The women’s footwear company Daphne International Holdings ended 2020 with a 77 percent reduction of its net loss to 242.0 million Hong Kong dollars (€26.5m-$31.1m) as an 83 percent drop in revenues to HK$ 363.9 million (€39.9m-$46.8m) resulted in a sharp fall in selling and distribution expenses as well as in general and administrative costs.
The company’s business was affected by the outbreak of the Covid-19 pandemic and by its transformation into an “asset-light business model”, under which Daphne will focus on brand management. It aims to act as “a bridge between franchisees and licensees and the supply chain.”
As part of it transition to an asset-light business, Daphne closed 183 stores, 110 directly-managed or in partnership and 73 franchised shops, from 425 stores at the beginning of 2020 to 242 at the end of the year. After about six months of preparation, the company started rolling out the licensing business in late 2020. In the full year, licensing fee income rose to HK$ 5.2 million (€0.6m-$0.7m) from nil in 2019.
With the new business model, the company has shifted its focus from production management to product research and development and design, promotion, and supply chain quality control. The role of initiating order placement and production has been passed to franchisees and licensees, allowing them to decide on the models, quantity of orders and launch date according to their respective market segments.
The new structure “greatly eases” pressure on inventory management for Daphne and provides greater flexibility and autonomy to franchisees and licensees, allowing them to implement the best marketing strategies in their markets, it explained.
To ensure a better understanding of the demands of various market segments and to obtain product feedback, Daphne plans to organise more procurement conferences. Besides allowing the presentation of its latest products, the conferences will provide the company with an opportunity to communicate with its franchisees and licensees and listen to the feedback from customers.
Daphne expects the dialog with franchisees and licensees will enable it to launch more products that are tailored to meet market needs. It noted that in addition to flagship product series like “Ascent”, which are capitalizing on the growing popularity of national culture in Mainland China, the company has launched products with regional characteristics, in order to meet the needs and preferences of different consumer groups.
Daphne hightlighted the “immense” opportunities offered by e-commerce. With its new business model it plans to focus on brand promotion and on designing styles that are well-received online. In 2020, the company failed to make progress in e-commerce, whose revenues fell to HK$ 148.3 million (€16.2m-$19.1m) from HK$ 215.3 million (€23.6m-$27.7m) in the previous year.
On Oct. 14, 2020, the company raised a net HK$57.3 million (€6.3m-$7.4m) from the issuance of new shares and of convertible notes. The proceeds were mainly used for the settlement of trade payables to suppliers and the payment of merchandises, as well as in improvement of the e-commerce business platform.
During 2020, Daphne also drastically cut capital expenditure to HK$3.6 million (€0.4m-$0.5m) from HK$26.4 million (€2.9m-$3.4m) in 2019.
The company noted that its business model “is still nascent” and that it will continue to review and adjust it to achieve its development strategies. Daphne was once China’s largest footwear retailer with nearly 6,900 stores in 2012. Its revenues have been regularly declining since 2013.
It is incorporated in the Cayman Islands and is listed on the Hong Kong stock exchange.