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GIORDANO'S GLOBAL AMBITIONS

THIS HONG KONG-BASED CLOTHING RETAILER IS AIMING TO BECOME THE WORLD'S BRAND

By Nicky Godding

It has been called the Gap of Asia. And roughly five years ago, that might have been correct. But since 2000, Giordano International has been blazing its own trail, repositioning itself and expanding its range of brands. Further, the Hong Kong-based apparel chain's modest ambitions are only to become "the best and biggest world brand in apparel retailing."

In 1989 Giordano was operating 116 stores. Today the company boasts about 1,800 stores in some 30 territories worldwide - including Australia, China, India, Japan and South Korea, as well as Southeast Asia, the Middle East, North America and the Caribbean - and its sales are growing robustly. Through the nine months ended Sept. 30, group sales rose 13 percent over the same period in 2006. Comparable-store sales, meanwhile, rose nearly 3 percent during that time, and gross profit is up almost 9 percent. The company's most recent full-year sales figures came to $561 million.

Most of this growth has occurred under Chairman and CEO Peter Lau, who joined Giordano in 1987 as COO and became chief executive in 1994. Not that this has been any autumn drive through the countryside. The Asian financial crisis of 1997-'98 hurt Giordano no less than it did other retailers across the region. But the company has emerged from that and from the 2003 SARS (severe acute respiratory syndrome) crisis as a force to reckon with.

Giordano sees China and India offering the best prospects over the next five years. Following an unsuccessful expansion attempt into Germany in 2001, Western Europe is not on the radar. Nevertheless, it is from Europe and the likes of H&M, Top Shop and Zara that Giordano has drawn its inspiration.

The company comprises five divisions: the middle-market Giordano, which offers casual fashions; the upmarket Giordano Concepts, launched in 2006; Giordano Junior, introduced in 1998; Giordano Ladies, the most upscale of the brands, unveiled in 1997; and the value-oriented basics brand launched in 1999 as Bluestar Exchange and now rebranded as BSX. The first BSX store opened in March in Hong Kong, and the switchover will probably be completed within the next 12 to 18 months, executives say.

Giordano says it prefers to own and operate its stores, franchising only when local laws preclude direct foreign investment, as is true in the Philippines and Vietnam, or in markets where cultural differences are an issue, such as Russia or Central Asia.

This is all a long way from the company's origins as a Hong Kong manufacturer of casual clothing in the 1970s. From one shop in a downtown Hong Kong mall, Giordano has grown into a vertically integrated fashion retailer with manufacturing facilities in mainland China that supply about 30 percent of its merchandise. The rest comes from third-party vendors, mostly in China or Southeast Asia.

Success in Hong Kong led to the opening of stores in Taiwan in 1983 and in Singapore in 1985. The company repositioned itself in 1986 as a retailer of value-priced casual wear, and this fueled its expansion into the Philippines. By 1990 Giordano was operating 150 outlets throughout these four markets. Giordano began trading on the Hong Kong Stock Exchange in 1991, and over the next five years enjoyed rapid growth into mainland China, across Asia and then into the Middle East.

"Giordano has a strong following and name recognition in Asia," said Sebastian Skiff, Cushman & Wakefield's head of retail in the Asia-Pacific. "The brand has traditionally offered a product, cut, style and size tailored to the Asian physique. It has continued to keep the store design, marketing and product ‘in fashion' and adapt quickly to the changing whims of its customers."

Giordano says it was the first mass retailer in the region to offer unconditional returns and refunds and to pay above-average salaries to its sales staff while investing in training and development.

There are pockets across Asia where the company is finding growth more difficult, however. In Taiwan Giordano has been forced to close 16 retail outlets, though the company says it intends to ride things out there even so. In South Korea, meanwhile, Giordano had been a successful youth-oriented brand until a 1998 credit crunch began squeezing its young customers. Since then, Giordano has sought to reposition itself as an upmarket concept, but this takes time, says William Yue, a company spokesman.

Giordano's experience with the Asian customer will be invaluable, as Zara, H&M and other competitors boost their profiles in Asia. It will be critical for Giordano to maintain its commitment to design, merchandising, distribution and customer service, says Cushman &?Wakefield's Skiff. "The Asian market represents extremely attractive propositions for any retailer," Skiff said. "Giordano has consolidated its strong position through its understanding of its Asian customers built up over many years."

Skiff and others say some mall managers see Giordano as a "must have" retailer. "It is a great brand in its category, with active marketing and growing brand recognition in this region," said Tomas Dvoracek, leasing manager at MAF Shopping, which is a Dubai, United Arab Emirates-based shopping center development and management firm. "Its store generates a great vibe in the mall."

Depending on the brand and the market, Giordano generally prefers stores that measure about 1,100 square feet (100 square meters), though the company is looking at bigger sites in high-traffic areas of malls, Yue says. "In most markets our preference is to open inside shopping malls because of the climate - hot and humid in the Middle East and in Hong Kong," Yue said. "High street locations are good for our flagship stores in Hong Kong, Shanghai, Guangzhou and Seoul."

In May 2006 Giordano opened its first Giordano store in India (not a franchise), and it plans to have 30 there by the end of this year. Last February the company opened its first store in North America, in Vancouver, British Columbia. Then, in May, it opened a store in the Westfield Santa Anita mall, Arcadia, Calif., and a franchise unit in the CityStars mall, in Cairo, Egypt. "I couldn't imagine a shopping center retailer who could execute at a higher standard than Giordano," said Phil McArthur, CSM, senior vice president for India at Ivanhoe Cambridge. "They are so perfectly focused in the value-for-money sector. However, everything they do is managed at a world-class level. The management is aggressive, yet extremely professional. I am always amazed at how far this brand has reached from Asia to the Middle East and India, Europe, and now in North America. This is the brand to watch."