Struggling Esprit to close more than 40 shops in Europe

Retailer is hammered by net loss of US$121.9 million for second-half of last year, compared with a net profit of US$7.79 million for the same period in 2016

PUBLISHED : Wednesday, 28 February, 2018, 9:57pm
UPDATED : Wednesday, 28 February, 2018, 10:14pm

Once the darling of both the fashion world and the capital markets, Hong Kong-listed fashion house Esprit Holdings found itself struggling in the second half of last year, as it continues to be hit by a weaker-than-expected performance by its bricks-and-mortar stores in countries including China.

The company reported a net loss of HK$954 million (US$121.9 million) for six months ending December 31, its own first-half recording period, compared with a net profit of HK$61 million (US$7.79 million) for the same time in 2016, while revenue was hit with a 3.4 per cent drop year on year to HK$8.03 billion, compared with HK$8.32 billion.

The decline in its China business in recent years, as well as larger-than-expected drops in second quarter revenue ending December 31 were blamed as the major causes of the net loss.

The Hong Kong-based retailer founded in 1968 in the US generates around four-fifths of its revenue from European countries including Germany.

But in the past five years it has turned its focus to the China apparel market, which is valued at around US$300 billion.

We will try to save as many [jobs] as we can. Sometimes we will transfer employees working at the closed shops to other stores, or open smaller stores beside the closed ones
Jose Manuel Martinez, chief executive officer, Esprit

The company hit its prime after 2007, when it recorded its 15th consecutive year of double-digit growth, but has since been facing rising competition from e-tailers and a more sophisticated clientele in China, who have changed their focus from price to design.

As part of its turnaround strategy it plans to close more than 40 “heavy loss-making” shops in “core” European countries, or make around a 10 to 15 per cent reduction in its controlled space in these countries, according to Jose Manuel Martinez, the chief executive officer, who refused to reveal the number of jobs that might be affected due to the closures.

“We will try to save as many [jobs] as we can. Sometimes we will transfer employees working at the closed shops to other stores, or open smaller stores beside the closed ones,” he said.

In addition to the closures in Europe, Esprit is also to shut flagship stores in Hong Kong, eyeing smaller spaces with higher traffic, according to Thomas Tang, the executive director and chief financial officer.

“We have every intention to find new locations, which will be a bit smaller,” said Tang.

“We do not need 20,000 square feet of space, but sites more modest and better located.”

Tang did not specify which flagship spots the company is to close. It has shops in the city’s prime areas of Central, as well as one on the bustling shopping streets of Causeway Bay.

The company said it wanted to shift from growth to profitability this year, with less discounts of products a major part of the plan, as well as a new product line in the pipeline, that will be “more appealing to younger Chinese consumers”, including items by Hong Kong and mainland Chinese designers, according to Martinez.