Chinese clothing group Esprit will not succeed in annually cutting costs of one billion Hong Kong dollar, about a hundred million euro, by 2015. According to new CEO Jose Manuel Martinez Gutierrez they are no longer applicable.
Savings “outdated” but still continuing
The goals were set in a reorganisation plan in 2011, made by then CEO Ronald Van der Vis. They were necessary to get the onerous company, mostly active in Europe, back on the rails.
Esprit wanted to improve its results by closing down unprofitable activities: unprofitable production lines, unprofitable stores and even whole unprofitable countries, were left behind. The new CEO Jose Manuel Martinez Gutierrez said at an investors' day in Germany he want to keep operating costs under 50% of the turnover.
This financial year, which ends at the end of June, Esprit is expecting a substantial loss, mainly due to the costs for closing loss making shops and write-offs of goodwill. The company has also spent more on advertising and on upgrading the remaining shops to compete better with H&M and Zara.
Turnaround thanks to China
A turnaround is expected for next year at the earliest and it will not be easy: by closing a number of shops sales of the company keep on dropping. Across the first nine months of the fiscal year sales dropped by 15.5% to 20.3 billion dollar or two billion euro.
To turn the tide, Esprit wants to start focusing on mainland China. It wants to have sales worth of 600 million euro by 2015 in China, four times more than today. At the moment the opening of new shops is slowed down, but “once we reach a certain level, we will speed up again,” said Gutierrez.