Esprit’s revamp to cost US$255 million as fashion retailer wields axe on staff and stores globally

  • Hong Kong-listed company posts net loss of HK$2.5 billion for the year ended June 2018, compared to a net profit of HK$67 million the previous year
PUBLISHED : Monday, 26 November, 2018, 7:02pm
UPDATED : Monday, 26 November, 2018, 11:10pm

Fashion retailer Esprit Holdings will take a one-off charge of HK$2 billion (US$255 million) as it lays off 40 per cent of office staff and closes stores globally in an effort to return to profit, it announced on Monday.

The Hong Kong-listed company recorded a net loss of HK$2.5 billion for the year ended June 2018, compared to a net profit of HK$67 million the previous year amid declining customer traffic and increased competition in e-commerce channels, according to its annual report.

In an effort to return to profit the company plans to cut its five head offices in Germany to just one, and a three-floor office space in Hong Kong’s Kowloon Bay will shrink to one floor.

“This exercise is going to be painful for the organisation,” said executive chairman Raymond Or Ching-fai. “We have communicated with our colleagues and I think they have understood the company needs fundamental changes in order to survive in a competitive market place.

“It is not just about cost but also about making the company more efficient and responsive to the marketplace.”

The company is negotiating store rents globally and does not yet know how many will close or the number of staff who will lose their jobs, said Anders Kristiansen, who was appointed group CEO in June after serving in the same position at London-based fashion brand New Look from 2013 to 2017.

“The first plan is to lower rents so we can keep the stores open, but if we can’t lower the rent we will close the stores, so the numbers will be fluid,” he said.

Negotiations with landlords have begun in Germany, Esprit’s largest market which accounts for around half of its revenue, and will begin after Lunar New Year in February in Hong Kong. Asia-Pacific totals 12 per cent of the group’s revenue.

According to the annual report, the apparel company employs over 6,400 full-time staff worldwide, already down from 7,300 the previous year, but management declined to comment how many jobs in total would be lost in the coming year.

Esprit said it hopes to break even after two years.

“The company has gone through a few management teams and a number of strategic plans to turn around, which we think has dragged on for too long,” said Mariana Kou, head of China education and Hong Kong consumer at CLSA. “The brand has lost its customer following amid the rise of fast fashion retail brands.”

Esprit has already closed some of its keys stores in Hong Kong this year, including its over 10,000 square feet flagship in Tsim Sha Tsui. In February, the brand said it would close down more than 40 “heavy loss-making” shops in Europe, and in May announced it would close 67 directly managed retail stores running loss-making operations in Australia and New Zealand.

The closure of the Australian and New Zealand stores cost HK$129 million for the year ended June 2018, according to its annual report.

The brand does, however, want to expand operations in China and is looking for opportunities to open new stores in Hong Kong, said executive chairman Or.

As part of the restructuring, Esprit also plans to use artificial intelligence to understand its customer base and offer in-demand products, said CEO Anders. Around half of its current products are high fashion but most customers want basics, he noted as an example.

“We have 6.6 million customers in our loyalty base and we don’t really use that data to give customers what they want,” he said. “Going forward we are going to be much more customer driven, using AI to understand what you as a customer buy, what you as a customer like.”

Esprit shares closed unchanged at HK$2.09 on Monday.