How about this for a tale of two cities – and two retailing models? In Hong Kong, Esprit
lost its chief executive and chairman in one move, raising a large cloud over the fashion chain’s HK$18bn turnround plan. In Spain, Inditex – owner of Zara, beloved of office girls – blew past expectations for first-quarter sales and margin growth. The reality is more nuanced than it looks, however.
Inditex is famed for its fast-fashion model. Zara can produce and
sell hot items within days, and dump mistakes just as quickly. Esprit
relies on its wholesale unit for two-fifths of sales, a clunky supply
chain that requires fashion bets far in advance. The Hong Kong-listed
company’s latest woes are not its business model, however, but the men
who were trying to change it. Ronald van der Vis has resigned to “pursue
other interests”. No wonder its shares fell 20 per cent: fortysomething
CEOs in their first job should not need “other interests” after
championing a turnround that has yet to produce results. Esprit’s shares
had gained a third this year in the belief that Mr van der Vis and
chairman Hans-Joachim Körber could deliver. That belief looked
unjustified: Esprit’s sales fell 9 per cent year-on-year in the last
update, against a flat reading last year.
By
contrast, Inditex looked in sparkling form. First-quarter sales were up
14 per cent in local currencies and gross margins were 60.2 per cent,
compared with 58.8 per cent a year earlier. Store expansion, though, is
relentless, so like-for-like sales growth was probably nearer 5 per cent
after allowing for an extra February trading day. That is still very
good for a business that drew one-quarter of store sales from ailing
Spain in 2011 and 45 per cent from the rest of Europe. But while the
company said pricing was stable, it was coy on whether the quarter saw
reduced markdowns or a deflationary impact on sourcing.
Retailers should be more upfront with investors. In particular,
Esprit should not ask them to accept as just a coincidence the exits of
two top bosses in one day.
Source: http://www.ft.com/intl/cms/s/3/0e0f27d2-b555-11e1-ad93-00144feabdc0.html#axzz1xmwH6vOe
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