Slimmer Giordano weathers storm

Value apparel chain Giordano International has overcome store closures and currency declines, to turn a solid set of numbers for 2015.

Consolidated sales eased 3 per cent but increased by 1 per cent on a constant currency basis and comparable same-store sales grew by 3 per cent.

As a strong Chinese New Year offset the impact of 81 store closures, brand sales in the first half of the year grew by 1 per cent. But in the second half there was a 3 per cent drop because of unseasonably warm weather in Greater China.

Gross profit margin declined by 0.4 percentage points to 57.6 per cent, with higher purchasing costs caused by a strong US dollar eroding margins in Southeast Asia and Taiwan.

“Weak consumer demand in many markets has led to fierce competitive pressure on selling
prices,” said the group.

Nevertheless, in the second half of the year, improved purchasing and merchandising resulted in gross margin improving from 57.4 to 57.9 per cent.

During the year the group rationalised its shop portfolio, dropping 81 unprofitable outlets for an end total of 2371. This improved earnings by HK$57 million (US$7.3 million).

“Consumer demand last year was weak across nearly all the markets in which Giordano does business,” said the group. “A slowdown in economic growth in mainland China and Asian currencies weakening against a strong dollar have resulted in difficult trading conditions in our core markets. We do not foresee any changes in these external conditions this year.”

However, the company says progress has been made in China in several areas during the year. The closure of poorly performing shops has significantly increased profitability in the market, and more contract renewals this year are expected to present opportunities to complete this process.

Positive same-store sales will be enhanced by growth in the number of outlets, particularly in third- and fourth-tier cities, where Giordano sees plenty of opportunity for franchisees. The growth in the number of franchisee outlets last year is expected to continue.

Also during the year the group developed several brands to broaden customer appeal. It says the Giordano Junior brand will be developed similar to its core men’s and women’s brands, but with more emphasis on value and universality and less focus on fashion elements in the design.

“Giordano Ladies has developed from a Hong Kong-focussed brand to a global brand, although Hong Kong remains a key profitable market.”

Giordano says much work has been done to clear obsolete inventory and train personnel in international markets, which should bear fruit this year.

Beau Monde, its budget brand in greater China, has undergone development activity and is expected to be a profitable, growing brand this year. Meanwhile, the women’s line Eula, developed for China, has not been successful so has been dropped.

“Market conditions in Southeast Asia have been challenging in the past two years. During 2015, we significantly improved merchandising, and therefore profitability, in Singapore, but this will be a tough market going forward.

“While there are still opportunities to grow in developing markets such as Malaysia, Indonesia and Thailand, these opportunities are fading. In Vietnam, the company hopes to establish a legal entity this year to support its steady growth strategy in the emerging market,” it reported.

Also this year the group plans to start establishing digital sales channels outside Mainland China, initially through developing eShops.

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