Esprit recovery hinges on cost controls amid revamp

Current operating expenses unsustainable, the retailer's chief says after shareholder meeting

PUBLISHED : Wednesday, 04 December, 2013, 5:27am
UPDATED : Wednesday, 04 December, 2013, 6:27am

Esprit cannot "survive at the current level" of operating expenses, chief executive Jose Manuel Martinez said after a general shareholders meeting yesterday.

The clothing retailer, which is in the midst of an overhaul of its supply chain and product offering, is still trying to bring costs down to the minimum but has a long way to go before a return to profitability.

Martinez told a German newspaper earlier this week that he hoped to bring the company back to profitability next year, but this has been a challenging year for the former Zara executive.

Martinez, who joined a year ago, was tasked with an HK$18 billion transformation plan to turn around the company.

However, in September, Esprit reported a loss of HK$4.39 billion and was far off its own stated recovery targets.

Chairman and non-executive director Raymond Or Ching-fai said there would not be any further major changes to the management team.

Martinez has brought over five former colleagues from Zara's parent Inditex, including the most recent addition, Rafael Pastor Espuch, the chief product officer who joined in October.

"We don't have plans to cut headcount," Martinez said. "What we know is that we need to reduce the [operating expenses]. We need to be leaner as an organisation, and depending where we see those opportunities to be leaner, we take action.

"Sometimes it affects people, unfortunately, but as a company we need to lower costs."

The company is currently working on a spin-off brand, which it plans to launch next year with a younger focus and cheaper prices.

"We will see if it has the potential to become a new chain or if we need to keep working on it," Martinez said.

Esprit shares edged down 0.73 per cent to HK$16.22 yesterday, roughly in line with the Hang Seng Index, which dropped 0.53 per cent.