Esprit Plans Bigger Stores, Buyout of China Venture

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Esprit Plans Bigger Stores, Buyout of China Venture (Update2)
BLOOMBERG NEWS By Frank Longid

Oct. 16 (Bloomberg) -- Esprit Holdings Ltd., the biggest Hong Kong-traded clothier, plans to open larger, redesigned stores and will seek control of its China venture to prepare for growth next year, Chairman Heinz Krogner said.

“I’d like to make many of these, I want to rush,” Krogner said in an interview at the opening of a 10,000-square-foot flagship store in Hong Kong’s Tsim Sha Tsui tourist and shopping district. “In Europe, they’ll be four times bigger.”

He plans to experiment with Esprit store layouts, starting with the Hong Kong outlet that opened yesterday, he added. Growth will be “flat” this half, with sales starting to rise from the middle of 2010, according to Krogner, 68, who steps down as chief executive officer at the end of the month.

“They’re looking to reposition themselves as a more upmarket franchise,” said Andrew Sullivan, a sales trader at Mainfirst Securities Hong Kong Ltd. “They won’t compete with Armani Exchange but they’re looking more toward that end of the market than the lower end.”

Esprit, a seller of casual clothing, accessories and cosmetics in more than 40 markets may open as many as 15 outlets of about 10,000 square feet each in Hong Kong, Krogner said. “We can do those in two years if we find the locations -- it’s not a question of rent, it’s a question of availability.”

Possible Buyout

The retailer “will start talking soon” with China Resources Enterprise Ltd., its China joint-venture partner, to discuss a buyout, Krogner said. The company is seeking to expand in China as Germany, its biggest market, “is not really out of recession.”

Germany’s economic recovery has so far depended largely on the government’s 2,500-euro ($3,700) payment to encourage consumers to scrap their old car to buy a new one, Krogner said. German investor confidence unexpectedly declined in October, according to the ZEW Center for European Economic Research.

The retailer’s stock rose 1 percent to HK$55.75 today. Esprit, the best performer on Hong Kong’s Hang Seng Index in the decade through 2008, has gained 27 percent this year, trailing the 52 percent gain of the benchmark index.

Esprit is perceived by some consumers as being in the same “retail space” as the less-expensive goods sold by Giordano International Holdings Ltd. and Bossini International Holdings Ltd., said Sullivan, who attended last night’s opening. The new store is meant “to further differentiate themselves from the Giordanos and portray themselves as being more trendy,” he added.

More Fun

Hong Kong television actress Fala Chen said in an interview last night that she likes the quality of Esprit’s clothes and that the new store is “trendier and more fun to shop in.”

The new Esprit outlet is on Tsim Sha Tsui’s Peking Road, where it jostles for attention with other brands such as Ermenegildo Zegna and Fendi. Adjacent Canton road offers brands including Chanel, Prada and Salvatore Ferragamo.

“The layout of the store is more upmarket than their other stores,” said Mainfirst’s Sullivan in a note to clients. “The street has high foot traffic.”

Peking Road is the main connection between the stores and hotels on Canton Road to Tsim Sha Tsui’s main shopping street, Nathan Road, as well as the area’s subway train station.

Esprit’s profit for the year ended June 30 fell 26 percent to HK$4.75 billion ($613 million), the first decline in more than a decade, on the economic slump in Europe, which accounts for 85 percent of the company’s sales. Krogner said in August that a recovery may be more than a year away and not to expect “miracles.”

‘We’ll Be Ready’

“We all have to suffer until the middle of 2010,” Krogner said last night. “From then onwards, I expect growth again and everything going in a better direction. And we’ll be ready.”

Esprit’s venture with China Resources has more than 1,100 self-operated and franchised stores in China, generating HK$2.7 billion in annual sales. China Resources said Sept. 3 it may sell its 51 percent stake in the venture as it seeks to focus on retail, food and beverage businesses.

“We are the natural successor,” Krogner said, declining to specify how much he would be willing to pay for the rest of the venture in which Esprit holds 49 percent.

The company, with financial headquarters in Hong Kong, plans to open a 40,000 square-foot store in Frankfurt in September. The performance of that outlet and the Hong Kong flagship will be assessed over a period of about three months.

“Then we will make a final decision on how our stores will look like in the future,” Krogner said.

The retailer, which makes 45 percent of its sales in Germany, plans to open as many as 15 stores in Hong Kong. “We want to be a major player” in the city which contributed 2.2 percent of Esprit’s HK$34.5 billion sales in the financial year ended June.

Krogner said he may focus on plans to acquire a luxury brand after Ronald Van der Vis takes over as CEO on Nov. 1. Esprit may spend $1 billion on an acquisition, he said in 2007. Last year, he said he had stopped looking amid the turmoil in the financial markets.

Last Updated: October 16, 2009 05:49 EDT

insanity1903

Wha. Always go into Esprit shops to look at clothes, but some doesnt look really nice to me. :X

Daniel95

Wha. My mother also likes to shop in Esprit shops