- By Region
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.
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