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Denise Tsang

On a rainy June afternoon - while most of Hong Kong's workforce was enjoying a public holiday - representatives from fashion retailer Giordano were busy painting the company's original green logo grey and black while pushing handover celebration pamphlets into customers' hands.

 Giordano is trying to manage its own transition from disfavour in the eyes of the authorities in Beijing, who were offended by remarks by Giordano's founder and former chairman, Jimmy Lai Chee-ying, in 1994, when he allegedly insulted premier Li Peng in a magazine article.

 The insult - Mr Li was called a turtle's egg - led to Giordano's mainland stores being closed and spurred a host of other problems that have retarded the company's expansion plans in China ever since.

 One year ago, Giordano was rushing a 2,000-page document to Beijing which contained evidence proving Mr Lai had left the company and no longer had any say over its management.

 Despite the claims, the mainland authorities have remained distrustful of Giordano. Eleven of its stores remain shut in Beijing and Shanghai and a recent joint venture with five mainland companies collapsed, as did its share price.

 Giordano's handover challenge is to regain favour across the border.

 In 1989 - when Mr Lai was still in charge of the company - it was distributing T-shirts with pro-democracy banners printed on them. Customers received stickers promoting democracy and stores carried political banners in their windows.

 Today, Giordano T-shirts carry compliments about 'glorious' historic figures such as Sun Yat-sen, opium-buster Lin Zexu and the obligatory slogan 'Hong Kong's return to motherland'.

 Dharmala Securities retail analyst Frederick Fok Lai-man attributed the change of T-shirt design and the change in corporate philosophy to economic good sense.

 'Jimmy Lai left a negative legacy on Giordano. It is trying to regain the Chinese Government's trust,' he said.

 The company's attempts to do so are more organised today than ever before, a fact admitted by Giordano chairman Peter Lau Kwok-kuen.

 'Our business development was chaos, a good example of chaotic theory, which was out of our hands,' Mr Lau said.

 He said the change of logo had nothing to do with politics.

 'The logo has been in use for more than a decade. Our artists say it's more stylish to use black and grey,' he said.

 Executive director Jimmy Chan Kui-tim demonstrates barely disguised bitterness at the problems Mr Lai caused his company.

 'Mr Lai's departure can only be good for Giordano. He is a political figure,' he said.

 'We don't want to be involved in politics. His high-profile gimmick may have boosted the publicity of his magazines, but it did not boost sales of our T-shirts.'  Mr Lau summed up the company's post-handover direction in one snappy catchphrase: 'We sell T-shirts, not politics.'  But until Giordano solves its mainland problems it will not be selling enough T-shirts in China, leaving the door open to rivals such as Theme International and other international brands.

 Investors have demonstrated that they want to see Giordano sell a strategic stake in the company to mainland interests. There have been a couple of bites in the last few weeks, with government-backed China Everbright and China Resources both rumoured to be interested in an acquisition.

 'We have no contact with China Resources, China Everbright and Esprit,' Mr Lau said.

 'We're cash rich, so I don't think we are in need of introducing any mainland parties as a shareholder.'  As each rumour emerged, Giordano's share price soared, only to fall again as the rumour dissipated. Nevertheless, there can be little doubt that Giordano will form some kind of joint venture with a mainland partner soon after the handover.

 While this bodes well for the company's longer-term prospects, the downside is that Giordano's share price is almost totally rumour-driven. While this remains so, institutions will be forced to stay clear of what could be one of the best retail fashion plays in China.

 The company recently announced plans to open 70 franchised stores around China this year, but crucial permission was not granted to open new stores in the key urban centres of Shanghai and Beijing.

 That, more than anything else, is an indication that while Giordano has gone some way to mending its relations with Beijing, there is still some way to go.



Giordano works for transition from disfavour with Beijing