Esprit may raise prices in Europe to offset weakening euro, says CEO
One of the world’s top apparel brands said it may consider raising prices in Europe if the euro depreciates sharply as pressure continues to pile up for retailers in a region where shifting exchange rates have already eaten into revenues.
“The declining euro is posing a threat to us,” said Jose Manuel Martinez Gutierrez, chief executive officer of fashion house Esprit Holdings. “Our profit growth last year could have been stronger if it were not for the weakening euro.”
The Hong Kong-listed retailer, which counts Germany as its largest single market, has just returned to a growth trajectory after struggling with sliding profits for years, amid a bitter market share battle with fast fashion rivals H&M, Zara and Uniqlo.
Net profit for the six months ended December swung into positive territory for the first time since 2015, at HK$61 million (US$7.86 million) – also the highest interim earnings the apparel giant has reported in over three years.
The turnaround came after a broad strategic revamp led by former Zara veteran Martinez, which has seen Esprit shut down a number of money-losing stores across Europe while ramping up its e-commerce presence, particularly for tech-savvy Asian shoppers since 2012. As a result of a slew of cost control measures, Esprit’s directly managed store network has been slashed by over a third from its high of six years ago.
“Now we are seeing our transformation starting to pay off,” the 47-year-old Martinez said.
The “return to growth” also means the clothing chain, founded in 1968 in San Francisco, will potentially look into new markets and outlet openings, he noted. That’s the first time in years Esprit has set its sights on expansion in order to beef up sales.
The Hong Kong-based retailer saw revenue dip 9.9 per cent for the six months ended December, dragged down by a drastic reduction in promotional campaigns in its Asia Pacific market, but Martinez suggested that a rebound may soon be on the horizon.
Apart from Esprit, international apparel labels such as Gap have also scaled back their business in many regions as global economic headwinds, stiffer competition as well as evolving tastes of shoppers put established retailers in a tight spot.
But renewed weakness in the euro may prove another bitter pill to swallow for Esprit, which is still looking for a recovery.
“Many European retailers purchase goods in US dollars but sell in euro,” said Martinez, adding that a continued softening of the European currency was likely to slice the company’s income figures.
“When Donald Trump was elected president we expected the US dollar to weaken, but the opposite happened,” he said. “We may have to revise our pricing in Europe if the currency there drops to a certain level [in the coming year].”
For the last six months, the euro has fallen 6.9 per cent against the US dollar, with economists predicting more downward pressures posed by a raft of impending European elections in a year of political uncertainty.