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Retailer Esprit Prioritizes China for Growth

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Esprit Holdings Ltd. said last week that the Chinese market will be a big priority over the next two years as the company tries to stem losses in the Asian nation as part of its turnaround plan.

The retailer has been working to turn business around and return to profitability over the last eighteen months with former Inditex executive, Jose Manuel Martinez Gutierrez, now Esprit’s executive director and group CEO, leading the charge.

Esprit hasn’t done particularly well in China so far and, according to Reuters, it closed thirty-eight stores in 2013 because of high rents, lackluster sales and wholesalers with excess inventory.

“It’s important that we are clear with our partners in China that we are fully committed to this market,” Martinez told reporters during an earnings briefing. “There is no way we can lose the opportunity for Esprit in China.”

To help strengthen the operations in China, Esprit hired Bernard Mah, former chairman of Hong Kong-based retailer Giordano International Ltd’s China operations, to run the business there.

The company saw its first profit in one year thanks to the turnaround strategies that included cost cuts, normalizing inventory levels and closing loss-making stores. Esprit reported a net profit of HK $95 million ($12.25 million) in the six months ended December 31, compared to a loss of HK $465 million for the same period a year earlier.

The goal for a turnaround in China, and in general, will be all about speed. Esprit plans to cut production lead times by more than half and adopt a more efficient, vertically integrated business model in an effort to keep pace with fast fashion leaders like H&M and Zara.

Esprit has restructured its sourcing offices in Asia to mirror product divisions and has reorganized category management teams in the region to manage the revamped vertical business model.

The outlook for performance in the second half of the financial year remains uncertain as the major changes to its model are still being implemented. Also, because of the seasonality of the business, performance in the second half of the year is often not as good as in the first, the company noted.

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