Embarrassment Of "Low-Key Luxury"

From Spain

The new CEO Jose Martinez, the brand ZARA, has been unveiled for the first time, and has submitted the first annual performance after the launch of the "wake up sleeping beauty" pformation plan with the new chief financial officer (the end of June is the financial year).

Net profit in the second half of 2011 and the first half of 2012 totaled 870 million (HK $, the same below), an increase of 11 times compared with 79 million in the same period last year.

Excluding the one-time effect of closing down North American shops, core net profit fell by 92% in real terms, and the profit in the first half of this year was 300 million.

The same store sales growth, which measures sales activity, has declined by 3.6% compared to the same period last year, and has been negative for 12 consecutive quarters.

Under the influence of weak performance, the stock price continued to decline for three days, and the cumulative market value of 15% evaporated.

Esprit currently has a market value of about 15 billion, compared with 30 billion 200 million of the turnover, the market sales ratio is only 0.5, the lowest in the global clothing brand.

"We have to retrieve the lost soul of Esprit and let her return to everyone's closet."

Management said.

"Reshaping the soul"

Loss? Then shut down.

Since Esprit launched the pformation plan in September last year, management has focused on cutting all shops in North America with a total of 97 stores and 1600 employees.

In 2001, it expanded in the US as a "bottom up" gesture. Its brand inspiration came from the Esprit break of California leisure wind in the US. It did not expect that it would withdraw from the United States after 10 years.

In addition to North America, the loss shops in 44 other areas have been closed, and 36 shops which are not well managed will be closed one after another.

In the evacuation list, Hongkong and Singapore once appeared, but they did not involve stores in mainland China.

In fact, in September of this year, Esprit's flagship store in Nanjing West Road, Shanghai, was forced to move to Hongkong's I.T.

Market speculation is that Esprit forced relocation is the active adjustment of shopping centres in the name of rent, which is attributed to the brand image and the neighborhood luxury tenants.

Sadly, the flagship store, which has been in operation for 12 years, has caused a sensation when it first opened, and customers even need to queue outside the door to enter the shop.

CEO Ronald Van der Vis, who has launched the pformation plan, has repeatedly stressed that good store design and goods display have a decisive impact on consumer buying behavior.

Starting in September last year, Esprit opened three concept stores in Germany, abandoning the tradition of red walls, building the Nordic pastoral style with wood and white, and van der Shi described it as: "consumers will walk into their own wardrobe, talking about this thing I want, and that I want."

Van der Sar said frankly, under the uncertain economic prospect, Esprit wholesalers will not be willing to take out money to renovate the shops.

About 4 billion of the pformation plan is used to assist wholesalers in refurbishing and disposing of inventories.

Esprit started in the wholesale mode, and then gradually opened its own store. The wholesale and self employment ratio was 60% and 40% respectively.

It is worth noting that Esprit does not earn rent, labor and other miscellaneous fees, and the profit margin from wholesalers is much higher than that of proprietary stores.

The annual report shows that the wholesale sales volume of the previous financial year was 12 billion 100 million, the operating profit margin was 17.7%, the retail sales volume was 17 billion 800 million, but the operating profit margin was only 6.5%.

In other words, self run stores sell more than others.

Van der Sar, who focuses on brand marketing, likes to quote the survey figures, such as the Esprit brand value of 26 billion in the third party survey, which is more than 22 billion of UNIQLO.

ZARA has 77 billion brand value in the survey.

In June, van der Bush abruptly resigned on the grounds that he could not take care of his family life. He took over Mr. Ma Hao Si before he was in charge of supply chain and Nordic regional sales in Inditex, the parent company of ZARA.

After the dust of the new CEO is settled, all the discussions about Esprit revolve around how to imitate ZARA better and faster.

But Van der Bush doesn't like imitators.

In his interview, he repeatedly stressed that Esprit will stick to its self: "we will not do ZARA!" also known as "our main rival is not ZARA or H&M". The reason is that the sales age of fashion customers is between 15 and 25 years old, while the target customers of Esprit are 30 to 40 years old.

Who is the biggest competitor in van der Bush's mind? He said it was the American leisure brand Gap.

"I find it ironic that he regards a brand that is equally weak as the biggest competitor. Is this the declining Club of aristocrats?" commented an analyst at an American brokerage firm.

The analyst lowered the profit forecast of Esprit in the next two years after the performance meeting by 60%. However, he thought he was "not pessimistic enough, and could lose substantially next year".

The "long" supply chain has always been criticized by the market.

Van der Sar also saw this. Since last year, the central purchasing plan has been launched, which has reduced 21% suppliers and 29% of the supply factories, and expanded the procurement locations to low cost countries such as Bangladesh, Indonesia and India. The management expects that the purchase cost in 2014 can therefore be reduced by 1 billion.

Fire rod

When a brilliant manager meets a declining company, the latter always wins the battle.

After this performance meeting, Fan Deshi will formally retire. In recent years, he has replaced the Es-prit of the management level by the lantern type. The market has been described as the "fire rod" to see who will deal with the thorny problem.

Fan Deshi, a Dutch Dutchman with a blond hair and tall face and a confident smile, has a personal charm. By contrast, his successor, Ma Hayes, has a serious look and a strong Spanish accent.

"Ma Hao Si just took office ten days ago, before ZARA also did the backstage work, estimated that very few people knew him.

But I am very glad that van der Sar left early. No matter how bad the situation is, he can say "smooth" and "very successful" in his mouth. He is a man who divides 10 points into 100 points.

A fund manager who followed consumer stocks sighed.

In view of the pformation plan, she believes that Esprit's obsession with stimulating consumers in a comfortable environment can be seen as running on the wrong road.

For example, she said, H&M, UNIQLO and even ZARA shops are very simple, no fancy decorations and showcases, but consumers will still be attracted by the products themselves.

"In the fast selling industry, positioning ourselves as a" low-key luxury "will only end up in an awkward situation.

She pointed out that a lot of fund managers or analysts who follow consumption are women, who focus on operational data and will go to the boutique to observe consumer behavior. "Usually they will see if the store is full of people during the rush hour, and whether the checkout office needs queuing.

But for Esprit, my expectations will drop very low. Just ask yourself one question: will you buy the latest design? If the answer is a firm "no!", you can imagine what other consumers will think, and you can imagine what Esprit's performance will be.

Since the launch of the pformation plan in September 2011, Esprit has spent more than HK $1 billion 500 million to hire super models to endorse, and has spared no effort to launch huge billboards in the central areas of Germany, Hongkong and the mainland.

But does the high input have high output? The fund managers said that the Esprit's flagship and simple style had the opposite effect with the supermodel propaganda: "when consumers see the first class models wear knitted sweaters, striped shirts and carb pants, the results are very dull. How can they wear themselves?"

Lu Jiahua, Goldman Sachs Retail Analyst, believes that the biggest problem for Es-prit is to balance profits and new investments under the premise of weak sales growth.

Lu Jiahua had expected that the new CEO would spend 84% of its total pformation plan, with an overall range of about 2013, of which the advertising budget from 2013 to 2015 was reduced from 1 billion 200 million to 1 billion 200 million, while the financial support for wholesalers was also reduced from 1 billion 200 million to 100 million.

Compared to the cost, UBS analyst Pan Jiayi is most worried about the sales of Esprit, he said, "heavy town" Europe's economy is sluggish, the new CEO is difficult to reverse the downward trend of sales.

In September 27th, H&M announced its third quarter results this year. Gross margins and sales were much lower than expected. Management means consumer confidence is sluggish. In the future, both the weather and the macroeconomic trend, the fashion retailing industry is facing great challenges.

In addition, H&M and Esprit are mainly Euro income, and the instability of the euro exchange rate also has pressure on performance.

What investors also criticised is executive pay.

Fan Deshi received an annual salary of HK $57 million last year, which is equivalent to an average of HK $27 thousand per hour in normal working hours.

With a profit of 79 million last year, if van der SOE gave up pay, Esprit's performance would soar by 72%.

Will the lost Esprit try to throttle? Obviously, it won't start from the management.

The newly signed CEO Max's latest salary guarantee is HK $40 million and another 5 million equity award.

From a market value of more than 100 billion to 15 billion now, rumors of Esprit being excluded from the Hang Seng index share appear from time to time.

The threat lies in losing souls, losing consumer trust and losing the status of blue chips.