Case 4:
Global success of Hong Kong clothing wholesaler and retailer, Esprit
One of the few companies in Asia outside of Japan with a strong international brand
name is Esprit, a clothing wholesaler and retailer group with its headquarters in Hong
Kong. It uses a highly stream-lined business model and international customer base
involving buying clothing from third-party suppliers in China and selling to franchisees
in its target markets, thereby minimising overheads and avoiding high capital
commitment for the retail network (Mackay, 2003). ESPRIT is a leading international
lifestyle fashion brand name portraying quality and lifestyle products within an extensive
range of women’s, men’s and children’s apparel, footwear, accessories ranging from
watches, jewelry and fragrance to bedding and other home products. The Esprit group
also controls the RED EARTH brand name and distributes its cosmetics, skin and body
care products mostly in Asia Pacific. In 2003, the Esprit Group operations covered 43
countries spanning five continents with 7,300 outlets of which about 500 are directly
managed, over 2,000 are franchised shops and the remainder are free-standing
department store shop-in-shops giving a total retail space of about 3 m. square feet
(Mackay, 2003).
Esprit Holdings Limited became a listed company on the Hong Kong Stock Exchange in
1993 (SEHK: 330) and has been on the secondary listing on the London Stock Exchange
since December 1998 (LSE: EPT LI). It is also a constituent stock of the Hang Seng
Index and Morgan Stanley’s MSCI Hong Kong Index.
Executive board members
•
Michael Ying Lee Yuen is Chairman and, with over 30 years of experience in the
apparel industry, he is responsible for corporate strategy. He owns 42% of the
company shares.
•
Heinz Jürgen Krogner-Kornalik is Deputy Chairman and Chief Executive having
joined the group in 1995. He has a degree in business administration and industrial
engineering and previous experience as a management consultant for Kurt Salmon
Associates as well as executive positions with several textile firms.
•
John Poon Cho Ming is Chief Financial Officer (CFO) and Company Secretary. He
joined the group in 1999 with extensive experience in corporate management, finance
and legal affairs in Hong Kong, the UK and Canada.
•
Chibber Surinder is Deputy Chairman responsible for the Asian wholesale operation.
He joined the group in 1987 and has over 20 years of experience in the garment
industry.
•
Thomas Johannes Grote has overall responsibility for the group’s wholesale
operations. He completed business studies in 1987 and thereafter worked for a
German textile printing company for six years. Grote joined Esprit in 1990 as key
account manager for the accessories division and was later promoted to sales
manager. In 1992, he left to work for In-wear in Germany as sales manager of the
men’s division and was promoted to managing director. Grote returned to the group
in 1996.
2
•
Connie Wong Chin Tzi is responsible for Taiwan operations. Prior to joining the
group in 1979, she worked in the Asian buying office of a major US department store
group for over eight years.
Performance
Esprit Holdings has performed well with global sales rising by a third on the previous
year to a record turnover of HK$12.4 billion (US$ 1.60 bn.) for the year to 30 June 2003.
Net profits increased by 28% of HK$ 1.19 bn. (US$ 153 m.), an increase of 28% on the
previous year (see Table 1). Table 2 shows that 80% of sales were in Europe with Asia
having 13%, Australasia 5% and North America for 2.4% of total sales in 2003 (see
Table 2). Germany is Esprit’s largest wholesale market.
The company achieved a high rate of return on capital and paid good dividends in
September 2003. On the 10th anniversary of its Initial Public Offering (IPO) on the Hong
Kong stock exchange, it gave its shareholders an additional dividend of HK30 cents,
taking the full year payment to HK70 cents making earnings per share increase by 25%
over the year. The share price rose by 64% in 2003 alone.
As part of its public relations promotion and in recognition of the company’s success
since becoming an IPO, vouchers to be redeemed at Esprit stores were distributed to
analysts and media attending the AGM. Their value of HK$330 mirrored the company’s
code on the Hong Kong exchange.
3
Stock market analysts consider Esprit’s future growth looks strong and have been
impressed by its ability to deliver on its financial promises. “This is one of the few
companies on the exchange that can justify its rising share price and a valuation of 17
times earnings,” according to Charles Dutton of JP Morgan (Mackay, 2003). Provision
has been made for capital expenditure of about HK$600 m. (US$ 77 m.) over the next
financial year, primarily in Europe for new showrooms and a global business
headquarters in Ratingen, Germany.
Under the management of the chief executive, Heinz Krogner, Esprit has out-performed
rivals such as the Swedish Hennes & Mauritz (H&M) and Benetton of Italy. Kroger
predicts double digit growth to continue in 2003-2004. “We are going to expand in
France, the UK and the US where we plan to open five stores in and near New York by
the end of next year” (Mackay, 2003). More growth is expected in Germany and the
Benelux countries as well.
However, Esprit’s performance has not been entirely rose with losses in Hong Kong, the
UK and Canada. While in the Far East, the outbreak of the Sars epidemic did not affect
Esprit as adversely as it had other regional rivals, performance continued to be below that
for Continental Europe. Retail sales in Hong Kong were 7% lower than the previous year.
The target is to reduce those losses by half in the coming year. Esprit plans to target
efforts on its joint venture in China where it has 600 point-of-sales outlets totaling 53,000
sq. m.
4
Table 1: Performance over 10 years
Financial measure
Market capital* (HK$ m.)
Share price* (HKS)
Turnover (HK$ m.)
Net profit (HK$ m.)
1992/93
1,463
1.95
770
79
2002/03
25,933
21.80
12,381
1,186
Multiple
18
11
16
15
*At IPO and at close on 17.9.2003
Source: Esprit Holdings Limited
Table 2: Turnover by region (2003)
Region
Europe
Asia
Australasia
North America and other
Total turnover
% share of
total turnover
79.5
13.2
4.9
2.4
HK$12.4 bn.
Source: Esprit Holdings Limited
References
Mackay, A. (2003) ‘Esprit celebrates its anniversary in style’, 19 September, p. 17.
Websites
http://www.esprit.com/company/profile.cfm
endconsumer@esprit.com
info@esprit-online.com
Company contact addresses
Esprit Asia (Distribution) Ltd.
10th Floor, 11 Yuk Yat Street
Tokwawan
Kowloon
Hong Kong
Tel.: +852.2764 2000
Fax.: +852.2764 2875
5
Esprit Europe GmbH
40842 Ratingen
Germany
Tel.: +49 (0) 2102 123 0
Fax.: +49 (0) 2102 123 15 100
Abbreviations
IPO
Initial Public Offering (in Stock Exchange)
CFO
Chief Financial Officer
H&M
Hennes & Mauritz
LSE
London Stock Exchange
SEHK
Hong Kong Stock Exchange
6
Discussion topics and answer guide
1. With the large market on its door-steps why do firms such as Esprit, based in the Far
East, find it desirable to undertake global expansion to Europe and North America?
2. What are the lessons to be learnt from Esprit’s experience in marketing in Europe?
3. What challenges do firms such as Esprit face in expanding across borders within the
European Union?
4. What strategic marketing approach is Esprit management following in its drive for
sales and profits growth? Possibilities might include any of the following:
•
global expansion
•
market segmentation, targeting and positioning
•
cost focus??
•
market penetration
•
market development
•
product differentiation in established markets
Marilyn A. Stone
Intwebsite/Esprit4/
16.12.2003
Word count: 1,263
7