Profit Graph of Textile Company

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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

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.


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.

INB 5601 Business in Asia                      3              Giordano International Limited
Figure 1

               Retail Turnover by Market (March 2010)

(Giordano, 2010)

Figure 2





(Giordano, 2010)


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.

INB 5601 Business in Asia                                            4                      Giordano International Limited
                   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.


4.1 Profitability analysis

Graph 1

                                         Giordano Makt Cap, Turnover & Gross Profit


                        2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
                                     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.

INB 5601 Business in Asia                                5              Giordano International Limited
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.

INB 5601 Business in Asia                      6              Giordano International Limited
Graph 3

                                    Giordano - Earnings Per Share

       HK Cents

                    2000     2001    2002   2003   2004   2005      2006    2007   2008    2009

                                                    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


INB 5601 Business in Asia                               7            Giordano International Limited
              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.


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,

INB 5601 Business in Asia                   8             Giordano International Limited
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
 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”.


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.

INB 5601 Business in Asia                        9              Giordano International Limited
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

INB 5601 Business in Asia                      10              Giordano International Limited
            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,

5.1.4   Threats

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

INB 5601 Business in Asia                      11             Giordano International Limited
          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


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.

INB 5601 Business in Asia                      12              Giordano International Limited

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




INB 5601 Business in Asia                       13              Giordano International Limited

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

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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-

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

INB 5601 Business in Asia                   14             Giordano International Limited

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