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Chinese Investors Woo European Brands. It’s Complicated.

Chinese backers have snapped up distressed European fashion labels hoping to tap the country’s millions of heritage-hungry millennials. But things haven’t always gone to plan.
Lanvin show at Paris Fashion Week Autumn/Winter 2019 | Source: INDIGITAL.TV
  • Laure Guilbault

PARIS, France — Over the past half-decade, Chinese investor appetite for European heritage brands has grown, with firms like Icicle Fashion Group snapping up bankrupt label Carven and Fosun taking a majority stake in long-troubled Lanvin.

The common denominators are the prestige of the brands being acquired, their state of distress and the opportunity to return them to health by expanding their presence in China, the world’s largest luxury market.

But not every deal has been fruitful.

Consider the case of Hong Kong investment group First Heritage Brands, which bought Sonia Rykiel in 2012 and is already looking for new investors to take control of the brand having hired Rothschild to handle the potential transaction, according to financial sources. This comes after several cash infusions and restructurings have failed to right the label. Currently, annual sales are about €30 million, sharply down from €84 million in 2011, according to market sources. The company has recently closed stores in New York, London and Luxembourg, and is trying to avoid entering receivership.


Then there's Shanghai-based Gansu Gangtai Holding, a major jewellery distributor and gold mine-owner, which is reportedly seeking a buyer for Italian jeweller Buccellati, having defaulted on a loan. Meanwhile, Shandong Ruyi is yet to complete the acquisition of Swiss luxury shoes and leather label Bally from JAB Holding, the Luxembourg-headquartered investment vehicle. The deal was inked in February 2018 and appears to be at a standstill.

Three or four years ago, Europe was the El Dorado for Chinese investors. Today, things have changed.

"Three or four years ago, Europe was the El Dorado for Chinese investors. Today, things have changed," said a banker who was granted anonymity because he is active in the industry, noting the role of a new Chinese government policy, which throws hurdles in the way of mainland Chinese investors seeking to invest money abroad.

But despite the setbacks and policy shifts, the Chinese shopping spree for European fashion brands with cultural equity seems set to continue. Martine Leherpeur, founder of the eponymous Paris-based advisory firm, where 80 percent of her clients are Chinese, explained, “They're interested in brands of a certain size with a story to tell and possibly an incarnation, which millennials, who make up a major part of the Chinese consumer base, are fond of.”

"Chinese millennials are looking for three things: experience, heritage and quality," added Julie Laulusa managing partner of French firm Mazars for mainland China. And, for many, European fashion brands tick at least two of the boxes.

Plus, there are plenty of distressed brands that need investment and not many takers. The big luxury groups aren’t interested in these turnaround stories and private equity firms tend to be skittish when it comes to struggling businesses. But Chinese investors often have the liquidity and are ready to take the risk.

Pierre Mallevays, managing partner of London-based M&A advisory firm Savigny Partners, noted that there are two primary types of deals. The first are strategic investments that aim to tap industrial synergies with existing portfolios. Here, key examples include Shandong Ruyi (SMCP, Aquascutum, Gieves & Hawkes and Cerruti 1881); Icicle (Carven); and Gansu Gangtai Holding (Buccellati). Then, there are financial investments by the likes of Fosun (Lanvin, Caruso, St John Knits), Fortune Fountain Capital (Baccarat); and First Heritage Brands (Sonia Rykiel, Delvaux, Clergerie).

In both cases, investors aim to take advantage of their knowledge on their local market to boost sales of the French brands in China.

Under Fosun, Lanvin has expansions plan in Asia, including two new stores in Shanghai and Hong Kong by the end of 2019. An exhibition about the “new Lanvin,” its future and its history is scheduled to open early December at the Fosun Foundation in Shanghai.


Chinese millennials are looking for three things: experience, heritage and quality.

"In terms of the retail network, I think [Jean-Philippe Hecquet, Lanvin chief executive appointed in August 2018] will focus on growing the key markets, including Europe, yes, and Greater China," Joann Cheng, chairman of Fosun Fashion Group and Lanvin, said last October in the latest BoF and McKinsey & Company State of Fashion report.

“Our vision is clear with the same luxury positioning for Lanvin as it has always been, and our product offer will be global,” Hecquet stressed. “We can see that new creative direction proposed by Bruno Sialelli has already gotten very positive reaction in China as well as Europe and the United States,” he added.

Delvaux has opened dozens of stores in Asia since its purchase by Fung Brands in 2011. The Belgian luxury handbag label will count 45 stores worldwide by the end of this year, a majority of them located in Asia.

For strategic investors, the halo effect that European heritage brands can bring to their local portfolio is often critical. “Since 2017, local brands are getting more high-end, it's an underlying trend” said Laulusa. “Having an international brand in your portfolio helps in that regard."

Case in point: Icicle Fashion Group’s ready-to-wear label, which has 260 stores in China, could benefit from the prestige of being associated with Carven when Icicle opens its first store overseas on Paris’s Avenue George V in the second half of 2019.

“Icicle founders [Shouzeng Ye and Shawna Tao] feel strongly about keeping the Parisian spirit of the [Carven] couture house,” said Isabelle Capron, vice president international of Icicle Fashion Group. The plan is to roll out Carven in select Icicle stores and open Carven standalone stores in the Middle Kingdom before redeploying the brand in Europe in 2021.

Production will happen in Icicle’s high-end facilities in China, according to Capron. The executive dismissed the idea that Carven could suffer from the bad reputation associated with Made in China. “The products will be made in very noble materials and desirable enough to speak for themselves,” she said. And the Icicle brand planting a flag in Paris will help lay the foundation for what she called the “new Made in China” associated with quality, and turn thinking around. “It’s a win-win situation,” Capron insisted.

I think it's unfair to say that Chinese investors only expect fast ROI.

A creative director and general manager for Carven have yet to be named, following the departure of Serge Ruffieux and chief executive Sophie de Rougemont. “We are in no rush. Because we have great respect for the DNA of the house,” Capron said.


The right choice of management will be critical to success. Chinese backers tend not to get involved in the day-to-day operations of the brands they acquire. Julie De Libran, the former Sonia Rykiel creative director who left the brand amidst charges that it has refused to honour her contract, said the Fung brothers supported her work, but from afar. “I don’t think they wanted to get involved in micromanagement.”

That's especially true when things are working. For example, Shandong Ruyi kept Daniel Lalonde as SMCP chief executive when it bought the group in 2016. Under his leadership, the group surpassed the €1 billion annual sales mark last year, from €786 million at the time of the acquisition.

That said, when the right management isn’t in place, things can be trickier. “They're very respectful of the brands and they know what they don't know. But they aren't good at finding the right people both on the executive and creative fronts if they aren't already in place," said Leherpeur, who is often solicited for recommendations.

"In China right now, there's a limited talent pool of people with operations experience after the equity buyout deal is complete; most of the time it's the investors in charge of the operations. In these cases, the outcome is usually not ideal," added Xin Wang, who led M&A projects like Gentle Monster and Acne Studios at IDG Capital.

Some say Chinese backers have limited patience and expect too fast a return, but not everyone agrees, he said, citing the fast-moving nature of the market. “Now with the fast development of China's consumer market, good projects are also developing very quickly. So, I think it’s unfair to say that Chinese investors only expect fast ROI,” said Xin Wang.

"They are good strategists,” said Leherpeur. “They know where to put their stones on the game board.”

Additional reporting by Denni Hu and Cathaleen Chen.

Related Stories:

Julie De Libran in Dispute with Sonia Rykiel Owners Opens in new window ]

China's Icicle Buys CarvenOpens in new window ]

Shandong Ruyi Buys Swiss Luxury Brand BallyOpens in new window ]

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