US adults to add some esprit ... hopefully

Esprit, whose neon-coloured T-shirts made it one of the top US teen brands of the 1980s, has since lost about 90 per cent of its American sales.

But the Hong Kong-based retailer is betting that its new stores targeting American adults will reverse the slide.

Under chief executive officer Heinz Krogner, Esprit - which shut its US stores in the 1990s with about US$120 million in debt - returned in September with a 929sq m store in Manhattan's Flatiron district that sells business suits alongside cotton T-shirts and has a cafe and juice bar.

In his 2 1/2 years as CEO, Krogner, 63, has overseen a fourfold gain in Esprit shares and more than doubled annual profit to HK$2 billion ($350 million) by expanding in Europe and Asia. Such success may not come easily in the US, where bigger rivals such as Gap and Hennes & Mauritz have a wide lead.

Krogner does not expect to break even there for five years.

"It costs a fortune to build up this market," said Krogner, a Czech-born German. "If you're not careful, you lose your pants."

Esprit has opened a total of six US stores in New York and New Jersey since September. Before that, the junior sections of department stores such as Target's Marshall Fields were the company's only US sales channel.

The retailer was returning to a market that had become more crowded and competitive since it retreated a decade ago, said Greg Kuhnert, a London-based fund manager at Investec Asset Management.

"The US is an exciting prospect for Esprit, but it does pose significant risks given the fierce nature of competition."

Esprit posted US$42 million ($57 million) in North American sales in the year ended June 30, just 2 per cent of the company's total. Chief financial officer John Poon said the US unit was unprofitable at the end of 2004. Esprit's US sales peaked at US$400 million in 1987.

To revive US profit, Esprit is targeting more affluent shoppers than the teenagers who bought its styles in the 1980s.

This year's spring-summer line includes suits costing more than US$300.

Esprit is vying for market share with much larger rivals. San Francisco-based Gap had global sales of US$15.9 billion in 2004.

Esprit's stock was the best performer on Hong Kong's benchmark Hang Seng Index in 2004 for a second straight year, rising 82 per cent. It has gained 23 per cent this year to HK$57.75, compared with a 3.4 per cent decline for the Hang Seng.

- BLOOMBERG