Esprit in further decline

Esprit store facade
Photo: Vytautas Kielaitis / Shutterstock.com

Esprit looks back on a tumultuous year: while turnover fell by almost a quarter, losses doubled. The corona crisis came on top of far-reaching restructurings and a transformation plan that has been dragging on for years.

 

Close to break-even for a while

Despite continued attempts at a turnaround, which have been underway since 2018, business gets even worse for Esprit. Turnover fell by 23.7% to 9.87 billion Hong Kong dollar (1.08 billion euros) in the last financial year ending 30 June, while the underlying operating loss almost doubled to 1.1 billion Hong Kong dollar (120 million euros).
 

However, as the corona crisis dominated the second half of the year, the fashion retailer split the year in two. In the first half, before the corona pandemic, the group - which has Germany as its core market but is based in Hong Kong - claims to have performed in line with expectations. Esprit was close to break-even at the time, thanks to an improvement in gross profit of around 150 million euros.
 

"These early signs of improvement gave management confidence that they were on the right track", the press release states, but then Covid-19 broke loose. In the first half of the year there was a plan to continue with fewer stores and retail sales in Europe fell by 13%. Over the year as a whole, European retail sales plummeted by 29%.

 

China lost, e-commerce down

In March, the fashion group had to apply for protection through insolvency proceedings in Germany, which in turn led to the closure of half of German stores and the divestment of almost all markets in Asia. To make matters worse, the company also lost its Chinese joint venture partner, which meant that Esprit now no longer has stores in the fashion-important China.
 

In addition, the fashion label has failed to grow online, which was the lifesaver for virtually all retailers during the corona crisis. Online sales declined by 9% in the past financial year, in its own words because the company did not participate in the discounts offered by other retailers. Esprit has a new strategy in which it wants to sell more at full price and offer fewer discounts, but that went wrong during the pandemic and bargain days such as Black Friday.
 

Not surprisingly, expectations for the next financial year are also low. From now on, Esprit wants to focus more on wholesale, the group's most important markets, and on the further closure of loss-making stores. The group is convinced that restructuring is necessary, but is therefore assuming "reduced profitability" and even further declining sales. It is only in the financial year 21/22 that the company hopes to return to profitability.