Esprit: A great HK business story about to end

April 29, 2020 11:44
Photo: Reuters

Esprit Holdings Ltd. (00330.HK), operator of one of the top fashion brands in Hong Kong during its heyday, is winding down its business in mainland China and closing all its 56 stores in Hong Kong, Macau, Taiwan, Singapore and Malaysia.

These are part of its worldwide efforts to cope with the economic ravages of the coronavirus pandemic, the company announced on Monday.

For sure, its troubles have been going on long before COVID-19 reared its ugly head and turned the world upside down.

Over the past year, I doubt if you even bothered to walk into one of its local outlets, where sales promotion was usually splashed on the display window.

But I’m sure bargain hunters would swoop down on its shops for the closing down sale – that is, if the public health situation continues to improve – and try to relive those glorious summer sales of yore when the label was among the favorites of Hong Kong shoppers.

Well, we all know that Esprit has been but a ghost of its former self in the years after billionaire Michael Ying Lee-yuen stepped down as its chairman in 2006 and its grandeur has lived only in the fond memory of its fans.

I am not one of its fans but I used to cover the company as a business reporter for the Hong Kong Economic Journal in the mid-‘90s when it was trading for only HK$2, still nearly three times its current share price.

I remember it was under Ying’s leadership that Esprit started soaring and became a blue-chip stock in 2002. Its glory days reached the peak in 2007 when it became a US$30 billion company, but it has since declined. It was kicked out of the Hang Seng Index in 2013.

However, Ying, ever the shrewd businessman, had cashed out of the company long before that happened. From 2004 to 2006, the billionaire managed to sell most of his shares in the company, reaping more than HK$15 billion.

His last major stake sale was in 2010, when he cashed out 86 million shares at HK$54 each. And in 2017, he transferred his remaining shares in the company to his two daughters.

When Ying took the helm at Esprit in 1993, the company was just a tiny retailer, a franchisee of a US fashion group with an annual turnover of less than US$100 million. The shares then were trading at around HK$3.

Ying then managed to buy out the US franchise and started turning it into a global retailer. The company soon expanded into Europe, which eventually became its biggest revenue contributor.

Years after his departure, Esprit seemed to head into all sorts of problems. The Esprit brand started to wane in the Hong Kong market. Many Esprit outlets were closed amid intense competition with bigger rivals such as Uniqlo, Zara and H&M.

Its decision to wind down its business in mainland China and exit the rest of Asia was but the latest in a series of steps to “streamline its business operations in order to minimize costs and expenses”.

After all, Singapore, Malaysia, Taiwan, Hong Kong and Macau contributed only about HK$267 million, less than 4 percent of the group's revenue, for the nine months to March 31.

It also filed for bankruptcy protection for six German subsidiaries.

After the restructuring exercise, which is expected to cost up to HK$200 million, Esprit will be left with a joint venture business in China and some wholesale and license businesses in Asia, allowing it to focus more on its core markets in Europe.

“The company is also negotiating with landlords across all its markets to seek rental relief, rent reductions and better terms and will terminate stores with rental terms that could not provide viable business performance,” Esprit said, adding that it will tap government assistance where available.

So that’s more or less the ending of one of the great business stories in Hong Kong, which will leave a lot of heartaches among local investors.

For its former chairman, however, it was fun while it lasted.

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EJ Insight writer