Fosun Looking At Foreign Luxury Segments For Overseas Investment
Fosun Group, the largest privately owned conglomerate in mainland China, announced last week in Shanghai that the company has signed a memo of understanding to purchase a 9.5 percent stake in Greece’s Folli Follie Group for US$121 million. Fosun, which went public on the Hong Kong stock exchange in 2007, is involved in a number of industries inside and outside mainland China, from pharmaceuticals, property development, steel and mining to retail, services and strategic investment.
More recently, however, Fosun has shifted its focus towards overseas investment in response to the growth of China’s consumer market, looking to build partnerships with premium international brands that have yet to fully tap China’s affluent spenders. Earlier this year, Fosun announced a US$600 million joint investment fund with Prudential Financial, designed to invest in Chinese companies as well as foreign firms. With Fosun’s highly publicized courting of the Greek jewelry, watch and accessories maker Folli Follie, it’s clear that Fosun is targeting vulnerable brands with foreign pedigrees that produce the kinds of products most sought after by Chinese middle-class consumers.
Since entering the China market in 2002, Folli Follie has expanded to around 102 locations in 29 cities throughout the country. With around US$90 million in annual sales, China currently accounts for around 10 percent of Folli Follie’s global revenue. While the company has recorded a 60 percent rise in sales year-over-year in the first quarter of 2011, following the capital injection Folli Follie has received from Fosun, expansion should only pick up speed. As Dimitris Koutsolioutsos, Chairman of Folli Follie, said last week, “We plan to open 250 new stores [in China] in the next three years under the partnership with Fosun.”
Fosun’s recent moves reflect, as the FT pointed out this week, the company’s desire to resemble long-term strategic investment firms like Berkshire Hathaway. During the announcement of Fosun’s investment in Folli Follie, company chairman Guo Guangcheng said Fosun’s role in Folli Follie will be restricted to that of a “helper,” and that Fosun will not intervene in the day-to-day management of foreign brands. Over the long term, Fosun plans to help the Greek luxury retailer attract more Chinese tourist-shoppers in Greece, particularly those passing through duty-free shops and high-end department stores at airports and seaports. As Guo added, in addition to its investments in the consumer and leisure segments, Fosun is currently seeking investment opportunities in the resources and technology sectors as well.
As Jing Daily has previously noted, since the global financial crisis of 2008-2009, global luxury giants have fought tooth and nail for more market share in the China market, which now accounts for over 25 percent of the world’s annual luxury consumption. As an “affordable luxury” brand, Folli Follie is well positioned to benefit from China’s growing consumer market, and considering the economic malaise that continues to hobble Greece, the role of Fosun should give Folli Follie the means to expedite its China expansion, localize its brand-building strategy, and reach the new middle class in comparatively untapped second- and third-tier cities.
Whether Fosun’s new strategy of more aggressive overseas expansion will benefit the company in the long run is up for debate. However, it’s clear that Fosun is looking to play up the “win-win” side of business partnerships in its overtures to international brands, looking to capitalize on good investment opportunities abroad while helping foreign premium brands expand in China’s prized consumer market. The question, then, is: who’ll be next?