Bossini suffers after bold expansion on mainland

PUBLISHED : Monday, 07 April, 2008, 12:00am
UPDATED : Monday, 07 April, 2008, 12:00am


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For many clothing retailers, overseas expansion is a natural step after gaining a strong foothold in their home base to broaden earnings and promote brands.

However, for Bossini International Holdings, a Hong Kong casual-wear chain, its early venture into the mainland market more than a decade ago has become a disappointment because of its ambitious expansion in recent years.

After opening its first store under the label 'Bossini' in 1987 in Hong Kong, the company was lauded by market observers six years later when it became one of the first movers into the mainland market.

By the end of last year, the number of its mainland outlets had grown to 552, including 358 directly managed and 194 licensed stores.

However, its sprawling network, which might have helped brand recognition, has not brought higher profits over the past couple of years.

Bossini began to suffer from losses on the mainland in 2006, and reported an operating loss of HK$19.99 million for the 12 months to March last year, against a profit of HK$6.52 million in 2006. The loss for the second half of last year was HK$7 million.

'We were aiming too high and opened new stores too fast at the time and overlooked existing stores,' said chief executive Kathy Chan So-kuen.

Revenue growth was not fast enough to cope with the cost of new openings, she said, adding that earnings were also eroded by poor management. As a result, the company scaled back its network from 605 outlets in September 2006.

'Bossini's experience is a wake-up call for the whole industry as aggressive expansion is quite common,' said an analyst at a mainland fund house. 'Retailers should find a balance between speed in expansion and operating efficiency.'

Still, Bossini's closest rival, Giordano International, has managed to turn its aggressive mainland expansion into a money-spinner.

Having opened its first store on the mainland in 1992, a year before Bossini, Giordano now has a network of 820 outlets. Operating profit jumped 81.7 per cent in that market last year, a main driver for the company's 43.9 per cent profit growth.

'Several years ago, there was no obvious difference between Bossini and Giordano, but now Giordano is operating well while Bossini is struggling to restructure,' said Tai Fook Securities analyst Kallman Wong. 'Giordano has kept on lifting its brand image and adding value over the years.'

Shares in Giordano and Bossini have trailed the benchmark Hang Seng Index in the past couple of years. Giordano has fallen 14.02 per cent since the beginning of 2006, compared with a 52.47 per cent slump in Bossini. The Hang Seng Index has surged 86.96 per cent.

Ms Chan admitted that Bossini overestimated its ability to expand and overlooked space profitability, which resulted in operating losses at its mainland unit.

'Market share was the top priority at that time, but now we are more pragmatic and profitability is the most important thing,' she said, adding that the firm would grab market share mainly with the help of franchisees.

Ms Chan blamed low-end brand Sparkle, which only operates on the mainland, as the culprit for the loss. She said its products were not so different from local brands in design but could not compete with rivals' pricing.

'Sparkle has been bleeding from the start. Five years have passed, we don't want to wait any longer,' Ms Chan said.

In the second half of last year, it closed 28 Sparkle stores and aims to close more than 60 per cent of the remaining 106 outlets by the end of this year.

Ms Chan said although its mainland arm was facing a tough time, the company was still optimistic about the market because of its size and potential. She expects operations to turn around next year.

The mass market would become more challenging with the influx of global brands such as Zara and H&M, and apparel retailers must tune up their products to compete, Ms Chan said.

'Because of these giants, the tastes of local customers and their requirements for services has changed,' she said. 'We need to think and find out how to cope with the new change.'