China Consumer

Not putting a foot wrong

It already has 14,950 shoe shops. Belle now wants to increase sales online

Not putting a foot wrong

Move over, Christian Louboutin. The French shoe designer’s red soles and towering heels might have become fetish footwear in many markets. But in China, the most popular shoe brands come from a different source, albeit one with a French sounding name: Belle.

The company, which started out making female footwear, is now China’s biggest footwear retailer too, controlling a 22% market share. Its three proprietary labels – Staccato, Millie’s and Joy&Peace – account for about half of the middle to high-end segment (that is, shoes above mass-market but below luxury, costing between $90 to $150). It also owns the distribution rights for a range of sportswear brands like Nike, Adidas and Kappa.

Belle got its start in 1991 in Shenzhen when Hong Kong businessman Deng Yao opened a shoe factory. The company gradually shifted its focus to retail and in May 2007, it raised $1.1 billion in one of the largest IPOs in Hong Kong that year. As part of the listing, LVMH, the world’s largest luxury group, bought a $30 million stake.

Since then Belle has remained the industry leader. Last year it added a net 2,983 retail outlets in China, bringing the total number of stores run by the company to 14,950.

Much of Belle’s success is linked to its ability to stay in touch with female fashion trends in China. That means plenty of novelty and variety, and the company’s design team creates as many as 2,000 new shoe styles a year. Collections that don’t sell are scrapped quickly, and merchandise generally doesn’t stay on the shelf for longer than three months, reports Global Entrepreneur.

Many retailers focus on economies of scale. But Belle often keeps production to smaller batches so that it can react to new trends more quickly. The company has a habit of producing half of what it expects to sell. Then, if a particular design sells out, Belle swiftly restocks the product, normally within three weeks.

The reasoning is that unit costs may be greater over smaller production quantities but that Belle saves on inventory expenses and avoids having to mark down unsold goods in high volumes. This helps it achieve operating margins above the industry average. For every Rmb100 of shoe it sells to customers, the company makes Rmb18, according to industry research.

Nonetheless, Belle’s latest quarterly results left analysts underwhelmed. Same-store footwear sales increased by 2.8% in the first three months from a year earlier. But investors clearly expected something more and there are also concerns about the company’s exposure to the sportswear business, which has been contributing less to overall revenues. Generally the sector has been struggling with too much competition, an overstocking of goods and discount pricing. Belle counters that it represents the leading international brands in China, which are faring better than the domestic labels and will come out of the period of consolidation in a stronger position.

In an effort to diversify its revenue streams further, Belle has also been building up its presence online. In addition to its own e-commerce platform, which only sells its own products, the company also has virtual stores on Tmall, China’s largest business-to-consumer site, says Business Value, a magazine.

Belle expects to generate as much as Rmb400 million ($62.8 million) in revenue from its online sites this year, compared with Rmb200 million in 2011, although some have questioned why it is operating a loss-making site of its own when its Tmall stores are already profitable.

The answer is market data. Belle has long viewed its retail network as a competitive advantage versus its peers, giving it an unrivalled understanding of what its consumers want. That makes it reluctant to cede the same principle for its online sales by relying too heavily on the infrastructure provided by a third party, in this case Alibaba Group.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.