UPDATE 1-Esprit raids rival Inditex again for turnaround help

Wed May 8, 2013 10:15am EDT

(Recasts and updates with comments from chief executive)

By Donny Kwok

HONG KONG May 8 (Reuters) - Europe-focused clothing retailer Esprit Holdings Ltd has hired more staff from Inditex to drive its restructuring and implement the kind of fast fashion turnaround on which the larger Spanish rival has built its success.

A day after Esprit warned of a substantial loss in the second half, Chief Executive Jose Manuel Martínez Gutiérrez, who joined from Inditex last September, said on Wednesday it was vital to revamp the brand and provide value for money.

He said it would take 18 months to restructure the business, which is grappling with a slump in demand due to austerity in Europe and the euro zone debt crisis.

Esprit said on Tuesday it would record a goodwill impairment of between HK$1.8 billion and HK$2 billion and close around 16 loss-making stores - most of them in Europe - at a cost of HK$250 million to HK$300 million.

"It is important to keep things simple. This is a business which is not rocket science. The magic is if you keep it very, very simple then it will become very, very effective," he said.

Inditex, the world's largest clothing retailer, has made founder Amancio Ortega the world's third richest man by using its nimble, Spain-based distribution model to rapidly churn out fast-changing ranges and expand aggressively into emerging markets.

Martinez, a former McKinsey consultant, was distribution and operations director at Inditex with a focus on improving the firm's supply chain.

Martinez, who said he had brought in four Germany-based executives from Inditex's Zara clothing line to help with the revamp, said most of the provisions being taken by Esprit were non-cash and would not impact day-to-day operations.

He added he was still optimistic on the outlook for the China market.

Shares of Esprit, which sells everything from bed sheets to jeans, closed down nearly 5 percent on Wednesday, lagging a 0.9 percent gain in the benchmark Hang Seng Index.

Investors last year cheered the appointment of Martinez, driving the stock to its biggest one-day gain in 14 years.

($1 = 7.7602 Hong Kong dollars) (Additional reporting by Yimou Lee; Editing by David Cowell)

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