The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
HONG KONG, China – More than a century has passed since the Fung family began selling porcelain, silk and fireworks from a trading post in the twilight years of Imperial China. Today, the great-grandson of founder Fung Pak-liu oversees a global supply chain empire called Li & Fung that is worth $8.6 billion.
Last July, people barely batted an eyelash when Spencer Fung was anointed CEO of this sprawling firm. His uncle William and his father Victor Fung had been grooming him for two decades, while they worked in varying degrees of fraternal harmony – one securing contracts from giants like Target, Walmart and Marks & Spencer as the other grew the family holding company on the back of profits made from Gieves & Hawkes and Tommy Hilfiger.
That the reins of the company would be passed down to the fourth generation was practically a foregone conclusion in a region where family values are often hardwired into the business culture. Spencer Fung’s forebears, however, were never quite so sure such a thing would come to pass. Bringing a business down the bloodline from the Qing Dynasty through the Space Age and out the other end of the Information Age – as they did – wasn’t always as uneventful as this latest Fung family coronation.
The most decisive moment of all, according to one Fung family chronicler, came in 1931 when there was an attempted “mutiny” by a wily nephew of the founder. Ancient history though this may now be, the story of dynastic intrigue is one that still reverberates around Asia’s fashion industry today.
“There’s always the danger of a wayward next generation,” says Pat-Nie Woo, a director at auditing firm KPMG who is developing a family business division in Hong Kong. “That’s why it’s so important to have the family governance structure in place so that whatever mistakes the next generation makes, the risks are contained.”
As a garment export hub for much of the last century, Hong Kong is home to several other business dynasties that began in the textile and apparel trade before diversifying into manufacturing or retail. Michael Tien Puk-sun, for instance, founded the mass-market fashion brand G2000 after his father and grandfather laid the groundwork in textiles. Apparel manufacturing giant TAL Group is owned and managed by a father and son team in Harry and Roger Lee while Wing On department store has been in the Kwok family for over 100 years.
Similarly, Walter and Joyce Ma can trace their fashion family connection back to the 1900 founding of the Sincere Department Store in Hong Kong. Even when they decided to sell up a few years ago it was to another Hong Kong dynasty, Peter Woo, whose daughter Jennifer Woo is now the chairman of Lane Crawford Joyce Group.
Though a few fashion family scions inevitably spend years in limbo on the social circuit, others explore personal passions and new industries. Malaysian market observers say that Shabnam Melwani of the Jay Gee Melwani Group wanted to continue her career at MTV, but returned to the family fold in time for her father's passing. Melissa Ong famously launched London's Met Bar before joining her mother Christina Ong's designer distribution empire Club 21 and the Mulberry board.
“Asian family businesses face similar issues as those in the West [but] close family ties are ingrained in many Asian cultures,” says KPMG’s Woo. “The whole definition of family is changing in the West while in Asia it’s remained relatively intact. Legacy and the family name are especially important here [so] the families usually remain in control even after their company goes public.”
According to the Economist Intelligent Unit, family-run firms now account for more than 60 percent of all listed companies in South East Asia, where they frequently outperform their non-family peers. The majority of these are first-generation firms, which will soon see members of the second generation jostle for control, stake out new opportunities and debate future directions.
Heirs to the Throne
“I sometimes think it’s more about the apple not falling far from the tree,” says Dirk Luebbert, the Kuala Lumpur-based managing director and husband of Melinda Looi, designer of the eponymous Malaysian fashion brand.
“The decision to have family members run the business is often just a question of trust, tradition and financial legacy even if it comes [at the expense of] skills. I have to admit I might one day fall for the same subjective approach,” he adds, referring to the future of his four young children.
Even if a fashion firm’s next generation is sufficiently talented and trained to fill the shoes of an entrepreneurial parent, there are several other potential pitfalls that can arise, such as feuds, successor apathy, vanity projects or a lack of professionalism.
But according to Luebbert, some of Malaysia’s biggest conglomerates are running the business very effectively through the second or third generation such as the Yeoh family of YTL Corporation which owns luxury malls like Starhill and the Cheng family of Lion Group which controls the department store Parkson.
“But what I found rather smart is that some of them are putting the next generation in charge of investments rather than management. I guess maybe I should suggest my kids study accounting rather than fashion,” he jests.
Two business-savvy daughters of Hong Kong tycoon Silas Chou are about to do just that. Having witnessed their father invest in brands like Karl Lagerfeld and Michael Kors over the years, Veronica and Vivian Chou are now rumoured to be eyeing up online fashion acquisitions of their own.
The youngest generation often find it makes more sense to branch out or take a step sideways from the core family fashion business. For Victoria Tang, daughter of Shanghai Tang founder David Tang, that meant pursuing fashion photography at Central Saint Martins but ultimately joining the family fold as the creative head of the family’s homeware brand.
“I think it’s important to allow the next generation to try new things, and even to fail. With the global marketplace changing so rapidly – in particular with ecommerce, ominchannel and the Internet of Things, what worked in the past will not work going forward. So it’s very important to seek ideas from the young generation – but within a well-managed framework,” says KPMG’s Woo.
Some heirs eventually feel the need to create a legacy of their own. Adrienne Ma managed her mother’s eponymous Joyce boutique chain for over a decade, but she left after spotting niche market opportunities like rare designer vintage collectables and discount designer e-tail.
In Thailand and the Philippines, the extended families of omnipotent local fashion barons are carving out complementary enterprises. Barom Bhicharnchitr is experimenting with a multibrand format called Siwilai, with the help of his uncle Tos Chirathivat's enormous Central Group, while Anton Huang heads up the Store Specialist Inc joint-venture division of his mother Zenaida Tantoco's storied Manila luxury department store Rustan's.
Feuds and Feudalism
Things can get much more complicated when family firms face unprecedented growth. In South Korea, where the country’s chaebols [conglomerates] have dominated business since the 1960s, serious divisions have emerged between the scions of these gigantic firms, spanning everything from electronics to fashion to entertainment.
Bitter feuds and legal battles have prompted the fashion assets of chaebols to be spun off into new corporate units. The problem is that they often get even more tangled because of frayed family ties that linger as a result.
"These three groups were once sister companies under one mothership but now they're more like life-threatening rivals," says Inhae Yeo, a Korean fashion consultant and contributor to Vogue Korea. "The fashion divisions are led by third generation cousins Chung Yoo-Kyung of Shinsegae and Lee Seo-Hyun of Samsung Fashion as well as Lee Mee-kyung of CJ Group. But in this family business, it's certainly no longer a pie to be shared."
Some analysts believe that part of Korea’s recent boom for international designer fashion can be attributed to this family clash. Shinsegae-owned Boon the Shop and Samsung-owned 10 Corso Como Seoul are just two of several multi-label boutiques that have been on a buying frenzy – fuelled in part by a game of one-upmanship.
“Feudalism still runs deep in the culture of many Asian countries,” says Tran Nguyen Thien Huong, the chairwoman of Sun Flower Media which publishes Harper’s Bazaar and Esquire in Vietnam. “Many business secrets were passed from fathers onto their sons [because] the legal systems in many Asian countries have been weak.”
On the other hand, she says, the family business model can prove to be particularly resilient during times of crisis as family members can cut costs, pull together and mobilise capital from within. Like in Mainland China, Vietnam is at the stage where most fashion firms are still controlled by the founding entrepreneurs but there is one family business that is taking shape.
"Le Hong Thuy Tien and Johnathan Hanh Nguyen of Imex Pan Pacific Group [IPP] distribute luxury brands like Chanel, Ferragamo and Cartier and, yes, their children are expected to take over the business from the parents in a few years," she says.
Because of its history, market maturity and prohibitively high inheritance taxes, Japan seems to be an anomaly in the region and it has few family businesses in fashion retail. "After World War II, there was a policy to dissolve the zaibatsu [conglomerates] and dismantle family-owned enterprises like Mitsui, Mitsubishi, Sumitomo and so on," says Mitsuko Watanabe, the editor-in-chief of Vogue Japan.
"But recently, Tadashi Yanai [of Uniqlo] has assigned his two sons [Kazumi and Koji Yanai] to important positions though we don't know yet how they will be involved in future management."
Passionate and Proficient
Throughout South East Asia, certain diaspora trading communities, like the Chinese and Indians, have made a big impact on the formation of regional family firms. Baghdadi-Jews like the Sassoons — dubbed ‘the Rothschilds of the East’ — have been in the region for 200 years. But in some parts of Asia, the rise of family firms had more to do with political or structural issues than culture.
“The most successful are often diversified groups or loose conglomerates which include banking, real estate and retail. These three businesses form a strategic scale and, in fact, many of the leading family-owned fashion retail companies in Indonesia are part of a larger group [like this],” says Jati Hidayat, editorial director of the Jakarta-based publisher Femina Group.
“Capital market liberalization is also relatively new across much of Asia – in Indonesia it happened in the mid-1990s – hence most companies only float about 20-40% of their shares to the investing public [so] the founding families remain in control.”
The result, say insiders in Jakarta, is that a web of extended families and rival clans control the majority of the fashion market and that only a handful of family names – like Nursalim, Gozali, Darmawan, Riady and Moran – appear whenever a major deal is struck.
“Having a passionate and knowledgeable leader rather than some colourless company bureaucrat can be a big plus, but in order to provide shelter from market turbulence they need to be visionary yet disciplined – oh, and either have strong financial acumen or access to capital,” Hidayat adds.
Sometimes a new generation is needed to reinvigorate the family firm. By creating a careful division of labour, the three brothers of the Malaysia’s Valiram Group, were able to secure deals with the likes of Hermes, Canali and Jimmy Choo when they took over. So too for Singapore-based FJ Benjamin where the brothers now occupy clearly defined management roles in the ventures they run for brands like Céline and Givenchy – although interestingly they brought in a chief executive from outside the family a few years ago.
“Fresh blood and outside experience are often necessary for sustainable expansion,” says Olga Iserlis, a well-connected event organiser for luxury brands like Louis Vuitton in Singapore.
“But the younger generations here are taught from a very early age to respect the legacy of the founding patriarch, and to know their duty in the hierarchy. In Asia, that means duty to the family and duty to the family enterprise.”