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Chinese Firms Flex Investment Muscle Abroad

In this month’s China Edit, Chinese companies keep snapping up international fashion assets, Galeries Lafayette plans further expansion on the mainland and Diesel teams up with Li Yuchun.
Karl Lagerfeld Autumn/Winter 2017 campaign, photographed by Karl Lagerfeld | Source: Courtesy
  • Gemma A. Williams

JINJIANG, China — It was a flurry of activity this month in the Chinese investment sector as the battle for market share intensifies among fashion players. No longer content with national domination, Chinese companies are increasingly shopping abroad as they look for ways to build their presence overseas while strengthening their reputation at home.

Take menswear giant Septwolves: while the name might not ring many bells outside China, the brand's parent company Fujian Septwolves Industry Co. Ltd. announced that it will acquire an 80 percent share in Karl Lagerfeld Greater China Holdings (KLGCH). Last year the firm reported a net profit of 267 million yuan ($40.5 million at current exchange). Due to KLGCH's late entry into the market, the deal will likely provide the company with a much-needed boost thanks to its experience in distribution and local resources.

The deal is a feather in the cap of the Fujian Septwolves chairman, Zhou Shaoxiong: not only will he gain access to the international networks of fashion icon Karl Lagerfeld, but he will also benefit from an increased international brand awareness of his Chinese portfolio. However, what may at first glance appear to be a prestige target is in fact a decidedly strategic investment.

According to Jing Daily, Fujian Septwolves's representatives suggested that its move into the accessible luxury sector could accelerate the transformation of the company's retail model. Fujian Septwolves already distributes international luxury brands in China including Italian labels Versace and Canali, and in March of this year the firm diversified into media, acquiring a 30 percent minority share of Modern Media's digital division.

What this and other recent deals demonstrate is just how creative some Chinese companies have become in their quest for global influence. According to Avery Booker, founder and chief executive of Enflux, a predictive global influence mining and monitoring platform, “What's notable now is that international acquisitions are no longer the reserve of the biggest and most well-known Chinese companies, or even those with strong footholds in the higher-end market.

“This is particularly true for Septwolves and Ellassay, two players more suited to China's second- or third-tier markets. Ellassay is now becoming somewhat more confident, having purchased [French luxury brand] Iro earlier this year,” he adds.

Shenzhen Ellassay Fashion Co. Ltd. has been building up its portfolio since 2015. Earlier this month it purchased a majority stake in Vivienne Tam's China rights. The deal includes plans to open a number of stores in China before the end of the year, with further openings planned for 2018. As Vivienne Tam has a limited presence in China, Booker considers this deal a harbinger of things to come: "What makes it an interesting acquisition for Shenzhen Ellassay is that the company clearly has ambitions to snap up even more established global brands as it looks to become a high-end player in China. So the question becomes what might be next?"

Some of these companies simply have too much cash lying around.

China’s Alibaba has allegedly been looking to expand in the US for some time; it was even rumoured to be eyeing up target subscription start-up Stitch Fix before further reports of the San Francisco-based company filing for an IPO began to circulate. “The Stitch Fix rumours are compelling because they indicate how Alibaba's international ambitions are only intensifying,” Booker says.

Hot on Alibaba's heels, rival continues its own expansion trajectory abroad, pushing into Southeast Asia through Thailand, where the e-commerce market — currently valued at $900 million — is expected to grow by 29 percent in 10 years. According to people familiar with the matter, is in talks with Thailand's Central Group about a joint e-commerce venture; further sources report that the Chinese retail giant also invested $100 million in Indonesian logistics and payment start-up Go-Jek.

This month’s deals are just the latest in a succession of rounds where Chinese firms have targeted brands based outside China’s borders. Gangtai Group purchased an 85 percent stake in Italian jewellery brand Buccellati in December 2016, while Chinese textile company Shandong Ruyi acquired British heritage brand Aquascutum, as well as a major stake in SMCP, the French company that owns contemporary brands Maje and Sandro.

While earlier acquisitions raised some eyebrows in fashion industry circles, Booker believes that this month’s increasingly aggressive M&A pace demonstrates that many more China-based players are interested in flexing their investment muscle abroad. “[They] do indicate that the phenomenon of Chinese companies shopping for deals abroad will only increase, regardless of the performance of the Chinese market,” he explains, “Some of these companies simply have too much cash lying around.”

In Other News…

Galeries Lafayette is set to open a second Chinese store. Bucking the recent trend of a more cautious expansion approach, France's oldest retailer will cement its presence in China with a new branch on the Chinese mainland. The new Pudong-based store will supplement the existing Beijing site, which has been in operation since 2013. Scheduled to open in a newly built shopping mall in Shanghai's financial district, it is earmarked for completion before end of 2018.

Li Yuchun (also known as Chris Lee) is Diesel's new global ambassador. This follows the Chinese singer-actress' appointment last year as Gucci's ambassador to Asia, her deal with L'Oréal cosmetics, and her runway appearance at Diesel's Fashion for Relief with Naomi Campbell during Cannes Film Festival. Her collaboration with Diesel — entitled "Go With The Flaw" — plays up her boyish androgynous style and is due for release soon.

Trump signs executive memorandum on China's trade practices. This month the President took the first step in a series of potential future actions, which could ultimately result in the US imposing trade sanctions on China. The US already reviewed the country's intellectual property laws earlier this year but the new memorandum will determine if a dedicated investigation is necessary. While some Chinese companies have made strides toward combatting counterfeiting, the Commission on the Theft of American Intellectual Property mentions China as the world's principal intellectual property infringer, accounting for the vast majority of counterfeit goods entering the country. The memorandum comes amid continued frustrations over the American trade deficit with China.

Pre-owned luxury fails to take hold in China. Despite the creation of platforms like Liwo specialising in second-hand luxury, and the rise in authentication services, the industry is still worth less than $1.5 billion according to China's Second-Hand Luxury Goods Working Committee. According to the committee's recent study, the concept of pre-owned is failing to make a dent in China's luxury market, which is worth over $50 billion.

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