ANALYSIS_ Hong Kong listed Giordano International plans to push its main label upmarket and raise prices by 10 to 15 percent over the next two years, giving way to its spin-off brand Beau Monde to focus on affordable apparel staples.
“What’s holding us back is two things. The first one is memory but secondly, our locations,” Chief executive Peter Lau Kwok-keun said. “We have stores where we shouldn’t have entered, at supermarkets or what we call B-minus locations,” Lau further elaborated Lau at the company’s annual results briefing.
The top executive at the Hong Kong listed apparel group publically acknowledged Giordano’s struggles with a mass market image problem due to its rapid expansion into the mainland.
“Imagine if Louis Vuitton had a small outlet in Sham Shui Po – what it would do to their brand equity. We want Beau Monde to take Giordano’s place at those supermarket locations and in two years’ time hope that Giordano will be at B or B+ locations,” he said.
Giordano pushes namesake brand upscale to regain mainland China
The Beau Monde label, which will launch in the mainland in the second quarter, sells lower cost basic apparel. “It will be a bit more like the Giordano you remember from way back when,” Lau said.
Giordano International (0709) saw annual net profit plunge by a fifth to 660 million Hong Kong dollars due to weak mainland sales and warned of more challenges ahead. Excluding the 143 million Hong Kong dollars disposal gains in 2012, profit for the year ended December 31 went down by 3 percent.
Earnings per share (EPS) were 42.6 Hong Kong cents. A final dividend of 24 Hong Kong cents was declared, taking the whole-year payout to 40 Hong Kong dollars, the same as in 2012 as highlighted by the ‘South China Morning Post’.
On the wake of the news, the firm’s shares rose 2.8 percent to 5.12 Hong Kong dollars, nearly doubling broader local benchmark index Hang Seng Index, which closed the session with gains of 1.74 percent. Tycoon Cheng Yu- tung remains as Giordano’s largest stakeholder.
In the mid-term, the apparel group faces certain challenges in their main market, mainly due to high rents in Hong Kong and a the wrong brand positioning in mainland China.
“Excess inventory, over- capacity of retail space and rising competition online will continue to depress the ability of retailers to grow volume and margins,” the company’s CEO said, stressing however that profit could only be maintained if sales grew by double digits amid soaring rents in the South Asia market.
Looking beyond the China’s broader market, Giordano sees great room for growth in the Middle East, where sales multiplied nearly by the sixfold to 632 million Hong Kong dollars last year. “We see a lot of potential in the UAE for the 2020 World Expo and of course, Doha building up for the World Cup,” managing director for Giordano Middle East Ishwar Chugani said.