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Chinese Investment Takes a New Turn

Menswear and sportswear brands are investing money abroad, but there's no short cut to building premium brands.
Image from Kitsuné's “Reishiki” capsule collection shot by Ren Hang | Collage by BoF
By
  • Zoe Suen
BoF PROFESSIONAL

CANNES, France — The Cannes Film Festival has become an interesting microcosm of China's evolving role in the world. The event is a favourite platform for Chinese firms to project global ambitions — or at least buy a bit of prestige for their brand. Take Chinese menswear company Joeone, which doubled as the festival's menswear partner for its Sino French night.

Although the details of the deal were not made public, the star of the night certainly was. When Li Guangjie — of the $700 million-grossing sci-fi epic “The Wandering Earth” fame — stepped onto the red carpet in a black tuxedo by the brand, it wasn’t Joeone’s first international push. Earlier this year, the giant formed a 50/50 joint venture with French brand Maison Kitsuné, and voiced plans to open 50 points of sale in the mainland by 2024.

But don't be fooled by its red-carpet antics: Joeone isn't China's answer to Tom Ford or Berluti. The Fujian-based brand calls itself China's top trouser maker by market share, and most of their trousers are priced below 500 yuan ($72). For the first quarter of 2019, Joeone reported 801 million yuan ($115.8 million) in revenues, a year-on-year increase of 7.2 percent.

Li Guangjie on the Cannes red carpet | Source: News.cn

Indeed, it is Joeone's price point that explains its motives for overseas investment. As China's consumer upgrade gains traction, the country's brands are responding by making efforts to "premiumise" their portfolios. And Joeone isn't the only ambitious menswear company ready to invest in an international spotlight.

Competing in Capital

For domestic brands looking for an upgrade, investing in foreign brands is a well-trodden route. The industry is familiar with China's luxury investors, headed by Shandong Ruyi (SMCP, Aquascutum, Gieves & Hawkes, Cerruti 1881), Fosun Fashion Group (Lanvin, Caruso, Wolford, St John Knits) and Gansu Gangtai Holding (Buccellati).

However, among lesser known investments are those led by China's menswear and sportswear giants: In addition to Joeone's Kitsuné joint venture, Anta Sports — the largest sports brand in China behind Nike and Adidas — acquired Fila's mainland operations in 2009, followed by Finnish Salomon, Arc'teryx and Peak Performance owner Amer Sports for $5.2 billion in late 2018.

Chinese menswear giant Septwolves bought an 80 percent stake in Karl Lagerfeld's China operations in 2017, the same year L Catterton-backed and recently listed menswear retailer GXG formed a joint venture with Australian compression activewear brand 2XU.

Vintage Fila campaign | Source: Courtesy

China’s thriving menswear market is pushing local players to assert their dominance. “Millennials are getting married later, making more money and are less traditional than before,” Azoya Consulting’s Managing Director Elena Gatti tells BoF.

“[Men are] more willing to spend money on themselves, and apparel and fashion is one segment that will benefit from this 'premiumisation' trend.” Social media, influencers and evolving gender roles are also contributing to a rise in male spending. According to Zhe Tao, research data analyst at Daxue Consulting, China’s menswear market was worth 676.1 billion yuan ($97.5 billion) in 2017 and is expected to reach 979.3 billion yuan ($141.2 billion) by 2020.

As such, it’s no surprise that local menswear companies are pulling out all the stops to win over consumers. “Traditional Chinese menswear brands with almost identical styles and promotions are facing challenges from foreign competitors,” says Zhe, explaining that “the ambitions of competing in international markets require [some] local brands to establish an international image.”

In other words, some Chinese menswear players are looking at international investment as marketing but only a few have serious plans to expand their footprint beyond China.

Chinese menswear groups “often are good at operations and manufacturing but have less background in marketing,” says Ben Cavender, principal at China Market Research Group. “As a result, they believe that acquiring smaller foreign brands will allow them to leverage existing brand cache, while putting money into retail expansion and product development.”

The Investor’s Dilemma

For foreign brands, the benefits of linking arms with a Chinese group are obvious: they can leverage the investor or joint venture partner’s resources and experience across operations, marketing and distribution to break into China’s unique e-commerce landscape.

Having a local partner with relationships with landlords, knowledge of local culture and a proper logistics set-up in place is very helpful.

“We wouldn’t have taken the risk of going in alone,” Kitsuné’s Founder and Chief Executive Gildas Loaëc tells BoF. “Leases are really high over there and it’s a particular territory in terms of culture, so having a local partner with relationships with landlords, knowledge of local culture and a proper logistics set-up in place is very helpful.”

Meanwhile, Kitsuné will launch its first mainland pop-up shop in Shanghai’s Xintiandi this September, and Loaëc tells BoF that other leases have also been signed. But, rather than its original plan of 50 Chinese outposts, Loaëc says the brand is now expecting to launch a modest 20 by 2024. “We want to work deeper in terms of our offerings, locate our stores in bigger spaces and more premium environments than we originally thought.”

Thankfully for some investors, investments already appear to be paying off. Anta in particular reports that Fila’s sales exceeded 10 billion yuan ($1.44 billion) in 2018, while Anta’s total revenues hit 24.1 billion yuan ($3.48 billion) the same year.

“We acquired Fila that was in great loss in 2009,” Christina Li, Anta’s vice president tells BoF. “Under [our] operation and management, Fila has become the second brand in the group with sales of over 10 billion yuan after Anta.”

ANTA Sports advertisement | Source: @antasportsofficial Instagram

Anta's efforts to reboot Fila's appeal included tapping millennial ambassadors such as teen star Roy Wang and inking a collaboration with New York-based Jason Wu. However, Li maintains that the Anta brand is still the group's cash cow, and that "Anta and Anta Kids are increasingly favoured by the young customers."

A diverse portfolio can give homegrown brands a competitive edge. “[Chinese] brands that invest abroad try to develop a strong brand portfolio that allows themselves to compete on different levels,” Zhe adds. “With [help from] the invested brands, they can acquire new customers, advance technologies and experience [international sales] channels.”

Yet the successes of Li Ning and Peacebird show that investing abroad isn't the only way to premiumise. Li Ning, a 29-year-old sportswear giant, developed a premium line of streetwear items, while Peacebird pivoted its advertising offerings to cater to a millennial audience. Both brands did, however, use New York Fashion Week as the platform to show off their revamped brand images.

But if international investments are done well, menswear groups could be buying into something else. “There is a lot of demand for collaborations and for premium niche brands right now in China, so it is possible to purchase the right foreign brands and then do interesting concepts with them [that] generate quite a bit of consumer interest,” Cavender continues.

“But it takes careful planning and execution, or [their] efforts fall flat.”

时尚与美容
FASHION & BEAUTY

Prada's Spring/Summer 2020 Menswear Collection | Source: Courtesy

Prada Takes China Appeal to Next Level

The Italian fashion house held its Spring/Summer 2020 menswear show at a storage facility on the Minsheng Wharf. Models sported classically tailored and utilitarian suits and outerwear as well as the brand's signature colour-blocking with pastels and neutrals, and novelty prints featuring VHS camcorders and cassettes and 50's bowling bags added retro touches to an otherwise modern wardrobe. The brand has also announced an exclusive launch with retail giant JD.com for its annual "618" shopping festival, and signed teen idol Cai Xukun as its new ambassador. Considering the brand hasn't fared well amid China's economic slowdown, it's pulling all the stops to give demand a boost. (BoF China)

Made in China Challenges Iceland’s Knitters

Thick and hand-knitted "lopi" sweaters are an Icelandic icon. However, local knitters are troubled that profit margins are being affected by outsourcing to China, which allows for lower labour costs using the same icelandic wool. Cheaper Chinese imports have taken an estimated two-thirds market share, and co-ops are worrying about their businesses, which depend largely on tourist spending but lack the requisite manpower to bring knitting back home. (SCMP) 

P&G Relaunches Skincare Brand Oriental Therapy

After an unsuccessful launch in 2013, P&G is bidding on its new and improved skincare label Oriental Therapy ("东方季道") to give its offerings a much-needed push. The line, which spokespeople have positioned "below SK-II but above Olay," is now being sold on e-commerce channels including a Tmall, WeChat and Xiaohongshu. Stemming from Chinese traditional herbology and featuring ingredients such as ginseng, saffron, white fungus and green tea, the brand also caters to a growing demand for homegrown beauty concepts. (Pinguan) 

科技与创新
TECH & INNOVATION

Source: Robin Worrall

WeChat’s New Feature Takes on Social E-Commerce

Tencent-owned super app WeChat has launched a new feature coined "Good Product Circle" (好物圈) as an add-on to its "Shopping List" feature debuted last fall, which allows users to manage all their orders from different WeChat mini program storefronts in one place. Now, users can recommend products to friends, access friends' shopping lists, and interact within e-commerce interfaces. As the influencer market becomes oversaturated and social buying apps such as Pinduoduo and Yunji thrive, WeChat's socialisation of purchasing functions within its ecosystem is also a challenge to archrival Alibaba, and takes the platform's customer relationships and advertising capabilities to the next level. (Jing Daily) 

Half of China Watches Vlogs, a Survey Shows

Though the US might have seen the rise of vlogs — or video blogs — occur a decade ago, China's vlog scene has been relatively nascent, until now. According to a survey conducted by China Youth Daily, 54.4 percent of respondents said they watched vlogs, while 29.1 percent said they created content themselves. What's more is that over 80 percent of the surveyed said they aspired to become a vlogger. Following the rise of livestreaming and short video platforms, China's tech sector is pushing for vlogs to become the next big media format, and platforms such as Billibilli, Vue Vlog and Weibo stand to gain as they become increasingly monetised. (Xinhua) 

Xiaohongshu Tests Livestream Function

Social e-commerce platform Xiaohongshu has reportedly been testing livestream functions on its app since June 7, allowing its users to engage with their followers and recommend products in a more interactive way. The platform has said that launching livestreams is key to bringing more value-added interactions to its users, who will be able to shop beauty products directly from the streams. Brands will also stand to gain from this addition, which is expected to branch out into "See Now, Buy Now" territory as the interface matures. (Ebrun)

消费与零售
CONSUMER & RETAIL

Inside Joyce's 2016 redesign in Hong Kong | Source: Courtesy

Joyce Announces Restructuring as Losses Mount

After suffering losses for four consecutive years, Joyce Group — the company behind Hong Kong's luxury multi-brand boutique — is ushering in corporate restructuring. Unable to keep up with an increasingly digital landscape and rising rents, the business saw its revenues drop 2.5 percent year-on-year to HKD $744 million ($95 million), accounting for 88.3 percent of the group's revenue, according to its latest earnings report. Joyce was founded in 1971 by Joyce Ma, who was responsible for bringing foreign designers such as Giorgio Armani, Kenzo, Comme des Garçons and Missoni to Hong Kong. But it remains to be seen whether the boutique, which was ahead of its time, can stay abreast of a changing retail landscape. (Jiemian)

Buoyed by Demand, Louis Vuitton Boosts Inventory in China

Strained relations between Washington and Beijing aren't getting in the way of LVMH's star brand. In order to meet growing demand, Louis Vuitton has increased its product inventory in the mainland. In the past nine months, the French brand has reportedly transferred a large amount of inventory from neighbouring countries to China's official e-commerce site, which accounts for 8 percent of its sales, says Citi analyst Flavio Cereda. Louis Vuitton's strong sales growth is undoubtedly a source of envy for US-based Tiffany & Co, whose sales to Chinese tourists fell by more than 25 percent last quarter. (Reuters)

Alipay Makes Inroads Abroad Thanks to Tourists Shunning the US

The retail giant's mobile payments arm Alipay has tripled its European merchants to "tens of thousands" in the past year, says Roland Palmer, head of Europe for the firm. According to Palmer, Alipay now has "around one billion" active users, and serves 55 countries globally, including 29 in Europe alone. Though retailers and manufacturers are bracing for further trade war repercussions, the exec is adamant that Chinese tourism in Europe is "booming" — perhaps thanks in part to the mainland tourists shunning the US for Europe(CNBC) 

政治、经济、社会
POLITICS, ECONOMY, SOCIETY

Protestors demonstrate against controversial extradition law in Hong Kong | Source: Shutterstock

In Hong Kong, Police and Protesters Clash

Following the mass march on June 9, the Hong Kong government has been forced to delay a debate on a highly contentious China extradition bill after police-protestor actions made a turn for the violent, and stand offs have continued through the night. There have been reports that tear gas, rubber bullets and pepper spray have been used by the police — which some argue counts as "excessive force" — and Hong Kong's Chief Executive Carrie Lam has released a short video reprimanding protesters for organising a "riot" and resorting to violence. (SCMP)

China's Big M&A Sprees: a Thing of The Past?

After years of splashy strategic acquisitions and foreign investments, record-making deals in the tens of billions are less likely to happen now that Beijing is adopting a more protectionist stance. Last year, the value of China's deals abroad dropped to $78 billion from a peak of $222 billion in 2016, but some investments are still safe: think infrastructure in emerging markets, projects falling under One Belt One Road, and foreign fashion brands, as the likes of Shandong Ruyi will be pleased to hear. Even so, it's hard to tell whether these targets could one day be blacklisted, as geopolitical winds shift. (Bloomberg)

As Carbon Emissions Spike, China Boosts Global Demand

The energy industry's carbon emissions are rising at their fastest rate since 2011, while China accounted for a third of the world's energy growth in 2018, says BP's annual global energy report. Due to extreme weather conditions and volatile global temperatures, demand for fossil fuels has risen, resulting in a carbon emissions hike of 2% last year, though the US' "outsized" energy demand was also to blame. (The Guardian) 

China Decoded wants to hear from you. Send tips, suggestions, complaints and compliments to zoe.suen@businessoffashion.com.

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