Esprit Group will be closing all 56 retail stores in Asia outside mainland China, specifically Singapore, Malaysia, Taiwan, Hong Kong and Macau. The company is winding down its business as part of its restructuring initiatives to focus resources and recalibrate operations in order to cope with the challenges posed by the pandemic effectively and efficiently. The streamlining of business operations is done to minimise costs and expenses, the fashion retailer said.
For the nine months ended 31 March 2020, the 56 stores contributed approximately HK$267 (SG$489) million to the group’s revenue, representing less than 4% of the group’s total revenue for the relevant period. According to Esprit, the proposed store closure is expected to be completed by the end of this financial year.
After the proposed store closure, the group will continue its joint venture business in China as well as its wholesale and license business in Asia, and focus on its core markets in Europe. The retailer also said that a preliminary assessment by the company’s management revealed that the proposed store closure will result in exceptional one-off costs for store closures, impairment of assets and inventories and for staff severance payments in the range of HK$150 million (SG$274m) to HK$200 million (SG$366m).
The one-off costs will have a negative impact on the group's results for the full financial year ending 30 June 2020, the company said.
In addition, to mitigate the impact on the company’s financial performance, Esprit’s management will be taking a voluntary pay reduction. The executive chairman of the board and the group chief executive officer will be forgoing their remuneration during the restructuring period. For the same period, the executive management team will be taking a 35% reduction, while SVP and VP have accepted a 25% reduction of their respective salaries, and the non-executive directors (including independent non-executive directors) will take a 20% reduction of their directors’ fees.
Earlier in March, Esprit Group applied for the initiation of protective shield proceedings, pursuant to section 270b of the German Insolvency Act, which are only available to businesses which are still liquid. According to Esprit, this is part of the company’s proactive and forward-looking measure to protect the solvency and liquidity of the group and ongoing business operations in the midst of the pandemic. The six subsidiaries of the company namely, Esprit Europe GmbH, Esprit Europe Services GmbH, Esprit Retail B.V. & Co. KG, Esprit Wholesale GmbH, Esprit Design & Product Development GmbH and Esprit Global Image GmbH are involved in the protective shield proceedings.
Through the protective shield proceedings, the company will continue to actively manage the subsidiaries with its management team in charge, and accelerate its restructuring path that commenced under its strategic plan since 2018. The restructuring plan will help to reduce the liabilities of the subsidiaries to a sustainable and manageable level and one that is in-line with the business needs of the Group.
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Esprit to lay off 40% of staff and close stores globally