysia and – above all – China," it said.

In its financial report for June Esprit said the investments in stores, product design and brand communication are intended to revive customers’ awareness of Esprit as an inspiring fashion brand.

The company will focus on the most attractive markets with profitable growth in the future and withdraw from unprofitable locations and markets.

Of its programmed capex until 2014 to 2015, Esprit plans to spend HK$7 billion on long-term investments and HK$11.5 billion on business operations.

The planned total capital expenditure from 2011 to 2012 will be about HK$1.5 billion, in which HK$0.7 billion is related to stores, HK$0.5 billion related to IT projects and HK$0.2 billion related to the new distribution centre.

"In essence Esprit is a strong and profitable brand, but the brand has gradually lost its soul over the past few years. The heritage of the brand has been neglected and the company lost its customer focus...After having defined the new brand direction and having started the first steps with encouraging results, we now step-up our efforts," the company said.

"Going forward Esprit will again be a brand with both a clear identity and a strong personality, returning the company to a high level of sustainable profitability," it said.

Espit will invest HK$1.7 billion annually (in total HK$6.8 billion over four years) in brand communication to reshape and build a tangible, unmistakable brand profile across all channels and regions.

Esprit said it will step-up its design capabilities by establishing a Trend division in the fashion capital of Paris and a dedicated design hub in China for the Chinese market.

"This way fashion trends can be implemented into the collections more quickly. To capture the huge opportunities in denim, a new Denim division will be established," it said.

Esprit will centralize all buying functions in one sourcing organization in order to concentrate on developing the best products and generate annual savings of around HK$1 billion by 2014 to 2015.

The company will also spend HK$3 billion until 2014 to 2015 to upgrade the shopping experience for the customers in line with the new brand direction through the refurbishment of the entire retail full price store network.

"Esprit’s expansion in the future will be focused on the opportunities for profitable growth. With this strategy, the company is going to strengthen its European business in Germanspeaking DACH-countries, Benelux and France," it said.

The company said that excluding the impact of exceptional store closures and the divestment of operations in North America, Esprit expect to achieve 5%-10% year-on-year full year retail space growth in 2011 to 2012.

Esprit decided to divest its business in North America after incurring losses. The planned divestment mainly involves closing down 93 directly managed retail stores in North America.

The company also identified 80 additional loss-making stores for closure, among which 65 are in Europe and 15 are in Asia Pacific

Due to the decline in profitability and the provision in association withthe additional store closures and the divestment of operations in North America, the net profit of Esprit fell to HK$79 million from HK$4.226 billion in 2010.

"In line with its retail business Esprit will also concentrate its efforts in the wholesale business. The company will invest in the opening of more than 200 new franchise stores (excluding China) until 2014 to 2015 and is going to support wholesale partners with refurbishing their space. The total investment in wholesale is expected to be approximately HK$3.9 billion," it said.

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