The journey of Esprit Holdings Limited (330:HK) for the past few years has been anything but smooth sailing. Trouble started brewing in the company during the global financial crisis.
The company over expanded before the crisis and had to drastically close down its stores and downsize its operation after 2011, when the problem reached a critical point. To illustrate, the company has to slash its employee count from 14,192 to the current 9,626. Its directly managed stores dropped from 1,146 to 905 as at 30th June 2014. The company’s share price fell from a peak of above HK$58.00 per share to the current price of around HK$10 per share.
The brand itself has also been struggling to reposition itself. The crisis at the company might have led to the resignation of both the company CEO and Chairman in 2012, although then-CEO Mr. Van der Vis insisted that the resignation is solely for family reasons.
Now with a new CEO in place for about 2 years now. Is Esprit Holdings finally turning around? Or the brand will never return to its former glory. So, what is different now?
A vertically integrated business model
Esprit focused on what it called a vertically integrated business model as its transformation strategy. It involved making its supply chain management leaner through improved product development processes. It is also look at integrating the teams to have a more efficient category management team. There will be a new merchandising model with a centralized focus. It helps to reduce time in alteration from design to the retail front.
Esprit will also look into reducing its product range, to make sure it does not have too large a product offering. It changes the product seasonal rollout from 12 months to just 4 seasons with 2 cruise collections. This allows the company to work with lesser product range and product changes. The company improved its Trend department to ensure the company is kept up to the latest style. Improvement are also made to the stock management process and a change in direction with its new pricing model.
Investors can expect many of the changes are following in the footstep of industry leader, Inditex SA, brand owner of the Zara brand, which happens to be the previous employer of the current CEO, Jose Manuel Martinez Gutierrez.
Value In Action
With so many changes happening to Esprit Holdings, is it finally turning the corner and might be back on its growth path? With so much uncertainty and with Esprit being struck in the most competitive middle segment of the retail market, not being the discount brand or the ultra-high luxury brand, it might be facing extremely tough competition. Whether the company is able to weather the storm is still yet to be seen.
Join us on Facebook for more exciting updates and discussion about value investing.
Submit your email address for important market updates and FREE case studies!
We will only provide you with information relevant to value investing. You can unsubscribe at any time. Your contact details will be safeguarded. The information provided is for general information purposes only and is not intended to be any investment or financial advice.
All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and does not in any way represent those of his employer and other related entities. Stanley Lim does not own any companies mentioned above.