Chinese Character

Rag trade riches

Textile billionaire Li Rucheng now loves property. Is he stretched too thin?

Not about to lose his shirt: Li Rucheng

Like many businessmen in China, Li Rucheng is constantly on the move. When he’s not visiting his factories in Ningbo, he is monitoring the stock market or going on site visits to make sure that the construction at his property developments is going smoothly.

Perhaps it shouldn’t come as a surprise that critics now question if Li is stretched too thin.

He made his name in business circles for turning Youngor, a menswear chain, into one of the best-known domestic brands in China. Youngor is now the largest maker of men’s shirts and suits. The company also exports, making shirts for Marks & Spencer and Next in Europe, as well as suits for US companies like Polo Ralph Lauren and Tommy Hilfiger.

Li started life as a farmer but later got a job at a state-owned garment factory in Ningbo, a port city in Zhejiang province.

In the factory, Li rose from menial labourer to head of the cutting department. After saving the factory from closure by securing a large outsourcing order, he took the company’s helm and in 1993, he changed its name to Youngor. Five years later, Youngor secured a listing on the Shanghai Stock Exchange. In 2009, the company posted a profit of Rmb4.15 billion on sales of Rmb27.4 billion ($4.2 billion).

Part of Youngor’s success, says Li, comes from his “farmer’s instincts”. As his company expanded, the entrepreneur realised the need to take some big risks to stay ahead of his competition. So despite vocal opposition from some on the board, in 2001, Li began to move Youngor upstream from clothes into fabrics too. He invested $100 million in Youngor’s first textile factory, helping Youngor control more of the price of materials, as well as opening a new revenue stream in supplying fabric to other domestic companies.

Li’s expansion plan did not stop there. Although the company was successful at home, international operations were still tiny. So in 2008, Li spent $120 million to acquire Xin Ma, the menswear business of US-based Kellwood Company. The takeover was the first overseas acquisition by a privately-owned Chinese garment manufacturer and then the largest foreign takeover by a domestic clothing maker. The acquisition gave Youngor control over Xin Ma’s contracts with more than 20 global brands. (Xin Ma is an original design manufacturer, which means it designs and makes garments, but another firm’s brand is put on the final product).

When Li wasn’t propelling Youngor’s expansion, he was building his own property empire or trading in securities. Since 1998, Youngor has been using money from the garment business to invest in China’s property market. Last year, the company turned heads when it outbid large property developers like Vanke and Greentown in several land auctions. It already owns two hotels and a zoo in Ningbo, and now has more than 14 projects under construction, which cover more than 2 million square metres, says CBN Weekly.

Youngor has also built up an expansive equity portfolio, with holdings including shares in companies like China Life Insurance and CITIC Securities. The company is also the largest shareholder of the Bank of Ningbo.

Gains on property and equity investments helped Youngor book $5.2 billion in net profits in 2009, more than six times the amount the garment business has made.

“Youngor’s garment business would not have made so much profit in 30 years,” Li told Business Times.

Still, Li’s investment strategy wasn’t without pitfalls. In 2007, Youngor applied to regulators to participate in a secondary offering of Haitong Securities, China’s second-biggest brokerage firm, for Rmb3.6 billion. The deal looked promising at the time, as the stock had rocketed more than 800% since its IPO. But Haitong’s share price took a tumble with the rest of the market during the financial crisis, leading to a write-down of Rmb1.1 billion on Youngor’s income statement in 2008.

Li was undeterred. Youngor grabbed headlines again in September for spending Rmb253 million on a private placement for Beijing-based Foton Automobile. Once again his investments outside of the core garment business attracted criticism, with many accusing Li of neglecting his duties as the head of a clothing firm, says Oriental Morning Post.

Some analysts say that, compared with companies like Japan’s Uniqlo and Spain’s Inditex, Youngor’s growth has been slow, blaming the company’s diverse range of commercial interests. While companies like Zara (owned by Inditex) update their offering at least twice a month, Youngor refreshes its own range twice a year. Gross margin, a closely watched indicator of profitability, for Youngor came in at 35.5% in 2009, compared with Uniqlo’s 49.9% and Inditex’s 57.1%.

Li calls the accusations unfair, claiming that Youngor regards the garment business as important as ever.

“Critics do not see Youngor’s efforts in the garment industry,” Li told the Business Times. “Although property is still Youngor’s main source of profits, it can never replace the garment business. Everyone recognises Youngor as a clothing brand.”

He also told the China Daily that there is no reason a company should not diversify into other areas. “Every enterprise needs to evolve. We invest the money we made in the garment business in real estate, is that so bad? And besides, what is considered ‘core business’? I was a farmer before and my main business was farming. Did I not make a successful transformation from a farmer to a manufacturer?” he asks rhetorically. “Of course I did.”

Still, Li faces further competition in the garment sector at home. Septwolves, the Fujian-based menswear manufacturer, is trying to establish itself as a premium brand to target higher-end shoppers (see WiC91); FIRS – a menswear company also based in Ningbo – has moved its headquarters to Shanghai and is focusing on franchise operations; and Romon, a leading men’s suit maker, is refashioning itself to carry several brands rather than one.

What’s next for Li? He now plans to diversify into the female fashion- wear business through a series of mergers and acquisitions, he told the Beijing News. He also expects revenue to reach Rmb50.9 billion in five years from Rmb33.5 billion in 2010 – which he says will narrow the gap between Youngor’s apparel business and that of the foreign clothing giants. And on real estate, his plan is to be among the country’s 20 largest property developers in the Yangtze River Delta.

Then again Li’s ‘integrated lifestyle’ goal is unique in that it combines clothes, condos and cheetahs.

“My dream is to see more and more people in Zhejiang and all over China dress in Youngor garments, live in Youngor apartments and have fun in Youngor Zoo in Ningbo,” says Li.


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