Fashion retailer Esprit Holdings (0330.HK) said first-half net profit fell 5.2% due to slowing retail and wholesale order growth in Europe where 85% of its business is based. The company is now looking to increase its presence in China where it hopes to tap the country’s growing consumer retail market.
Esprit said there is "vast potential" to increase penetration and market share by increasing its presence from a current 150 cities to 450 in the future. "We believe China will become one of the most important growth engines of the group in the medium term," the company said. In December Esprit bought the 51% stake in Esprit China held by its joint venture partner China Resources Enterprise (0291.HK) for US$500 million, looking to further increase control of its China operations.
Despite the downturn, China’s clothing retail sector has directly benefited from strong employment figures, growth in average urban incomes and robust private consumption. While sportswear makers such as Li Ning (2331.HK) or Xtep (1368.HK) showed robust performance in the run up to the Olympics and through 2009, over-extension into third- and fourth-tier cities could see depressed returns in the medium term. Mid- to high-end fashion plays will benefit from a more targeted sales approach and consumers’ awareness of brands and quality.