Esprit plans online sales system as retailer expands in China

Esprit Holdings Ltd., the biggest Hong Kong-listed clothier, may set up an online sales network in China as it pushes expansion in the world s most populous nation, where it says margins are similar to those in Europe.

Chinese spending on casual clothing is growing and Esprit is likely to see a stronger influence from China in future fashion collections, Chief Executive Officer Ronald van der Vis, who took over in November, said in an interview. The retailer will also review if its pricing is too high in China, where it intends to focus expansion efforts, he said.

There s a huge market in the mid-range apparel category in China, CLSA Asia-Pacific Markets analyst Aaron Fischer said in a phone interview. There s huge opportunity in growing the top line, moving to new cities and also refining the product offering and the pricing strategy.

The retailer of jeans, blouses and cosmetics that makes 85 percent of its sales in Europe has operated in China for the past decade with a partner it s now buying out. Van der Vis also wouldn t exclude the possibility of pulling out of markets where the Esprit has a small presence as he focuses on China, which may grow more than six times faster than the eurozone this year.

We have a very good platform for our e-commerce sales, the same platform we have rolled out to North America, Van der Vis said. We have an extremely solid platform for fulfillment in Europe and we are looking now at opportunities and possibilities to find partners to build that fulfillment in China, the world s biggest Internet market with more than 380 million users.

Esprit fell 0.2 percent to HK$57.80 at 11:16 a.m. in Hong Kong while the benchmark Hang Seng Index slid 1.1 percent. The stock surged 7.9 percent yesterday after the company posted fiscal first-half profit that beat analyst estimates.

The clothier, with outlets in more than 40 countries, agreed in December to pay HK$3.88 billion for the 51 percent stake that China Resources Enterprise Ltd. holds in their venture in mainland China.

Sales from the venture Esprit China totaled HK$1.34 billion in the fiscal first half, of which 63 percent were derived from the retail business and the rest from wholesale. The retailer added 28 new stores globally in the fiscal six months to December. It will expand to more than 450 cities in China from the present 150, it said yesterday.

Esprit will open larger stores and will maintain retail space growth of between 5 and 10 percent, Van der Vis said late yesterday. The typical cost of building a new store is about 1,500 euro ($2,100) per square meter, he said.

In China, we have used it as a premium brand more or less, but going forward, we might say, we want to catch a bigger part of the market and that is currently under review, Van der Vis said. We definitely do not want to position as a premium brand; we like upmarket.

The company will also review markets where a small number of shops translate into inefficiencies and no expansion is warranted, Van der Vis said.

Priority is organic growth and it s China, that s clearly the priority, Van der Vis said, adding denim and accessories remain the untapped potential business areas for the retailer globally.

As a casual brand, you need to be known for your denim, Van der Vis said. It needs to be perfect. It s hugely important getting that right.

Esprit s net income in the six months ended December fell 5.2 percent to HK$2.7 billion ($348 million), compared with the HK$2.26 billion mean estimate of four analysts surveyed by Bloomberg. Earnings were boosted by retail sales, which rose 9.5 percent to HK$9.64 billion while wholesale revenue, which includes transactions at department-store counters and so-called multi-brand stores, fell 14 percent to HK$8.74 billion.

Sales in Europe, which accounted for 85 percent of the total, fell 3.1 percent to HK$15.7 billion in the fiscal first half. Asia-Pacific sales fell 5.3 percent to HK$2.18 billion and revenue from North America and elsewhere rose 6.2 percent to HK$592 million.

The eurozone may expand 1.4 percent this year, according to the median forecast of 57 economists surveyed by Bloomberg. China may grow 9.61 percent, according to the median forecast of 39 economists.

The company plans to start consolidating the earnings of its China unit, which has more than 900 points of sales, by the end of this month. Esprit competes against Hennes & Mauritz AB and Fast Retailing Co. s Uniqlo chain in China.

The women s casual fashion line, and home and lifestyle products are the fastest growing businesses for Esprit in China, he said. China is also the world s biggest Internet market with more than 380 million users.

We would have loved to buy back China for many, many years, Van der Vis said. Now we own the brand, the destiny is in our own hands and it s of tremendous value to us.