Giordano is locked in a management battle, and the Chow Tai Fook Cheng Yu-Tung family has demanded the removal of CEO Lau Kwok Kuen

Image source: Visual China

Blue Whale financial reporter Wang Hanyi

On the evening of February 5, Giordano International (0709. HK) announced on the Hong Kong Stock Exchange that Sino Wealth International Limited, a subsidiary of Chow Tai Fook Holdings, has requested the removal of Lau Kwok Kuen, chairman and chief executive officer of Giordano International, as a director, the appointment of Cheng Chi-man, the eldest daughter of Chow Tai Fook Chairman Cheng Kar-shun, and his third son, Cheng Chi-leung, as non-executive directors of Giordano, and the appointment of Colin Currie, former general manager of adidas Asia Pacific and Greater China, as the new CEO of Giordano.

Image Credit: Giordano Bulletin

According to reports, Liu Guoquan is 70 years old, retirement age, and the newly nominated CEOC Golin Currie has international experience, having worked at adidas for many years, and previously served as CEO of low-cost airline AirAsia, which he believes can help Giordano re-orient.

Jiang Han, a senior researcher at Pangu Think Tank, told the Blue Whale financial reporter that the Chow Tai Fook Cheng Yutong family asked for the removal of CEO Liu Guoquan mainly because they were dissatisfied with Giordano's current business situation and future development. They believe that Liu Guoquan's failure to effectively respond to market competition and changes in consumer demand during his tenure has led to a decline in the company's performance and affected the interests of shareholders. In addition, there may also be a struggle for management within the family, further complicating the problem. ”

Why should Liu Guoquan be removed by proposing a shareholder proposal, rather than discussing a peaceful handover?

Jiang Han believes that the main reason is that this method has legal effect and can ensure the fairness and legitimacy of the recall results. "Moreover, this approach can better protect the rights and interests of other shareholders and avoid personal conflicts of interest affecting the company's development." In contrast, there may be some uncertainty in negotiating a peaceful transition, and it is difficult to guarantee a smooth recall. ”

It is understood that the Zheng Yutong family has a long relationship with Giordano. In May 2011, Cheng Yutong bought 218 million shares of Giordano through Chow Tai Fook for HK$1.05 billion, becoming the largest shareholder of Giordano with a shareholding ratio of 14.58%. This is the first time that the Cheng Yutong family has invested in a Hong Kong garment company. In the following two years, Zheng Yutong increased his holdings several times. Up to now, Sino Wealth International Limited, a subsidiary of Chow Tai Fook, has a shareholding of more than 24% in Giordano.

In June 2022, the Zheng family father and son tried to copy Giordano. Chow Tai Fook Holdings made a tender offer of HK$1.88 per share, involving an amount of approximately HK$2.5 billion. Due to the opposition of Giordano two shareholders, three months later, Chow Tai Fook's own original shares and the shares that Giordano International's independent shareholders were willing to sell accounted for 46.04%, which did not meet the requirement of more than 50%, and the takeover offer expired.

In the eyes of the industry, Chow Tai Fook wants to obtain 50% of the shares, mainly to take control of Giordano International. And the takeover failed precisely because Giordano management was unwilling to lose control.

Giordano International was once a smash hit Hong Kong fast fashion clothing brand. Since 2018, Giordano International's performance has declined, and its stock price has halved and gone downhill.

In the 10 years from 2012 to 2022, Giordano's sales fell by more than 30% to 3.8 billion yuan, and its operating profit fell by more than 50% to 425 million yuan, reflecting the continuous contraction of its business Giordano urgently needs to make changes.

In the face of the decline, Giordano has also tried to transform many times, such as launching sub-brands such as BSX, Giordano Teen and Giordano Lady to attract the attention of young consumers, but with little success.

Why does Chow Tai Fook have a "soft spot" for Giordano?

According to the financial report, Chow Tai Fook's revenue in fiscal year 2022 increased by 41.01% to HK$98.938 billion, net profit increased by 11.4% to HK$6.176 billion, and gross profit margin decreased to 23.4% from 28.2% in the same period last year.

There is a view that this move is for Chow Tai Fook to find a second growth curve and expand new categories. Chow Tai Fook has strong financial strength, becoming the world's 10th largest luxury goods company with total sales of about 45.862 billion yuan, and is the only luxury group in China to make the list. Giordano is expected to transform into a high-end clothing brand with the support of Chow Tai Fook.

When the acquisition was proposed before, Chow Tai Fook had frankly admitted that the reason for the acquisition was the fierce market competition and that Giordano urgently needed to make changes, but stressed that it would not remove the original management and start the privatization process, and would jointly promote the reform and transformation process of the operating structure. The failure of the acquisition may be the direct cause of the management removal.

However, another more convincing point is that Chow Tai Fook is interested in Giordano's rich sinking market network. In order to find new growth points, the proportion of stores in the national market tends to be stable, and Chow Tai Fook has begun to emphasize the nuggets in the sinking market in recent years. According to the financial report, from 2018, Chow Tai Fook has opened up the sinking market to join.

Through long-term open franchise, Giordano has accumulated a large number of franchisee resources in the sinking market, and these franchisees are familiar with the local market and interpersonal relationships. If it can be utilized, Chow Tai Fook may be able to use external forces to promote the layout of the sinking market more quickly.

Although Giordano's point of sale is difficult to compare with Chow Tai Fook in terms of size, the 2,056 points of sale worldwide are also worth coveting, and more importantly, nearly half of Giordano's points of sale are located in overseas markets. In Southeast Asia and Australia, Giordano has 570 directly operated stores and 337 franchised sales outlets in Southeast Asia, South Korea and other markets. Chow Tai Fook has only 23 stores in overseas markets, concentrated in South Korea (7), Malaysia (5) and Singapore (5), and the breadth and density of coverage are unmatched.

As for the real reason behind the request to remove the CEO, the Blue Whale financial reporter sent an email to Chow Tai Fook and Giordano respectively to ask, and the email receipt showed that the other party had read it, but as of press time, there has been no reply.