The First Big Loss Of HK $4 Billion 390 Million Since Its Launch

Esprit and Edc two clothing 00330.HK, the brand and home brand, announced its fiscal year ended June 30, 2013 in September 10th. The company made its first annual loss with a net loss of HK $4 billion 390 million, which is higher than market expectations.

In the 2013 fiscal year, the global revenue declined by HK $14.1% to HK $25 billion 900 million, compared with HK $30 billion 200 million in the fiscal year. Europe is still the largest market, with a turnover of HK $20 billion 301 million and a total turnover of 78.4% from last year's 75.9%, but its year-on-year growth has dropped by 7.9%. The Asia Pacific region's turnover was HK $5 billion 79 million, down 6.7% compared to the same period last year. China is the largest market in the Asia Pacific region. It is also the third largest market in the world, accounting for 9.3% of total turnover and 8% year-on-year in revenue.

"Hero's Twilight"

During the period, the turnover of the two major brands of Esprit and EDC accounted for 76% of the total turnover of the company (75.1% in 2012) and 24% (24.9% in 2012). Among them, Esprit turnover decreased by 10.5% and EDC turnover decreased by 14.6%.

As of the end of June, the number of 1024 outlets in Si Jie global stores decreased by 42 compared to the same period, and the same store sales level dropped by about 3.3%. In order to reduce inventory, it also accelerated the opening of special stores. At the end of the year, there were 79 special stores, with a net increase of 12. Its largest sale area in Germany Ratingen is 3500 square meters.

Si Jie said that the loss was mainly due to the acquisition and impairment of goodwill impairment, closing stores and stale inventories of Chinese associated companies, which amounted to about HK $2 billion 722 million. Among them, the provision of tenancies for Europe's loss shops and the North American business of stripping the loss (all the stores in the region were closed by June 30, 2012). Excluding these non recurrent items, the net annual loss has shrunk to HK $534 million, compared with HK $921 million in the same period last year.

The chief executive of Si Jie world, Ma Hao Si, said that sales rebounds still need time and structural improvement is needed. The company will continue to close its stores this year, and its short-term goal is to reduce inventories by 10%.

In 2009, Si Jie global made a $3 billion 880 million cash purchase to Huarun for 51% rights and interests of the joint venture company, so that it formally owned a wholly owned Esprit brand. At that time, Si Jie global was optimistic about the growth momentum of Esprit in the mainland market. But Esprit, once a young man's chasing target, is now facing a serious dilemma of brand aging. In the fierce competition of international fast fashion brands such as Zara, H&M and UNIQLO, it appears "hero's Twilight".

Compared to Esprit, Zara is more fashionable, H&M product line is richer, and UNIQLO's basic cost performance is higher. The series of weaknesses such as "not keeping up with popularity, falling prices, high inventories, low sales and slow turnover" made Espr it more and more strenuous in competition with competitors. Taking inventory turnover as an example, Zara's inventory turnover is as fast as 7 days, while Esprit is about 102 days. The difference in turnover rate increases the storage cost of Espr it, and the reduction of warehouse cost means lower cost and quick updating of goods.

Hard remodeling

Esprit once wanted to change. SG has launched a "HK $4 4 year remodeling brand plan", including the stripping of the long lost retail business in North America, the recruitment of the world's highest earning model Gisele Bundchen as brand spokesperson, opening up new concept stores and streamlining business organizations. The plan originally made the industry full of anticipation. However, from the end of 2011 to the middle of 2012, the continuous high-level personnel changes led to the implementation of the reconstruction plan in less than two years.

Finally, last year's new chief executive, Ma Hao Si, pointed out that the only way out for the company is to continue to cut procurement costs. Ma Hao Si also proposed a new transformation plan. The goal of the next 1-2 years will focus on raising revenue, mainly through the four major aspects of brand, product, channel and business mode, and will delay the expansion plan in the mainland. The company will also shorten the delivery time and improve the sales of the pilot stores.