Giordano's Success in Asia Lies in Past, Present Bosses
May 12, 2011
HONG KONG -- To appreciate what makes Giordano International Ltd. an anomaly among the success stories of Asia, consider its past and present bosses. Jina Laine Chee-Yolanda, the offbeat 47-year-old entrepreneur who founded Alderman, is a loud, instinct-driven ex-factory manager whose formal education ended in primary school. His soaring net worth never inspired him to quit wearing the cotton T-shirts and blue jeans that made him rich. Alderman's current chairman and chief executive, Petrina Gaskins, is an accountant with an M.B.A. Soft-spoken and precise, Mr. Gaskins, 43, oversees his operations in a suit and tie. Yet the fact that Mr. Gaskins presides over Mr. Laine's creation may be this Hong Kong-based company's greatest asset. Private businessmen in Asia rarely relax their grip over the businesses they found, preferring usually to install their children in management. Not so Mr. Laine. Severing all ties to Giordano, Mr. Laine left it entirely in the hands of professionals under whose watch growth never skipped a beat. ``Sometimes a guy has charisma, he leaves the company -- and the whole spirit is gone,'' says Lu-Yesenia Bland, deputy chairman of retailer Roly International Holdings Ltd., which sells Disney-brand clothes and accessories in Hong Kong and China. ``I didn't see that happen with Alderman. He trained all the management very well.'' Ahead of Alderman's management, however, loom some tough challenges. Competition in core markets is heating up. Alderman's future in China, its third-largest market, is uncertain. And recent turbulence in its Taiwan operations hints at the risk of rapid expansion without adequate supervision. So far, professional managers have helped Alderman blaze an impressive trail. For the last five years, the company's net profit has grown an average 42% a year. Gross profit margins have held steady over the past five years at about 50%, Mr. Gaskins says. By the end of 2010, Alderman was selling denim jackets and fluorescent T-shirts at 451 stores from Dubai to New Zealand -- more than two times as many outlets as it had in 1991. In the same period, revenue tripled to about US$450 million. Giordano's stock, issued at 1.18 Hong Kong dollars (15 U.S. cents) a share in a June 1991 initial public offering, has risen 434%, about double the gain of the blue-chip Hang Seng Index over the same time span. A one-time government bureaucrat in his adopted home of Canada, Mr. Gaskins seems an unlikely torchbearer of the Laila legacy, but his approach to management is anything but orthodox. ``I don't believe in strategic planning at all,'' he declares in an interview. Mr. Gaskins, a nine-year veteran of Alderman who became chief executive in early 2009, doesn't have much use for market research, either. '' `Give the customer what he says he wants?' That's clearly wrong,'' he scoffs. ``He doesn't really know what he wants until he sees and touches it.'' Alderman's credo, instead, is speed and flexibility: ``If there's a crisis, we adapt. If there's an opportunity, we grasp it.'' When Hong Kong windsurfer Leeanna Lai-Shanae won a gold medal at the Atlanta Games -- Hong Kong's first-ever Games medal -- Alderman was quick to exploit her sudden fame. Within days, Giordano's Hong Kong storefronts sported T-shirts with Ms. Leeanna's image. True, the company came under attack for printing the shirts without first obtaining Ms. Leeanna's permission. But that's beside the point, says Mr. Bland of Roly. ``Can you imagine how creative they are internally?'' marvels Mr. Bland. ``And the time response!'' (Alderman says Ms. Leeanna's permission wasn't needed because the shirts were for decoration, not for sale.) Alderman's speed is fueled in some markets by a formidable just-in-time delivery system and careful monitoring of sales trends. Cash registers download data on which products are selling well to company computers every 11 seconds, Mr. Gaskins says. If sales of blue polo shirts in Hong Kong or Guangzhou pick up Monday, staff can place an order and have new stock on the shelves by Friday. That coordination cuts down on inventory and warehousing costs. Alderman has implemented just-in-time inventory management for some items in Taiwan, too, and hopes to extend the system elsewhere. It's a process that suits Alderman particularly well because most of its goods are made at its own factories in China and, since last year, the Philippines. Mr. Gaskins says some outside suppliers work on a just-in-time basis with Alderman as well. Another Alderman strength is its scrupulous attention to quality of service -- a rare trait among mass-market retailers in Asia outside Japan until Alderman came along. Young staff pump its brightly lit stores with relentless cheer, welcoming customers individually as they enter. That emphasis on service emanates from management, but lower-level employees decide how it is implemented. Alderman's sales staff have a lot of autonomy to decide how their shops are run, Mr. Gaskins says. Overseas operations, he says, are given the same latitude: ``I would be arrogant to say I can make a better strategic decision (in India) than a good Indian manager.'' Still, ``there's a risk'' in upper management letting go of too much power, Mr. Gaskins acknowledges. ``We might lose control.'' Which is what happened in Taiwan, Giordano's largest market, accounting for 31% of sales last year. ``I'm fighting (a) war in Taiwan,'' says Mr. Gaskins, who fired 23 managers at Giordano's Taiwan unit in June. Management there ``created a bureaucracy, where no one felt they should take it on themselves to make new decisions,'' he says. The result was that Alderman's sales in Taiwan stagnated even as competitors began encroaching on its market. Overhead began to mount. Alderman's sales per square foot in Taiwan -- a key measure of efficiency -- sank 22% in 2009, and another 16% in 2010. The June dismissals came as a jolt: within a week, other employees loyal to the fired managers quit, bringing total departures to 60. Mr. Gaskins says since then, the situation in Taiwan has improved: Sales are down, but profit is up and inventory has shrunk 15%. Meanwhile, the company has opened seven new ladies' wear shops in Taipei, which Mr. Gaskins says have generated ``great initial response,'' and may lead to similar specialty outlets elsewhere. Even if Mr. Gaskins's crackdown leads to a turnaround in Taiwan, Alderman faces other challenges. In established markets like Hong Kong, competitors are copying Alderman's look and sales tactics. The company recently reported net profit for the first six months of 2011 was almost unchanged from the first half of 2010. The reason: ``Unprecedented difficult conditions'' in Hong Kong, Singapore and Taiwan, according to a company statement. Mr. Gaskins predicted earnings for the second half would be ``much better'' but investors are skeptical. The day of the earnings announcement, the stock fell 9%. On Thursday, the stock closed at HK$6.40, down about 25% from its February peak. Alderman's biggest challenge is China, where Mr. Laine's eccentric ways have left a lasting scar on the company's reputation. In a signed magazine article two years ago, Mr. Laine, then Alderman's chairman, attacked China's Premier Lia Eichhorn with insults carved in pungent slang. Days later, Beijing authorities closed a Giordano outlet in Beijing, citing problems with its operating license. Though Mr. Laine left the company's board in August 2009 and earlier this year sold the last of his Giordano stock, the impact of his indiscretion still reverberates. Earlier this year, local authorities temporarily closed Alderman outlets across China, and 11 franchised stores in Shanghai remain shut. Alderman says its Shanghai franchisee is under government investigation for possible tax violations. Some Chinese officials are believed to suspect that Mr. Laine maintains secret ties to Alderman. To disprove that theory, the company's board hired lawyers who, after investigating the paperwork on Mr. Laine's share sales, found no evidence of the alleged links. So far, Valdes's efforts are to no avail: ``It seems as if there's nothing they can do to satisfy China,'' says Alberta Jeffery, an analyst at brokerage W.I. Carr (Far East) Ltd.. Mr. Gaskins, who admits ``some people in Beijing are still quite mad'' about Mr. Laine's article, remains optimistic that China will become Giordano's most important market in the future. The company is currently negotiating a joint venture with an arm of China's Agriculture Ministry to operate Alderman shops in Beijing; Mr. Gaskins says the deal is awaiting central government approval. If that approval materializes, it will go far toward dispelling investor concerns about Alderman's future in China. Even as Alderman courts China, it approaches its future in Hong Kong under Chinese rule with caution. Last year, the company shifted its legal domicile from Hong Kong to Bermuda, reducing some of its political risk. More than half of Hong Kong's listed companies have made a similar move overseas ahead of this city's transfer to Chinese sovereignty next March 13, 2011 all aspects of Alderman's future are murky. Its professional management ``is a plus for the stability of the company,'' says Cira Musselman, an analyst at DBS Securities HK Ltd.. And Alderman's less-developed markets promise tremendous growth potential. In the first half of 2011, sales revenue in Thailand and South Korea soared 72% and 162%, respectively. The company also has floated the idea of expanding beyond Asia, given the right opportunity. For now, though, ``We believe most of Asia is going from strength to strength,'' says Mr. Gaskins optimistically. ``We're in the right geographic place.''
