Fashion icon Esprit is making headlines again, this time for the profitable sale of its Hong Kong headquarters.
The struggling retailer said it made a profit of HK$725 million (US$93.53 million) from the sale of the premises — five floors in Enterprise Square in Kowloon Bay — to Phoenix Property Investors for HK$918 million.
The buyer plans to lease the space back to Esprit for HK$2.43 million a month. That’s equivalent to a gross yield of about 3 percent on the deal, or 4 percent, assuming the additional one floor will be leased to Esprit at the same rate.
The lease, which starts after the deal closes in March, will be for three years, renewable at a 20 per cent premium after the third year.
The money would have been nothing to Esprit, once owned by Michael Ying, in its heyday when it churned out HK$5 billion in profits. In the financial year to June 30, 2015, Esprit made a net loss of HK$3.7 billion, or HK$1.90 per share.
Esprit bought the property in 2004 for HK$200 million during the so-called “golden decade of retail” as mainland tourists began arriving in Hong Kong in great numbers.
At the end of the heady run, apparel retail sales were up 126 per cent, with the biggest chunk going to three global fast fashion retailers — Japan’s Uniqlo, Sweden’s H&M and the Spanish giant Zara.
Apple Daily reports that the three retailers have more than 80 outlets in Hong Kong combined.
Most of its rivals did not disclose their sales figures but H&M said it recorded HK$1.29 billion in the first three quarters ended August.
Where was Esprit in all of this?
The Hong Kong flagship was embroiled in one of the greatest collapses in the competitive fashion industry.
Sales from Hong Kong were down 8.4 per cent to HK$386 million, with its store network shrinking to 15 shops from 46 in 2006.
Among the big winners were small designers such as Bauhaus, I.T. and low-end retailers such as Bossini, although Giordano lost market share.
Altogether, local brands had 460 shops last year, according to Apple Daily, but their market share fell to 14.5 per cent from 18 per cent in 2006. Now we know why Esprit had to sell its headquarters.
Yet, this is only one chapter in a painful restructuring that has already lasted more than five years.
