Esprit to exit Australia, New Zealand

espirit, outletDiscretionary retail conditions have claimed another scalp, with global fashion brand Esprit announcing the closure of its business in Australia and New Zealand.

The move will see 16 retail stores, 38 concessions, 13 factory outlets and Esprit’s local platform close by the end of 2018.

The German headquartered but Hong Kong listed business said on Thursday that its ANZ operations have been loss making for some time.

“Esprit’s operations in Australia and New Zealand have been loss making for some time, despite intensive efforts made by the teams in the past years to turnaround its business,” executive director and group CFO Thomas Tang said.

“In order to strengthen our foundation, the Group intends to withdraw from these markets and this will allow us to concentrate efforts and resources to develop other markets in Asia.”

Esprit, which has been operating in Australia since the 1980s, booked around $50 million in sales from the region last financial year, less than two per cent of the company’s global revenues.

The retailer said it is committed to fulfilling “all obligations” to its 350 ANZ employees.

Esprit’s director of operations in ANZ said the decision is “unfortunate but unavoidable”. Gift card purchases will also be honoured until the closure.

“Our thanks go to our highly committed, loyal and passionate employees, and to our customers who have supported the Espirit brand,” he said.

The exit is expected to cost Esprit between HK$150-200 million (AUD$25-33 million) in store closure provisions and store asset impairments.

“The board considers that the rationalisation of the distribution footprint continues to be paramount in order to improve our bottom line, and that the intended divestment of the ANZ operations will allow Esprit to recharge its profit potential in the Asia Pacific region,”Esprit said in a statement to the Hong Kong stock exchange on Thursday.

The closures come as pressure ramps up in the discretionary retail sector as low wage growth, high cost of living pressures and record levels of household debt weigh on shoppers.

The clothing, footwear and personal accessories category struggled in 2017, booking total turnover growth for the year of just 1.5 per cent, less than half the ten year average annual growth rate of 3.5 per cent, according to ABS data.

Esprit will clear its local stock between now and the end of the year, which will likely further deepen the discounting malaise already hanging over the apparel category.

Euromonitor senior research analyst Hianyang Chang said Esprit’s decision to exit ANZ was unsurprising.

“Esprit is the latest apparel and footwear retailer to fall victim to Australia’s competitive retail market, alongside other retailers such as Topshop, Marcs and David Lawrence,” he said. “The global fashion retailer’s decision to exit the Australian and New Zealand market was not surprising.”

“Fast-fashion giants such as Zara and H&M, which offer on-trend clothing at rock bottom prices that have resonated better with Australians. Furthermore, high rental, wage, transport and distribution costs have also made it expensive to operate in Australia.”

Queensland University of Technology associate professor Gary Mortimer said that the Australian fashion industry appeared to be “splintering” into fast fashion or up-market premium offers.

“Australian’s hunger for fashion appears to be splintering into fast fashion that offers reasonable pricing on the last styles, luxury fashion that leverages brand equity and fashion basics,” Mortimer said.

“Esprit was great in the 1980’s with their cutting edge styles and strong colours – however, their core customer is now in the 50’s or 60’s and their fashion tastes have changed.”

UPDATED: 4/05/2018 17:06 AEST – updated quote to clarify that while Topshop fell into administration it still operates in Australia.

More to come.

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