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Esprit Hires Adidas Manager to Be China CEO Amid Declining Europe Revenue

Esprit Holdings Ltd. (330), the clothing retailer that lost more than 47 percent of its market value in two months after saying it “lost its soul,” hired an Adidas AG (ADS) manager as chief executive for China, its fastest-growing market.

Holly Li, Adidas’s general manager for north China, will take over as Esprit’s China CEO on Feb. 1, the Hong Kong-based company said in a statement yesterday. She managed retail and franchise distribution in China and has been employed 11 years by the world’s second-largest sporting-goods maker, according to the statement.

Esprit declined 4.3 percent to HK$9.61 at close of trading in Hong Kong. The benchmark Hang Seng Index fell 2 percent. The stock has plunged more than 92 percent from its peak in October 2007 as European rivals Hennes & Mauritz AB and Inditex SA’s Zara lured customers away. Chief Executive Officer Ronald Van der Vis plans to turn the casual clothing company around by improving fashion designs and doubling China sales in four years.

“China is going to be Esprit’s key growth area over the coming years,” Anne Critchlow, a London-based analyst at Societe Generale who has a “hold” rating on Esprit, said in a phone interview. “Having somebody who is experienced in that market to head the Chinese business is entirely sensible.”

Troubled Europe

The largest Hong-Kong listed clothing retailer is expanding in China to offset declining revenue in Europe, where it made 79 percent of sales in the fiscal year through June. The China chief’s goal will be to double country sales to HK$6 billion ($771 million) in the fiscal year that ends June 2015, Van der Vis said in a September interview.

Esprit posted a 98 percent drop in net income in the last fiscal year because of the cost of closing stores in Europe and selling its U.S. and Canada operations.

“The appointment signifies Esprit is trying to look for another revenue stream apart from troubled Europe,” Tommy Ho, a Hong Kong-based consumer analyst at UOB Kay Hian Ltd., said in a phone interview. “The company has been looking for a China manager for a long time.”

Meeting the China sales target will involve almost doubling Esprit’s points of sale in the country to 1,900, the company has said. Van der Vis said in September he planned to set up a “dedicated design team in China” while establishing a team of designers in Paris.

Gisele Bundchen

The retailer that started in California more than 40 years ago hired the brand director of Hennes & Mauritz in 2010 to rejuvenate its fashions, which Van der Vis said in September “became too safe and boring.”

Esprit plans HK$7 billion in capital spending over four years, most of it to expand or refurbish stores. A further HK$11.5 billion will go to additional operational spending, of which HK$6.8 billion is for branding, Van der Vis said in September during the earnings presentation, made in front of a backdrop featuring supermodel Gisele Bundchen.

Esprit will be replaced in the MSCI Hong Kong Index by First Pacific Co., a food, utilities and resources company, according to an MSCI statement dated Nov. 15. Passively managed funds buy and sell stocks to mirror the benchmark indexes, and about $321.9 billion was invested in exchange-traded funds linked to MSCI indexes at the end of October, according to the index compiler.

Store Closures

The maker and retailer of casual clothing had more than 1,000 points of sales in 185 cities in China as of June. Sales in China more than tripled to HK$2.68 billion in the fiscal year ended June, accounting for 7.9 percent of the total.

Esprit revenue from the rest of the world fell about 5.6 percent, according to Bloomberg calculations using data in the company’s earnings statement. The company in September said it planned to close 80 stores worldwide, including 24 in Germany and 12 in France.

Van der Vis said Sept. 15 he had arrived at a hand-shake deal with the executive who would lead Esprit’s China business, without providing more details.

While Esprit traditionally splits its retail and wholesale operations, the China chief will run both because of the market’s importance to the company, Van der Vis said.

The clothier that started in 1968, when Susie and Doug Tompkins sold clothes out of the back of a station wagon in San Francisco, is in talks to sell its operations in the U.S. and Canada, which had a full-year operating loss of HK$410 million.

The transformation of Esprit into a global brand began in the 1970s, when the couple met Michael Ying, who was chairman from 1993 to 2006.

The company had more than 1,100 directly managed retail stores, of which 300 were in China, as of June. It had more than 11,700 wholesale outlets, which include franchises and shops in stores.

To contact the reporter on this story: Vinicy Chan in Hong Kong at vchan91@bloomberg.net

To contact the editors responsible for this story: Frank Longid at flongid@bloomberg.net; Stephanie Wong at swong139@bloomberg.net

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