China's acquisition of the road to luxury Chinese brands

44 years of leathersmith, 27 years of snoring, 20 years of designer, 15 years of sewing and 35 pieces of different sizes. In the factory of the Italian luxury goods group Tod's located in the Marche region, with the exquisite skills and complete facilities, the biggest feeling is that the ideals pursued by European luxury brands and the efficient thinking of Chinese society in business experience are This is out of place.

When I received the "model" medal awarded by the Italian President and the 77-year-old leather master, who showed different skins and told about their respective characteristics, I was almost certain that I would probably be in the next 20 or 30 years. In the lifetime of life, in the field of fashion, it is unlikely to see China's domestically created top luxury brands.

At the same time, however, this ancient industry, which pays attention to historical heritage and cultural heritage, is undergoing tremendous changes. These changes seem to increase the possibility of overturning the above conclusions.

First of all, the luxury industry's own fashion and trend attributes are increasingly strengthened. “The luxury goods industry is changing from 'luxury' to 'fashion', which is a very important trend.” Shenzhen Hemei Group Co., Ltd. (hereinafter referred to as “Hermei”, 002356), director and general manager Yu Yang pointed out.

Prior to joining Hemei, Yu Yang was the chairman of Shanghai Ou Lan International Trading Co., Ltd. Ou Lan has opened more than 80 agency brand stores in high-end department stores and shopping malls in Shanghai, Suzhou and Hangzhou. In 2017, Hemei joined the three cities and won a number of luxury agents and operators including Ou Lan. Guoxin Securities therefore stated in the research report that “the only one in the A-share market is the operation of luxury brands. Listed company of the industry".

Hemei is neither the only company that wants to be the boss of a luxury brand in China, and obviously not the first. Including Fosun International (00656.HK) and Shandong Ruyi Group (hereinafter referred to as "Shandong Ruyi"), including the past two years, Chinese enterprises growing at lightning speed, one after another the brand around the world put under the arm.

This is the second change that the luxury goods industry is experiencing from an industry perspective. Although it is not enough to disturb the entire luxury industry, the balance has gradually tilted. Even Bloomberg has written: "The rapid expansion of Chinese companies such as Ruyi Holdings follows the consistent M&A model of Chinese companies, which has been frequent in the past few years. The acquisition of luxury fashion brands." The title of this report is even more straightforward: "Beware, the Chinese version of LVMH Group is coming soon."

Therefore, perhaps in the short term, China cannot create a top luxury brand in the country, but a shortcut is clearly present: buy and buy.

Chinese consumers are not only the biggest customers in the luxury goods industry, but a large number of luxury brands in the future may also fall into the hands of Chinese companies. The prosperous Chinese buyers have pushed up the valuation of luxury brand manufacturers, but whether they can successfully increase the income and profit of the acquired brands and get good returns by grafting Chinese consumption power to international brands is a problem.

Enterprise relay consumption upgrade

It seems that Chinese consumers are not buying more examples of luxury goods. Not long ago, the world's largest luxury goods group LVMH released a bright 2018 quarterly report, and very clearly pointed out: "13% of revenue growth in the first quarter is mainly driven by the Chinese market."

According to Bain Consulting, the total sales volume of China's personal luxury goods market reached 20 billion euros (about 142 billion yuan) in 2017, a year-on-year increase of 20%, and the growth rate is far ahead in major regions of the world. From another dimension, in 2017, Chinese consumers contributed 32% of global luxury consumption and became the main growth point in the world.

Every time Chinese consumers gather to become the support of luxury brand sales growth, profit growth, stock price rise, not only that, their money bags have even begun to influence the design, marketing plans and financing decisions of luxury brands.

As early as 2010, Omega Greater China President Kevin Rollenhagen pointed out in an interview with New Fortune that in order to comply with Chinese consumers' preference for diamonds, Omega has added more diamonds to the basic series. Chinese buyers have become the third pole in the world of luxury goods, and it is no longer a new thing. By 2018, Tod's president Claudio Castiglioni even said bluntly: "The brand has a strategy specific to the Chinese market, and will study the preferences of Chinese consumers based on store data to cater to the aesthetics of Chinese consumers."

In view of the fact that Chinese consumers have swiftly swept luxury goods around the world, the international big name once regarded “listing in Hong Kong” as a fashionable choice, and calculated to further expand the brand's popularity and influence in Greater China, thus further Good use of Hong Kong as a springboard to dig deep into the consumption potential of the Chinese market.

Almost at the same time, Chinese companies began to practice “takenism” and attack overseas to buy ready-made luxury brands. In May 2011, Fosun International acquired a 9.5% stake in the luxury Greek jewellery brand Folli Follie for 84.5 million euros, followed by a close to 10% stake in the French travel resort group Club Med. At the beginning of 2012, Shandong Heavy Industry, the actual controller of Weichai Power (000338, 02338.HK), announced the acquisition of a 75% stake in the Ferretti Group, an Italian yachting company with high debts. Riva and Ferretti owned by Ferretti The two brands rank among the top eight yachts in the world. Coupled with the earlier Hong Kong Li & Fung, which bought the UK's declining brand and re-launched the market after packaging, Chinese companies concentrated on this wave of operations two years after the financial crisis. Deducted "China saves the world economy - luxury version."

Big collection of "acquisition madman"

Considering the long road of European old-fashioned luxury goods, “takenism” is obviously a more convenient and faster way than the road of self-cultivation. As Chinese consumers' enthusiasm for luxury goods has intensified, more and more Chinese companies have shown great interest in becoming owners and operators of LOGO.

Moreover, the frequent “debut” allowed Chinese companies to complete the original accumulation of “brushing faces” in the European fashion circle. Guo Guangchang, chairman of Fosun, once revealed on the CCTV program that after investing in Club Med, many European investors took the initiative to negotiate cooperation and investment, because they mixed up with familiar faces. Previously, Fosun also tried to buy the Italian luxury brand Prada, the French down brand Moncler, but its own capital structure, lack of understanding of the trading system and lack of experience in dealing with European brands constitute a stumbling block to successful bidding brands.

After accumulating a certain amount of experience, this time Chinese companies have been aiming at high-end clothing. In the past two years alone, Bally, Wolford, Mr & Mrs Italy, Karl Lagerfeld, these famous or relatively niche brands have flashed Chinese capital.

Jingdong both of them (JD.NSDQ) such electricity supplier giants, there are seven such wolves Hony Capital equity funds and traditional costumes started (002029). At the turn of the spring and summer of 2017, JD.com invested $397 million in one of the world's leading fashion boutique shopping platforms, Farfetch, and became one of its largest shareholders, while Liu Qiangdong joined the board of Farfetch. At this point, Farfetch's valuation has increased more than three times compared to the investment of seven wolves eight months ago. In August, seven wolves went to the next city and acquired an 80.1% stake in Chanel designer Galeries Lafayette's eponymous brand Karl Lagerfeld for 3.2 billion yuan. In October, Hony Capital signed an agreement with Italy's Magnolia Holdings to acquire a 30% stake in Italian high-end Parker coat brand Mr & Mrs Italy.

Until February 9, 2018, nearly a year after the autobiography of the sale, Bally, a Swiss luxury brand, spent its time in Shandong. The determination and actions of Chinese companies following the example of international luxury giants to form their own brand matrix have been placed around the world. In front of.

In addition to the Japanese trading company Itochu Trading Co., the rest of the companies appearing on the Bally bidder list include Fosun International, Seven Wolves, Hemei Group, and Shandong Ruyi, which ultimately won the brand with a purchase price of US$700 million. The tidy Chinese army has made Bally's sale one of the most competitive luxury brands in recent years. Although these companies have their own original intentions and styles when acquiring brands, they are all aimed at China's fast-growing luxury consumer market. Before participating in the bidding for Bally, Shandong Ruyi, Fosun International and Shenzhen Hemei have all built their respective spheres of influence through different paths of buying and selling.

In the bidding for Bally, according to foreign media reports, in fact, Shandong Ruyi is the last to enter, but it is clear that the final result is not directly related to the arrival of the game. In fact, at the time of the release of Bally's news, Shandong Ruyi has successfully relied on successive acquisitions to squeeze into the top 20 of the “2017 Global Luxury Top 100” list released by Deloitte.

Among them, the most well-known World War I did not accept the French fashion group SMCP, which owns the luxury brands Sandro, Maje and Claudie Perlot, for $1.3 billion in 2016. Although Shandong Ruyi has been planning fashion and luxury goods since 2010, it has not been the SMCP, Shandong Ruyi's name has moved from the industry to the average consumer. With the successful launch of SMCP in the Paris Euronext in October 2017, the “Ruyi” has four listed companies in the fashion sector: Shandong Ruyi Woolen Garment Group Co., Ltd. (Ruyi Group, 002193) and Libang (00891. HK), Japan Renown (3606.T) and French SMCP (SMCP.PA).

Counting Bally, this is the second time that Fosun has been defeating Shandong Ruyi. The last time was the bid for SMCP in 2016. However, after that defeat, Fosun has successively won the British colored gemstone producer Gemfields, "Lambs in the underwear industry" La Perla, the top ready-to-wear brand Lanvin and the Austrian underwear brand Wolford. It is no exaggeration to say that Fosun, which owns real estate and pharmaceutical listed companies, is famous in the fashion circle by a pile of real money, especially when the price increase is nearly half from the Italians. club.

Compared with Shandong Ruyi and Fosun International, Shenzhen Hemei has a far-reaching reputation in the industry before 2017. However, before Shandong’s Ruyi bid for Bally, the multi-party news jointly identified Hemei as the most potential bidder. In an interview with New Fortune, Yu Yang also admitted: "We have done our homework before the bidding. If we can successfully acquire Bally and change its store opening strategy and marketing in China, there will be a very large market increase."

As a junior in the fashion and luxury industry, Hermione is the most violent one. Hermione's predecessor was Shenzhen Hao Ningda. After the ceiling of the main business of the meter, the company entered the diamond and jewellery industry every carat in September 2014 and officially changed its name to “Shenzhen Hemei Group Co., Ltd.” in May 2016. .

China's LVMH's advanced path

The same as "acquisition madman", Shandong Ruyi, Fosun International and Shenzhen Hemei's play have their own characteristics.

As a typical representative of Chinese manufacturing, Shandong Ruyi to produce high-grade fabrics and top-started, set fabric and garment design, production and sales, was Armani (Armani) and other luxury brand manufacturers. From the perspective of its acquisition path, the focus of the layout from 2011 to 2013 is on the upstream of the industrial chain, and then the investment in the brand is significantly increased. The current acquisition target runs through the entire industry chain, involving upstream raw materials, manufacturing companies and brands. apparel. Chairman Qiu Yafu once said at the 45th anniversary of Ruyi Technology that "Ruyi has invested 36 billion yuan in the world." This number does not include the last two acquisitions including Bally.

Compared with Shandong Ruyi's generalization in the industrial chain, the diversity of Fosun's acquisition targets is mainly reflected in its category, from early leisure and entertainment to more and more focused on the fashion industry. Although both SMCP and Bally lost to the old rival Shandong Ruyi, from December 2017 to March 2018, in just 4 months, Fosun Lian, who is a self-proclaimed "China Berkshire" The strength and determination of the three brands are evident. In 2015, Fosun also established a special fashion company. The main function is to do post-investment management of related fashion projects. However, Guo Guangchang, the founder and chairman of the company, said that he would not intervene in the day-to-day management of the acquired company.

Unlike the two "older generation" sincere brands, Hermione chose a completely different path: starting from the channel. This is because "China's retail market is very large, but high-end consumer goods is different from Europe and the United States. The department stores in Europe and America are also retail. It is managed by itself. Goods control and personnel management are all done by themselves. Most of the domestic market. It is the nature of the rental counter. In a sense, the agent is the real retailer in China. Since we are going to enter the business, the most important part of business is retail." Yu Yang explained Hermi's position.

In the eyes of Yang Yang, Hemei entered a market that can “return and retreat”. “The upstream mainly connects to the brand, and the downstream mainly connects China's main retail channels”. In 2017, Hemei first acquired the Shanghai Ou Lan, Sublime Department Store, Qiu Qiao Fashion, Rainbow Shenzhen, Yingcai Development and Rainbow Zhuhai 6 luxury fashion brand operation holding companies, which not only formed a huge line. The next store network also includes nearly 40 (Armani, Hogan, Dolce & Gabbana, Hugo Boss, MCM, etc.) international luxury fashion brand authorization, and has mastered a large number of international luxury brand agency resources. Taking the Armani brand as an example, Hemei Group alone accounted for more than 80% of the domestic market share after completing the above acquisition.

At the beginning of 2018, Hemei went further and won 90% of the luxury goods e-commerce Shangpin.com and its parent company and 100% equity of Chengyuxin, forming an online and offline integrated layout in the field of luxury goods operation. At the same time, it also divested the original non-core business such as jewelry and P2P, thus providing financial support for focusing on the core business of luxury goods operations. In 2017, Hemei's net profit attributable to the parent company was 144 million yuan, an increase of 3.41% over the same period of the previous year; operating income was 2.41 billion yuan, an increase of 13.34% over the same period of the previous year. Although the performance is not eye-catching, the company's international brand operation business in the quarter of 2018 achieved explosive growth, contributing to nearly 60% of all revenue.

The acquisition is just the beginning

Yu Yang does not deny that after the failure to bid for Bally, Hemei is still actively looking for the next potential acquisition brand. “In addition to funds, European luxury brands have their own culture and rules. In this regard, they are in conflict with China’s high-speed development ambitions and goals. To achieve a successful acquisition, it is necessary to find a balance between the two: acquisition After the completion, it will achieve a fairly rapid development in the Chinese market, while maintaining the DNA of Europe while changing the market. In the headquarters of many European companies, this is the most critical point for their management to accept new shareholders. ."

While talking about Hemei's bidding experience, Yu Yang also stressed: "For Hemei, the current acquisition of the brand is not the core, the focus is on the integrated operation of the acquired target. Of course, when it comes to good targets, Will be shot, but it is the key to synergy."

Just holding the channel resources seems to lack the constraints on the brand side; and focusing on acquiring the brand means that the control of the dealer channel is relatively small, especially in China's complicated retail channel environment. At this stage, no one can say who is better than who, and who can achieve the Chinese version of LVMH faster. From a longer-term perspective, acquisitions are only the beginning, and the post-acquisition management model, channel layout, and overall operations are key.

LVMH, the world's largest luxury goods group, has conducted more than 60 M&A transactions in the past 30 years, almost achieving full coverage of the luxury goods industry. However, its success is not only punctuality, but also good at using the economic cycle to control costs. What is more important is to adopt an operational strategy of “purchase without integration” to maintain the relative independence of each brand. The Group's strong retail channels and market capabilities empower each brand.

This is definitely not an easy and easy way to go, especially since many brands are seeking to change hands because they are in trouble. After all, similar to LVMH's reinvigoration of Celine's pen, it requires both the old experience and outstanding strength, but also a certain chance.

The Austrian brand Wolfor, which claims to produce the world's best stockings, recorded a loss of 6.6 million euros in the first half of 2018 before being recovered by Fosun. The old luxury brand Lanvin also changed frequently before the takeover of Fosun. Continued losses and bleak prospects, alleged losses of up to 18.3 million euros in 2016, in addition to owing more than 15 million euros to employees and suppliers and 100 million euros needed to repurchase related businesses.

Regardless of the terms of brand awareness, product quality or historical heritage, Wolford and Lanvin are good investment targets, but the face of poor financial data, Fosun sure how much to let them make a turnaround? From past history In view of the fact that Chinese companies lack the experience of operating luxury brands, almost no evidence is needed. Compared with the more basic "familiar face" and "familiar with the rules of the game", the second skill of "having the operation and management of luxury brands" is obviously more complicated and deeper.

Compared with the operational capabilities, overseas brands who choose Chinese bosses should pay more attention to the strong capital and the huge potential of the Chinese market. Fosun has always advertised the “China Power Grafting Global Resources”. For Bally, who has more than 50% of the revenue from the Chinese market before he was determined to win, it will obviously rely more on Chinese consumers, but in the end, it will take time to test.

Successful experience is not without. After receiving the control of SMCP Group in 2016, Sandro, Maje and Claudie Pierlot have successively entered Tmall, accelerating the launch of the Chinese version of the official website. Sales in Asia have soared 45%, and sales in China accounted for the Group's total sales. 12%. In 2017, SMCP hoped to land in the capital market, and it took less than one year to cash in 261 million euros. At present, the development of SMCP is gratifying.

Think more profoundly, whether it is "returning to life" or "growth speed", when more and more overseas brands and Chinese bosses unanimously launched the "China Power Grafting Global Resources" idea, how to maintain brand sustainability The momentum of growth will be a new problem. After all, whether it is old-fashioned luxury or relatively young luxury, the competition in the industry itself is already quite fierce, and it also faces layers from fashion e-commerce and fast fashion. Layer impact.

After acquiring the Greek luxury brand Folli Follie (FFGRP.AT), Fosun used the resources accumulated in the retail industry to help the brand open stores in prime locations and increase sales in China. So far, it has 113 stores in China. According to media reports, 10% of its global revenue and 15% of its profits come from China. On the other hand, however, although Folli Follie's sales and profit before interest, taxes, depreciation and amortization have increased steadily since 2013, the growth rate in the last three years has dropped significantly. Especially in FY2017, its net profit has fallen 4.5% year-on-year to 212 million euros.

For Hemei, who takes the channel route, while facing “integration of operations and synergy”, it also faces the challenge of potential brand recovery agency.

2004-2010 is the glory days of brand agents and channel dealers. A group of enterprises such as Yaolai, Junsi and Disheng rely on the status of “land snakes” to win the favor of many brands. But after spending the training period, especially when the brand realizes that the potential of the Chinese market is so huge, they frequently choose to take back the agency and grasp the control of the brand and channel. The classic case includes Coach, which also recovered the retail business in China from the Junsi Group. Burberry spared more than 100 million pounds of liquidated damages to buy all the Chinese agent from Yaolai, and Huadun International has trained the Bally brand for 28 years in Greater China before 2008.

At present, in addition to the brands that have been reclaimed, several major agents have almost monopolized other remaining brands, and Hemei has successfully acquired the first legion by relying on the acquisition of Ou Lan and Macao Rainbow inland business. But the problem at hand is also very realistic. How should the brand continue to recover the agency rights, what should the agent do?

In this regard, Yu Yang's performance is quite calm: "The brands that reclaim the agency rights are generally for the purpose of listing, and put the business back to the head office. But there are still many family businesses that do not have the willingness to list, they have long-term stability in China. Our partners. Of course, we will continue to enrich the brand matrix of agents and operations according to the annual business development plan."

On the one hand, strong channel resources will give agents a strong competitive edge to win more brand agency rights, thus entering a virtuous circle and forming a larger scale advantage. On the other hand, the rise of the light luxury and tide brand camps has led agents to see the hope of splitting from the incremental market. Compared with the big names in the first line, most of these brands do not have the ability to directly operate, and still need to rely more on the strength of agents to cultivate the market. In the future, Hemei will adopt an active brand strategy and try to dig deep into the emerging luxury brands by integrating international brand channel resources. “We will introduce some brands in 2019 and are currently negotiating with 2-3 Italian companies, mainly for The luxury and tide brand of young people."

Get thousands of people to get the world

Yu Yang’s bottom gas is not a hole in the wind. As the four major factors of the consumer industry, new brands, new customer groups, new technologies, and new formats are, to a certain extent, undergoing some substantial changes in the luxury industry that once “old”.

At the end of March 2018, Virgil Abloh, founder and design director of Off-White, the hottest fashion brand, became the creative director of Louis Vuitton menswear. In the past three years, he was nominated for the 2015 LVMH Young Fashion Designer Awards. For the first time, he challenged luxury brands with street fashion brands. The “暧昧” between the street brands and luxury brands has begun to take shape.

This is not the first LVMH to cater to the young upstart. In 2017, it also launched the joint series with Supreme, which was born in the non-mainstream street skateboarding culture, to create an annual explosion. From rebellious street cards to mainstream fashion products to joint ventures with hundreds of years of luxury brands, Supreme's “reverse attack” is a reflection of the ability to transform design into brand value, and it is also evidence of market genetic changes.

In this regard, Yu Yang's explanation is: "The rise of the global luxury goods market, a generation has passed, the direction of luxury products and DNA, but also some reborn changes according to the current market." More and more "street van" Balenciaga and Givenchy, the popular BAPE and Off-White, are all here.

Of course, when the benchmark brand of the luxury goods industry is tied to “tidal cards” and “explosive models”, the market will inevitably have concerns about its loss of uniqueness and scarcity. However, in the face of doubts, in the first quarter performance report, LVMH CFO gave the answer: "We are not worried about overexposure, the real risk is that the momentum is not enough to be able to rush ahead in the market competition. "The purpose of this is to keep the brand "still fresh in the long run." On the other hand, the LVMH Group's financial report also confirmed that the Supreme x Louis Vuitton joint series launched in 2017 not only greatly enhanced the brand's exposure and influence on social media, but also contributed greatly to the growth of the performance.

Standard fame and fortune.

The promoters behind this are the young people represented by the millennial generation. They use the real purchase record to closely lock the attention of luxury brands. According to TOD'S president, nearly half of the brand's customers are millennials. From a global perspective, Bain Consulting's statistics show that in 2017, millennials have already accounted for 30% of luxury consumers; in 2017, millennials bought an average of 8 luxury items, higher than other age groups. 5 pieces.

In China, the purchasing power of young power is even greater in the global market. According to a survey by the World Luxury Association, Chinese luxury consumers are 15 years younger than European luxury consumers and 25 years younger than the United States. The average age of the global users of Farfetch, a luxury e-commerce company that Jingdong and Qiwowo share at the same time, is 36 years old, while the average age of mainland luxury consumers is 29 years old.

As a new force in luxury consumption, they are younger, more active, more assertive, and less patient. At the same time, as Internet aborigines, they rely more on digital technology and have a natural preference for online shopping.

Therefore, the budget investment of major brands for online marketing has increased from 35% in 2015 to 40-50% in 2017.

Therefore, throughout 2017, LVMH's two most conservative brands, Céline and Berluti, have launched a new official website with built-in e-commerce services. Louis Vuitton's official website in China has launched e-commerce services for life, and the Group's new e-commerce platform 24 Sevres is finally on the line.

Therefore, Jingdong soon launched its own luxury flagship store platform TOPLIFE after investing in the international fashion luxury e-commerce platform Farfetch; and Tmall also launched the embedded luxury virtual App Luxury Pavilion, which has attracted 50% in the last half year. A luxury brand settled in.

In addition to the increase in sales and the consideration of online and offline considerations, luxury brands are eager to get accurate consumer portraits to better meet their needs. At the beginning of 2018, Hemei acquired the luxury vertical e-commerce Shangpin.com. It was also based on the same calculations. The existing brand operation resources were combined with the tens of millions of user resources of Shangpin. Shangpin.com enhances the company's data analysis and product promotion capabilities, providing online infrastructure and technical support for the construction of member systems."

According to Yu Yang’s understanding, the competition of luxury e-commerce in China has just begun. “This means huge opportunities”. The bigger opportunity comes from the fact that “the two characteristics of the luxury goods industry, the fashion attributes are getting stronger and stronger, the retail attributes are undergoing dramatic changes, the extension of new channels, the emergence of new formats, not excluding e-commerce, collections. More channels such as shops and travel development... The market is constantly changing, as long as it does not cure, it will definitely bring opportunities."

This opportunity belongs to every participant in the market, and for them, there are only two keywords in the future: the Chinese market and the millennial generation.