Fashion editor Ye Qizheng (叶琪峥)
Following the recent takeover of the Cerruti fashion house by Li & Fung, and the observation by WWD late last year that Chinese and other Asian firms are "on the prowl" for recession-dinged Western brands, the Chinese-language media has been asking whether M&A is a feasible shortcut for China to make the shift from production base to fashion center. This week, BundPic speaks to Fashion Trend Digest (观潮网) editor Ye Qizheng (叶琪峥) about this possibility, specifically asking whether acquisition is a shortcut or a dead-end for Chinese companies in the fashion industry. From the interview (translation by Jing Daily team):
BundPic (B): Japan, South Korea, Hong Kong, and a number of Arab countries have already set a precedent for acquiring overseas brands, yet mainland China seems to be drawing a blank in this regard. This year, do you think Chinese companies will be able to acquire top-notch brands?
Ye Qizheng (Y)
: It's not impossible, but it's hard to say whether it'll happen this year. Compared with the competition, the advantage that Chinese companies have is ample capital and comparatively easy financing, and also the RMB should continue to strengthen. The biggest disadvantage is that they're lacking talent, which leads to a lack of information channels and issues with negotiation and management. Another issue is that most of the companies looking to acquire other companies are privately owned, rather than publicly listed, and lack the financial strength of state-owned enterprises. This makes it difficult for them to compete with Indian or Middle Eastern companies.
B: In 1989, the Hong Kong businessman Kenneth Chan acquired the Canadian brand Ports, which has, since then, become very popular in the Asian market. Under the direction of Taiwan's Wang Xiaolan, Lanvin has been revitalized. What inspiration can mainland Chinese enterprises glean from these two successful examples?
After its takeover, Ports moved its headquarters from Canada to Xiamen. In fact, after acquiring the brand, Kenneth Chan shifted his focus almost entirely to the China market, though in recent years Ports 1961 has begun to re-enter the North American market. So, essentially, the acquisition of Ports was really designed as an acquisition of a trademark, then the brand started over again in China. Wang Xiaolan has done a great job reviving Lanvin, and this most recent partnership with H&M really did a lot to expose the brand to a wider audience. However, Lanvin's sales to date aren't huge, so it's difficult to say whether they're turning a profit.
These two examples tell us that companies shouldn't expect immediate profit from the companies they acquire, and that it's better to have a long-term perspective. But I doubt there are many companies in China that are willing to lose money for a whole decade.
B: What kinds of brands are the most attractive for Chinese companies to acquire?
Probably mid-range or mass-market brands. Although luxury sales in China have soared in recent years, they still only account for a small percentage of total retail figures. Also, it's very difficult to run a luxury brand. Not only do you need able management, you need cultural heritage. But mid-range and mass market brands can be completely made in China, so there are more options. It's best to have a certain domestic reputation and be able to cater to the specific demands of the Chinese market.
B: China wants to move from being a fashion manufacturing and consuming country to a design and brand power. Is acquisition a shortcut, or a dead-end?
It's definitely a shortcut, because it's very difficult to start a brand from scratch. But if they don't put the necessary funds or effort into running the brands they acquire, for some companies it can be a dead-end.