Troubled fashion group Giordano knows it faces a challenge restoring its mojo.

Last week Giordano reported falling sales in every single market globally – in the worst case, Australia, by 20 per cent year on year. Profit slumped 35 per cent.

But the Hong Kong-based fast fashion business also outlined to frustrated shareholders how it plans to restore growth and respectability to its trading results.

In a lengthy report, Giordano said it expected to see continuing volatility in demand across the group in the year ahead.

“We can see early signs of recovery in Mainland China with positive same store sales since the second quarter, albeit at a very low level. Taiwan is now showing modest sales growth as its marketing programs and local merchandising are starting to resonate with customers.

“The Southeast Asian business was slightly stronger in the fourth quarter of the year as Singapore started to get its merchandising mix right and Indonesia and Thailand sales strengthened modestly.”

Against this background the ability of the group to execute strategy is improving.

“We now have established a truly regional focus in mainland China, although teams still need to be improved and we have different levels of performance in different profit centres. We have also successfully launched a fast track management training scheme with over 20 young graduates from Hong Kong and Mainland China which will enable us to expand our operations in the medium to long term.”

Last year, Giordano developed improved disciplines over inventory planning, exercising tight control over buying budgets and inventory levels. “We will continue to enhance these processes and fine-tune them to further reduce inventory and to drive more accurate product selection and allocation going forward.”

A standout non-performer in the group in 2014 was the Giordano Women brand, which the retailer said declined sharply in profitability terms due to “poor design decisions taken in the past”.

Giordano Women contributed 24 per cent of sales in Giordano shops and the sales declined by 11 per cent – a more significant decline than for Giordano Men.

“The strategy to increase the variety of styles and collections was not successful, and the de-emphasising of core products has proved to be an error.”

The women’s product range is now being re-shaped to focus on core design values such as simplicity and function. As a result, sales volumes began to recover in the second half, and in the fourth quarter were only slightly down year on year. Giordano said this reflects heavy stock clearance and improved product, although the product development process is still being improved.

New GW standalone counters are being developed. Fifty-eight standalone counters in China and Thailand produced HK$4 million in direct profit in 2014.

The GW offer will now be “re-based” to a “modern basics” core, returning to “simple, functional products made from good quality fabric”.

“This new initiative is being executed by a dedicated team which focuses only on womenswear. We expect this will enhance the competitiveness of our women’s product range rapidly.

Mainland China

Giordano says growth in consumer demand in mainland China remains weak.

“On the other hand, supply of retail capacity, both online and offline, has not abated. New players, particularly international brands, continue to enter the market. This will further exert downward pressure on volume and margin for apparel retailers.”

The company says it is making progress with its self-managed stores in improving store ambience, closing loss-making stores and getting the merchandising right.

“Progress in developing our franchise network has been slowed by a pessimistic economic outlook for mainland China. With the closure of 338 stores in the last three years, we will focus on stabilising our franchisee network and returning to modest growth. We will use volume rebates and renovation and marketing subsidies to execute this strategy. At the same time we will increase our participation in franchisees’ merchandising and buying.”

The store closures will continue in 2015. Last year it cut the number of stores in locations it considered damaging the brand from 358 to 162. This year more will close as it exits supermarkets and some street located stores.

During 2014 Giordano launched a new basic casual brand Beau Monde at “friendlier prices” in Guangdong and Shanghai and Taiwan, establishing 13 shops in supermarkets and other locations where the main brand was considered inappropriate.

“As with all newly launched brands, constant and fast modifications have been made to improve the look and feel of the store. In order to secure economies of scale, we will harmonise the supply chain between the two brands, focusing on synergy in common ‘basics’ production and fabric use. During 2015, we will develop this approach further and establish a significant number of new stores in Mainland China.”

Hong Kong and Taiwan

The Hong Kong market is becoming increasingly competitive for Giordano as the nature of tourism from Mainland China changes.

“We have responded to high rents for prime sites by focusing our business development more on residential areas. This will continue until we see rent pressure reducing, which we foresee in 2015 and 2016. Growth into high rent prime locations will therefore be very cautious as we protect profitability.

“In terms of merchandising, Hong Kong will follow the group direction and manage the mix more towards price competitive basic products than it did in 2014. The general strategy of differentiating our products and brand image from completion will persist but this will be balanced by strengthening our core brand values of simplicity, quality and value for money.

“In a culturally unique market such as Taiwan, we will develop the brand through marketing programs and local merchandising. Taiwan is also a mature market and we think we have our approach generally right. Nonetheless, we will refresh our store image; and ambience and look for innovative ways to enhance the customer experience.”

South East Asia

The Singapore business faced a number of challenges in 2014, both from tough market conditions and poor decisions in merchandising.

“We have started to correct this and we will see performance improve. Having said that, Singapore remains a difficult market which is currently seeing changes in tourism numbers and demographic.”

In other key markets such as Malaysia, Indonesia and Thailand, Giordano says it will continue to expand into regional locations to realise ‘first mover advantage’.

“During 2014, management teams faced new problems they have not encountered before – loss making stores and deteriorating same store sales. They responded well and in 2015 we expect to see these efforts pay off. Nonetheless, we see market conditions as challenging in these markets currently as macroeconomic factors soften consumer sentiment.”

The development of the Vietnam business in 2014 was positive with store numbers increasing from 15 to 21 and a new store opening in Cambodia. Myanmar is also an emerging market Giordano plans to make the most of and it will work with franchisees there to identify potential and opportunities.

“During 2015, we will establish a legal entity in Vietnam and we expect to see further growth in this market and Indo China in general as these markets develop.”

Middle East

The UAE was a challenging market for Giordano in 2014, with sales declining for the second year in a row. Consumer sentiment is good but significant increases in retail space have made this market highly competitive. Nonetheless margins have held up and inventory has been reduced.

“Saudi Arabia remains an exciting medium to long term prospect for the group. The population is young and the opportunities to grow tourist business from international pilgrims will be strong. The current market is soft reflecting geo-political instability and the impact of infrastructure improvements that are taking place. We will focus on operational excellence, closing loss makers and establishing the stores that we have recently opened.”

Giordano will also open its first stores in Africa this year,as reported by InsideRetail.Asia already, initially in Zambia. “These efforts do not generate strong revenue, but form the first steps in a strategy that will deliver sustainable growth in emerging markets.”

Digital Strategy

Giordano promises to embrace change which is increasingly seeing online and offline retail strategies converge.

“Technology is transforming the way customers behave. The old way of having different channels that exist in silos with separate accountability, will become increasingly less relevant.”

During 2014, the group introduced 318 in-store terminals to enable customers to buy online inside its stores. This “omni-channeling” practice will continue in 2015.

“Until now our focus has been to develop online sales in mainland China. In 2015 we will look to establish stronger e-shops in the rest of the group. Additionally we will look at how new technology can capture information on customer preferences and buying habits and we will establish pilot projects to enhance customer service using such technology.”