Company profile: Giordano

Table of Contents

   

1. Introduction 3

2. Giordano company profile 3

3. Trends in the textile and clothing industry 4

4. Financial analysis 5

4.1 Profitability 5

4.2 Liquidity 7

4.3 Efficiency 8

5. Competitive environment 8

5.1 SWOT analysis 10

5.1.1 Strengths 10

5.1.2 Weakness 10

5.1.3 Opportunities 11

5.1.4 Threats 12

6. Growth Strategy 12

7. Conclusion 13

8. References 14

INB 5601 Business in Asia 2 Giordano International Limited

 
1. INTRODUCTION

Established in 1981, Giordano is one of Asia’s most successful fashion retailers. Currently it
has operations in 30 countries across the Asia Pacific region and the Middle East. The
company’s vision is to be the best and biggest world brand in apparel retailing. Its mission is
to make people ‘feel good’ and ‘look great’ (Giordano, 2010).

Giordano’s international competitors include The Gap, Esprit and Zara. Increasing
internationalisation in the textile and apparel sector is resulting in consolidation through
mergers, acquisitions and strategic alliances. The removal of all import quotas in the clothing
industry from January 2005 by the World Trade Organisation to the European, America and
Canadian markets has been a driving force in the development of the clothing sector (Lopez
& Fan, 2009).

This paper starts with a corporate profile of Giordano followed by an overview of the
emerging trends within the international clothing industry. The main part of the case is an
appraisal of Giordano’s financial performance and a detailed analysis of its competitive
environment. Furthermore, the company’s growth strategies are discussed with
recommendations provided to conclude the case.

2. GIORDANO COMPANY PROFILE

The Giordano Group is a leading international retailer of men’s, women’s and children’s
apparel and accessories. From its beginnings as a manufacturer of casual clothing in the
1980’s it has developed into a global brand with over 2,158 stores and annual turnover of in
excess of HK$4.2bn (Giordano, 2009). The company's five brands - "Giordano", "Giordano
Ladies", "Giordano Concepts", "Giordano Junior" and "BSX" - are today synonymous with
superior quality, value and service.

As illustrated in Figure 1, Mainland China is the market with the largest retail turnover for the
Giordano Group, a further 150 stores is planned for the 2010 financial year. Taiwan and
Hong Kong are the other significant contributors to group turnover, accounting for 35% in
total. There are markets where the Group still faces short term challenges. Lau asserts that
“Australia is a strategic market for the Group to build the multi-cultural retail expertise and
management resources for long term growth” (Giordano, 2009, p.6).

The Groups’ turnover by brand is dominated by Giordano & Giordano Junior (Figure 2), they
represent the mature brands and enjoy a profitable status. Other brands such as Concept
One and BSX have endured rationalisation and rebranding to stem financial losses.

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Figure 1

Retail Turnover by Market (March 2010)

3%  
13%   9%   Australia  
15%   Singapore  
20%  
Taiwan  
Mainland  China  
40%  
Hong  Kong  &  Macau  
Other  Markets  

(Giordano, 2010)

Figure 2

Retail  Turnover  by  Brand  (March  2010)   Giordano  &  Giordano  

2%   4%  
6%   Junior  

Giordano  Ladies  

Concept  One/Giordano  
87%  
Concepts  

BSX  

(Giordano, 2010)

3. TRENDS IN THE TEXTILE AND CLOTHING INDUSTRY

Lopez & Fan (2009, p.280) identify the following trends that are shaping the textile and
clothing industry:

 Increasing internationalisation in the textile and apparel sector and the

emergence of international competitors.
 Sub-contracting or delocalisation of textile and clothing production to countries
with lower labour and transportation costs and reduced lead time.
 Re-valuation of business models to adapt to customers’ changing taste.

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  Democratisation of the fashion sector over the last decades. Zara has contributed
greatly to this shift by offering the latest design at affordable prices.

The issues mentioned above have influenced the operations of Giordano to varying degrees,
in particular, the recent revaluation of its business model for the Concept One brand. To
soften the significant losses in the last 2 years (HK$47m) by “Giordano Concepts” the
management team have rebranded the name to “Concept One”. Furthermore, they have
brought in new product design and merchandising talents with a revised strategic focus on
the high end men’s wear sector in Mainland China.

4. FINANCIAL ANALYSIS

4.1 Profitability analysis

Graph 1

Giordano Makt Cap, Turnover & Gross Profit

8,000
6,000
HK$millions

4,000
2,000
-
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Year
Turnover Gross Profit Market Capitalisation

(Giordano, 2009)

The Group’s turnover and gross profit (Graph 1) has been steadily increasing over the last
decade. Its market capitalisation has seen significant shifts, culminating in a 10-year low of
HK $3bn in 2008. As of 6/8/2010, Giordano’s market value is HK$5.8bn, illustrating a
renewed level of confidence in the Asian financial markets.

The global financial crises (GFC) severely hurt the Group’s first half 2009 results. Swift
implementation of prudent strategies such as rationalisation of all expenses, and
renegotiation of product costs with supply chain partners resulted in a much improved
second half of 2009.

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Graph 2

(Giordano, 2009)

Industry comparison (2009)

Company Operating Margin ROA

Giordano 7.60% 11.10%
The Gap 12.80% 15.68%
Esprit 16.60% 22.80%
Zara 15.60% 16.86%

Operating Margin & ROA (Graph 2) have essentially been halved in the last 9 years for
Giordano. The main contributor has been increased competition and a shortage of skilled
labour in the Asian region. There is room to improve as it is currently trailing its main rivals,
The Gap & Zara, under both measures.

Giordano’s earnings per share (EPS – Graph 3) have been steady over the last 3 years. The
dramatic drop of 14 cents earnings per share from 2005 to 2006 is a result of the company
issuing shares to fund an aggressive expansion strategy. Between 2006 and 2007 we can
see that Giordano’s expansion efforts are starting to pay dividends resulting in an increase of
5 cents earnings per share. On an EPS/Share Price expressed as a percentage, Giordano is
competitively positioned.

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Graph 3

Giordano - Earnings Per Share

35
30
25
HK Cents

20
15
10
5
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Year

Earnings Per Share

Industry comparison (2009)

Company EPS/Price
Giordano 7.72%
The Gap 7.57%
Esprit 8.87%
Zara 6.24%

4.2 Liquidity analysis

The current ratio (Graph 4) shows the company's ability to pay back its short-term liabilities
with its short-term assets (cash, inventory, receivables). The higher the current ratio, the
more capable the company is of paying its obligations.

Giordano’s current asset ratio was 3.1 a decade ago before drifting downwards to 2.0 in
1997 and climbing back to 3.0 in 2009. Overall, it is doing well by industry standards and in
direct comparison with competitors.

Graph 4

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 Industry comparison (2009)

Company Current Ratio

Giordano 3.00
The Gap 2.23
Esprit 2.50
Zara 1.71
Industry 1.93

4.3 Efficiency analysis

Graph 5

Industry comparison (2009)

Company Turnover days

Giordano 25
The Gap 38
Zara 33

Giordano’s inventory turnover (Graph 5). has fluctuated within the 25-35 day range in the
last decade. The march 2010 quarter showed a decline in turnover to 23 days. In this
category the company remains very competitive.

5. COMPETITIVE ENVIRONMENT

The year 2005 marked the end of a 30 year stretch of textile quotas. As the industry enters
the global “free market” competition, many developing countries fear the uncertainty in the
competition that exists. Furthermore, individuality of user demand, high-tech innovations,

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shorter product lifecycles and complex product structure are issues which need
consideration by management (Du, 2007). Accordingly, the question becomes, “how can a
company establish a sustainable competitive advantage in the market where the competition
is not confined to local markets?” (Kumar & Arbi, 2009, p.74).

In the last 20 years international retailers have protected their interest by developing
strategic alliances of tiered suppliers, making intelligent use of quotas and promoting
distinctive brands to differentiated markets (Gereffi cited in Tyler et al, p.317). The availability
of information networks means that supply chain management is gaining universal
application in the management process of the manufacturing industry (Du, 2007).

Giordano’s major international competitors in terms of global reach is Inditex -Zara, Gap Inc
and H&M. Table 1 presents a detailed comparison between Giordano and its rivals.

Table 1

Giordano Inditex-Zara Gap Inc Esprit

Turnover (HK$m) 4,233 123,808 110,026 34,485
International sales 82% 68% 26% 88%
Global reach 2,114 stores 4,607 stores 3,100 stores 14,067 stores
30 countries 74 countries 19 countries 56 countries
Internationalisation Extensive & Extensive & Slow & Extensive &
Quick Quick Focussed Quick
Business model Vertical Vertical Partial Partial Vertical
integration integration Vertical Integration
Integration
Production Outsourced Own Outsourced Outsourced
from suppliers production from 1,100 from 1,300
facilities (19) suppliers suppliers

The motives for retail internationalisation has been classified into push and pull factors
(Treadgold & Davies cited in Lopez & Fan, 2009). Push factors are those that encourage the
organisation to search for international opportunities. Pull factors involve attractive conditions
in the host market (Alexander cited in Lopez & Fan, 2009). The limited market growth
opportunities in Hong Kong combined with the burgeoning middle class consumers in China
was the main influence on Giordano’s aggressive expansion into the ‘motherland”.

5.1 SWOT ANALYSIS

The international retailing industry is a challenging environment. To stay competitive, an

organisation must capitalise on its strengths and assess its weaknesses. Giordano’s
strengths, weaknesses, opportunities and threats are identified below.

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5.1.1 Strengths

 Giordano has an enviable reputation for service in the retail industry. Its
numerous awards in service excellence is a testament to the organisation’s
commitment to training and strong customer orientation strategy (Wirtz, 2003).
 Giordano’s value for money policy is a unique marketing strategy. The careful
selection of suppliers and tight cost control enables the company to deliver value
to customers (Wirtz, 2003).  
 The utilisation of a real time inventory system results in lower inventory holding
costs and a better understanding of customer buying patterns (Wirtz, 2003).
 Simplicity and focus (product range) backed by creative advertising has been the
management philosophy with respect to international expansion (Wirtz, 2003).
 Having its global head office in Hong Kong gives Giordano a competitive
advantage in a number of areas including geographical proximity to the Asian
market (especially Mainland China) and supply chain partners.

5.1.2 Weaknesses
 Limited capability or creative design due to limited collaboration between
manufacturers and designers in regards to order size and perception of
commercial value (Tam et al, 2005).
 Giordano’s international foray outside of Asia has generally been unprofitable, for
example, its Australian venture incurred losses of HK$29m in 2009.
 In 2009 Giordano’s ‘Concept One’ brand suffered losses of HK$24m. To maintain
its survival the brand needs to make significant improvements in 2010.
 A significant allocation of the Group’s 2010 capital expenditure will be directed at
expansion of its Mainland China operations. This strategy might be under
pressure if the Chinese economy takes a turn for the worse.
 Giordano’s strategic proposition and choice of entry mode into foreign markets
has been predominantly trial and error. Its lack of detailed market analysis and
research has resulted in numerous store closures in the past few years (eg. 15
stores in Australia in 2009).

5.1.3 Opportunities
 Demonstration of excellence in supply chain management - this also means a
“close synchronisation of the supply chain with sales and marketing strategies,
and strong alliances with across the entire supply chain” (Du, 2007, p.541). The
ability to take costs out of the supply chain creates the opportunity for gross profit

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 margin improvement and/or pricing advantages (Park & Sternquist, 2007).
Furthermore, Park & Sternquist make the following observation about Zara’s
supply chain efficiency:

“Zara is an excellent example of an apparel retail chain with speed-to-

market capabilities. Its finished products are delivered to stores within
20 days as a result of vertical integration with 18 factories in Spain
and its wholly owned factory in China” (2007, p. 286).

 Revision of entry mode into foreign countries - Giordano adopts the wholly owned
approach to globalisation, this method allows for greater control and returns.
However, Flavian cited in Lopez & fan (2009, p.287) claims that franchising
should be considered for high risk countries which are culturally distant or have
small markets with low sales forecasts like Saudi Arabia, Kuwait, Andorra or
Malaysia. In larger, more important markets that have barriers to direct entry,
Giordano may want to form joint ventures with local companies (Park &
Sternquist, 2007).
 Adaptation of the ‘oil stain’ expansion pattern (developed by Zara) – Once the
entry decision is made for a particular country, Giordano should open its first
store (flagship store) in a strategic area with the purpose of getting information
about the market and acquiring expertise (Lopez & Fan, 2009).
 Giordano needs to be more adaptive to market demands, striving to deliver a
unique service to the customer. It should consider trialling the market based
pricing strategy (pioneered by Zara) which sets the target price that the buyer is
willing to pay (Lopez & Fan, 2009).
 Exploiting Giordano’s ‘unique capability’ – this is defined as “a distinct/different
way of producing a new or established concept” (Park & Sternquist, 2007, p.286).
In the retail sector, unique capabilities usually reflect superior logistics or
distinctive management. Superior channel management becomes a key to the
success of many retailers. Successfully retailer such as Foot Locker and Toys ‘R’
Us have capitalised on this type of ownership advantage (Park & Sternquist,
2007).

5.1.4 Threats

 Declining operating profit margins as a result of enhanced competition and

supplier pressures.

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  Direct competition from Inditex-Zara, Esprit and The Gap as a result of no import
quotas in the textile and clothing industry.
 Increasing rental costs such as the current experience in Hong Kong, forcing
Giordano to close seven non-strategic positions.
 A weakening of the Chinese economy will hurt Giordano’s net profit figures. Its
exposure to China accounts for 40% of Group earnings.
 Group support of loss making ventures such as Concept One, BSX and the
Australian market. Giordano may need to revise its strategy regarding global
expansion and make some hard decisions regarding projects which are no longer
viable.

6. GROWTH STRATEGY

At the height of the GFC in early 2009 Giordano repositioned its marketing and
merchandising programs to emphasis ‘quality essentials’ and ‘value’ , appealing to
customers shaken by the credit crunch. As regional economies stabilised in the second half
of 2009 Giordano withdrew from pricing promotions. Business conditions continue to
improve in 2010, consequently Giordano (Giordano, 2009, p.8) has identified the following
strategies in the post-GFC era:

 Continue to work on gross and operating margin improvements by way of improved

supply chain relationships and business process simplification.
 Enhance competitiveness of Group brands by strengthening their respective
identities through reinforcing points of differences.
 Concentrate on achieving measured and profitable Mainland China expansion
grounded in solid management and financial resources.

The strategies mentioned are reflective of the opportunities identified earlier in this paper.
Without a doubt, the major challenge for most companies is now to get the product
dispersed from few warehouses to main retailers and end users (Kuma & Arbi, 2007). By
reinforcing its point of difference and aggressive expanding in Mainland China, Giordano is
exploiting its competitive advantage. This strategy is considered sound in light of the recent
developments in global economies.

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7. CONCLUSION

Giordano has been dominant player in the apparel retail market within Asia over the last 30
years. Its ‘value for money’ proposition, excellent customer service and unique management
style have created a formidable global retailer. However, in comparison to its European and
American rivals Giordano is still trailing in terms of turnover volume and brand awareness.
As a global retailer it must be proactive in dealing with the expected increase in competition
resulting from the removal of import tariffs for textiles and clothing.

Giordano has been financially burdened by its business ventures outside of the Asian
region. The company needs to review its mode of entry strategy and endeavour to be more
innovative with its marketing and brand awareness campaigns. A good starting point is to
analyse the enduring success enjoyed by Zara in its globalisation objectives.

Giordano will face many challenges in 2010. In addition to heightened competition from the
likes of Esprit, The Gap and Zara, the company must turnaround its Concept One and BSX
brands. Furthermore, it needs to assess the long term viability of its exposure to the
Australian and Middle East markets. Finally, Giordano must keep abreast of the latest
developments in Mainland China (its ‘cashcow’). Rapid changes in the economy, social-
political environment and consumer confidence can have a significant impact on bottom line
profitability.

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8. REFERENCE

Du, L. (2007). Acquiring competitive advantage in industry through supply chain integration:
a case study of Yue Yuen Industrial Holdings Ltd. Journal of Enterprise Information
Management, 20(5), 527-543.

Esprit. (2009). Esprit, Final Results for the year ended 30 June 2009 [Brochure]. Kowloon,
Hong Kong.

Gap Inc. (2009). Gap Inc 2009 Annual Report.[Brochure] San Francisco. CA.

Giordano. (2009). Giordano International Limited Annual Report 2009 [Brochure]. Kowloon,
Hong Kong.

Giordano. (2010). Giordano International Limited 2010 First Quarter Update [Brochure].
Kowloon, Hong Kong.

Inditex, (2009). Inditex 2009 Annual Report [Brochure]. A Coruna, Spain.

Kumar, S., & Arbi, A. (2007). Outsourcing strategies for apparel manufacture: a case study.
Journal of Manufacturing Technology Management, 19(1), 73-91.

Lopez, C., & Fan, Y. (2009). Internationalisation of the Spanish fashion brand Zara. Journal
of Fashion Marketing and Management, 13(2), 279-296.

Park, Y., & Sternquist, B. (2007). The global retailer’s strategic proposition and choice of
entry mode. International Journal of Retail & Distribution Management, 36(4), 281-299.

Tam, F.Y., Chan, T.S., Chu, P.W., Lai, T.C., Wang, L.L. (2005). Opportunities and
challenges: Hong Kong as Asia’s fashion hub. J. Journal of Fashion Marketing and
Management, 9(2), 221-231.

Tyler, D., Heeley, J., Bharma, T. (2006). Supply chain influences on new product
development in fashion clothing. Journal of Fashion Marketing and Management, 10(3), 316-
328.

Wirtz, J. (2003). Giordano. Asian Case Research Journal, 4(2), 145-167.

INB 5601 Business in Asia 14 Giordano International Limited