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Daphne International culls one in four stores as losses mount

Hong Kong-listed footwear retailer Daphne International has doubled its loss as it shuttered 900 stores and its inventory blew out to 198 days.
The Shanghai-headquartered company’s net cash position has shrunk from HK$330 million (US$42 million) at the end of 2017 to $170.7 million ($21.7 million) at the end of last year.
In a stock exchange filing, chairman and CEO Chang Chih-Kai said the group continued to implement strategies to transform its business last year with the aim of restoring itself to profitability.
“However, economic headwinds and resultant blow to consumer sentiment hindered the … plan from yielding its full effect on the financial results of the group.”
Turnover plunged 20.8 per cent to $4.127 billion, largely reflecting the shuttering of more than one quarter of its stores. Its core network of Daphne and Shoebox stores shrunk from 3589 at the end of 2017 to 2648 at the end of last year. Same-store sales also declined and gross margin fell from 52.8 per cent to 49.9 per cent.
The company closed a further 75 stores operating under its own and licensed high-end brands, including Aee and Dulala, reducing that network to 170. Sales in that division, which also includes its e-commerce business, fell 19.2 per cent.
Daphne International’s loss attributable to shareholders was $994.4 million (US$126.68 million) for the year, an increase of $260 million.
Chang said that as the operating environment deteriorated last year the company accelerated its store closure program.
“On the other hand, [we] tried to increase [our] market penetration through the sales channel of the trendier shopping malls to adapt [ourself] to the fast-changing consumption patterns and consumer preferences,” he said.
The company focused on boosting its brand awareness and positioning through a series of marketing collaborations last year, including one with US fashion label Opening Ceremony, a crossover project aimed at resonating with younger consumers. It also team with Disney and popular Chinese singer Bibi Zhou, launching crossover collections under the theme The Most Beautiful Aspiration.
Daphne International invested in customer-relations management, working with a big-data company to analyse customers and sales trends to keep up with changing consumer preferences and consumption patterns. “This helped it enhance product planning and fine-tune sales strategy,” said Chang.
One disturbing fact in Daphne International’s results was the state of its inventory. While down from $1.24 billion at the end of 2017 to $992 million, the average inventory turnover during the year remained the same at 198 days.
The company made provision for slow-moving and obsolete items of $197 million, which was down from $537.9 million the year before.
In the year ahead, Chang said the company will press ahead with product upgrades with an emphasis on “trendiness and comfort” and develop more athleisure shoes.
“Another key initiative of the business transformation is to build up an efficient supply-chain system to meet the requirements of product development and sales at stores. The group will search for new manufacturers that are capable [of carrying] out quick-response manufacturing,” he said.
Production volume will be determined according to market feedback which can help to reduce the risk of inaccurate predictions and thus to minimise the obsolete inventory.”
Other measures aimed at restoring profitability include introducing a ‘partnership system’ into its retail network to reduce its “asset-heavy” own-store model.
The company will also collaborate with a brand consultancy to “fine-tune” its brand marketing strategy, placing emphasis on how to strike a chord with young consumers through social-media marketing campaigns and then maintain engagement.  
And using advanced CRM tools, Daphne International “hopes to provide customers with an experience of the seamless integration of online and offline shopping in the New Retail era,” said Chang.

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