A Proposal of Reform Plan
to Esprit Holdings Ltd.
Dec 24, 2012
Jose Manuel Martínez Gutiérrez
The Group Chief Executive Officer
Esprit Holdings Ltd.
ContentsIntroductionExecutive SummaryProblems Identification1 Declining trend in sales and profit2 Macroeconomic analysis3 Competitive analysis 4 Supply Chain5 Product6 Summary of problemsObjective of the proposalPlan of Action1 Expansion of Emerging Market2 Product design and promotion for new market3 Customer Diversification for Existing Market4 Pricing Strategy5 Improvement of delivery time6 Internet retailingRisk of the action planBudgeting and Scheduling ConclusionAppendices Appendix 1-3 Esprit and competitors (No. of stores,,Revenue,Oper. Margin)Appendix 4 Staffing Reference
Esprit Holdings Limited is the fastest-growing fashion brand in the world which primarily engaged in manufacturing and distributing fashionable and quality apparel. Esprit Holdings distribute their products worldwide around the world which they have 770 retail stores spread across Europe, Asia Pacific and North America. In recent years, Esprit also expanded aggressively in China market.
However, Esprit had slow response to market changes and the fashion trend. Under the fierce competition in the clothing industry, Esprit has been losing appeal to consumers.
This proposal aims to analyze the problems Esprit facing and possible solutions will be suggested in order to help Esprit regain the market share and the brand image.
Due to the poor economy, strong competitors, slow delivery time, and old-style product, Esprit’ sales decreased 10.6% while sales has decreased 74.4% from 2010 to 2012. Remedies are necessary to manage the worsening situation and to turn profit and sales decrease to increase.
To improve the situation, Esprit should expand its market to China and India, because of their fast GDP growth and middle-class income growth. Localization, hiring local designers, and local stars for promotion, is essential to increase popularity in new market. Also, enhancing customers’ base can help Esprit increase its income diversification and market share. At the same time, price should be reduced to maintain its competitiveness in the market. And internet retailing should to be expanded and delivery time should be cut so as to reduce cost of operation and increase efficiency in operation.
This overhauling plan will last for five years and be expected to achieve break-even and generate profit in the third year.
1 Declining trend in sales and profit
By investigating the annual report provided by Esprit, there are serious problems reflected in the financial statement.
Firstly, fewer customers desire to purchase Esprit product. According to the consolidated income statement in the annual report, sales turnover in terms of HK$ decreased from $33734m in 2010 to $30165m in 2012 which is totally declined by 10.6%.
Secondly, Esprit becomes less profitable compared to the past. According to the financial highlights in the annual report, net profit decreased from HKD$2140m to HKD$555m which dramatically declined by 74.1%.
In the following part of the proposal, the reasons of the declining trend in both sales and profit will be illustrated.
2 Macroeconomic analysis
As one of the largest retailer, Esprit operates in diverse markets including Europe, Asia Pacific and North America and its percentage of geographical turnover in 2011are 79%, 17% and 4% for Europe, Asia and North America respectively. This implied that performance of Esprit largely depends on the profitability and sales of Europe and Asia. Economic situation of Europe and Asia pose a significant impact to the turnover of Esprit products as well as its overall performance. Due to the European debt crisis, nominal GDP of Europe decreased around 12% from 2008 to 2010, which implied that income of...
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