Reduce Physical Stores, Online Retail Downturn, Giordano International Epidemic Is Also Difficult To Resist

Whether it's a casual group or a working family or child, you can find suitable clothes in Giordano (00709-HK).

Giordano's brand includes young fashion brands, children's wear brands, senior men's wear brands and advanced women's wear brands. The diversified product mix has set up a huge network of operations since China's mainland nearly 30 years ago, and has a large number of consumers in China.

But in recent years, the industry competition and the impact of the electricity supplier, Giordano has been difficult to return to the performance of the year. Especially since the outbreak this year, Giordano's business performance has regressed.

(Giordano official website screenshot)

Sales fell sharply in the first quarter, 34.6%

Recently, Giordano announced its first quarter results in 2020. The report shows that Giordano's sales in the period were HK $849 million, a decrease of 34.6% over the same period last year. If converted at a fixed exchange rate, it will fall by 33%.

In the first quarter of this year, the epidemic spread to China all over the world, and many world clothing retailers closed their customers. Under such circumstances, Giordano, which is in Asia Pacific region (including China) and the Middle East, is also unlucky to escape. The sales volume of all entity stores in the first quarter of this year was HK $691 million, a year-on-year decline of 34.5%, which is similar to the total sales volume of the company.

As of March 31, 2020, Giordano had 248 direct outlets in mainland China. Since late January, Giordano has temporarily suspended operations in many direct outlets in mainland China. During the peak of the epidemic, a total of 174 Chinese mainland outlets were suspended. No doubt, in the first quarter, Giordano's business in mainland China and Hong Kong and Macao was the most affected. With the Sino US trade disputes and regional social events in 2019, the first quarter of this year was Giordano's worsening season.

The number of stores in the first quarter was 1.5 times that of last year.

Many factors have affected Giordano's business in mainland China and Hong Kong and Macao markets. In its 2019 annual report, Giordano said it would adopt a more cautious attitude towards Mainland China and Hongkong. On the contrary, the company plans to actively expand overseas markets, especially the developing markets in the Middle East and Southeast Asia, such as Indonesia and Vietnam.

Since 2018, Giordano has seen signs of declining sales in mainland China and Hong Kong and Macao markets. Among them, sales from mainland China decreased by 23.87% from HK $1 billion 307 million in 2017 to HK $995 million in 2019, accounting for 3.6 percentage points in revenue and 20.33% from HK $969 million in 2017 to HK $772 million in 2019. Under the pressure of Sino US trade friction, regional social events and unusually warm winter, Giordano International's sales in mainland China and Hong Kong and Macao market are sluggish, so the company has to accelerate the reduction of the physical stores in the two markets. In 2019, Giordano reduced 35 and 3 stores in mainland China and Hong Kong and Macao markets respectively.

In the first quarter of this year, the impact of the epidemic is even more severe. The sales volume of the two markets is also the most serious. During the reporting period, the sales volume of the mainland China market was HK $151 million, down 48.81% compared with the same period last year, and the sales volume in Hong Kong and Macao market was HK $110 million, down 51.11% compared with the same period last year. To this end, Giordano accelerated the closure process of the two markets. In the first quarter, 93 entities were reduced in mainland China, and 7 entities were reduced in Hong Kong and Macao.

Under the challenging business environment, Giordano has also reduced the number of overseas entities to varying degrees. In the first quarter of this year, Giordano has reduced 128 stores by more than 51 stores in 2019, a 1.5 fold reduction in 2019.

In fact, not only is Giordano forced to reduce the scale of its business in China, but also under the influence of the environment, many brands of shoes and footwear enterprises have sharply reduced the sales outlets in the Chinese market. For example, the "women's shoe king" Daphne (00210-HK) closed 2288 sales outlets in 2019. Under the epidemic situation, more than 90% of the core brands were closed down; in the 2020 half fiscal year, 03306-HK closed 25 stores to 1993; CABBEEN (02030-HK) closed 23 retail stores in 2019.

In the face of operational challenges, Giordano is not only to reduce physical stores to respond, but also to maintain operations through various measures. Giordano announced in March 9th that many executives and other team management members voluntarily reduced their salaries by 10%-50%. In addition, the company also sought to reduce rent and reduce the rent of the market with the owners, and sought more favorable conditions for suppliers.

In recent years, China's domestic market has been seriously declining. Giordano is trying to increase its market in the Middle East and other parts of the Asia Pacific region and seek growth. In September last year, Giordano purchased $51% of the remaining 51% legal rights and 20% economic interests of Giordano brand Giordano UAE in the Middle East in order to strengthen retail and distribution of Giordano brand goods.

But in the past two years, Giordano has not increased the layout of stores outside mainland China and Hong Kong and Macao markets, but on the contrary, it has shown a downward trend. In 2017, Giordano's stores in other parts of the Asia Pacific region and the Middle East were 602 and 189, respectively, to 597 and 181 in 2019.

No increase in retail sales on Downline

During the period when the epidemic was not effectively controlled, consumer groups in China chose to fight epidemic at home, and the sharp decline of retail sales under the line was a foregone conclusion, but online retailing was not affected.

According to Statistics Bureau, in the first quarter of this year, China's online retail sales reached 22169 billion yuan, down 0.8% from the same period last year. Among them, online retail sales of physical goods amounted to 18536 billion yuan, an increase of 5.9%. In online retail sales of physical commodities, the consumption and consumption of goods increased by 32.7% and 10% respectively, while the wearing goods decreased by 15.1%.

Although industry online retail has declined, but Anta (02020-HK), Lining (02331-HK) and other brands through the war line, online business growth trend, Anta in the first quarter of this year, the overall online growth rate of more than 40%.

In the first quarter of, Giordano's online sales volume was HK $59 million, down 18.06% compared to the same period last year. The decline was more than the decline of online retail sales of domestic apparel products. This shows that Giordano has not made any progress in online retail, but has become a drag on the first quarter results.

Giordano, which has no advantage in the electricity supplier field, is being challenged. Giordano once said in the announcement: "the competition is fierce on the line, especially the third party platform. The rise in operating costs has further aggravated the situation. The management maintains to improve product mix and continue to expand e-commerce in other parts of the Asia Pacific market to consolidate our e-commerce business.

According to industry analysts, Giordano, as the originator of casual wear, has contributed to the growth of domestic brands. But due to the lack of innovation and change, and the lack of iterative synchronization with China's consumer market, and the impact of a large number of domestic leisure brands and international fast fashion brands such as UNIQLO and ZARA, and the rise of e-commerce online business, Giordano has been seriously shrinking in the domestic market. In the future, if Giordano wants to continue to grow, it should continue to enhance its competitiveness and rationalize product costs and operating costs.