Paris style

A fan of Maje: actress Charlene Choi

Just months after announcing plans to list fashion group SMCP on the Paris Stock Exchange, private equity giant KKR suddenly changed tack, selling 70% of its stake in the company to Shandong Ruyi last year for an undisclosed amount. Industry insiders reckoned that the Chinese textile group might have paid as much as €1.3 billion ($1.5 billion) for the French fashion group (its debts included).

KKR did not give any explanation for abandoning the IPO. Perhaps Ruyi’s offer was simply “too irresistible to pass up,” says Huxiu, a Chinese news portal.

Indeed, KKR likely walked away from SMCP with a tidy 100% return. The American private equity firm bought 65% of SMCP in 2013 from L Capital, the investing arm of French luxury goods company LVMH, and Florac, another buyout group, for €650 million.

Founded in 1984 by sisters Evelyne Chétrite and Judith Milgrom, SMCP owns fashion labels Sandro, Maje and Claudie Pierlot – which mainly target young executives and urbanites. Its niche is the more affordable end of the luxury retail spectrum, which means that while most of its merchandise is decidedly more expensive than fast-fashion giants like Zara and H&M, it is still affordable enough for middle-income consumers. On average, most items in its clothing range are priced under €200.

The size of the SMCP deal grabbed headlines at home, given it was the biggest acquisition in the Chinese fashion industry when it was agreed in 2016 (and it still remains so). But it isn’t Ruyi’s only overseas acquisition. Established in 1972, the Jining-based company has been on a shopping binge with a goal of becoming a global fashion behemoth.

In 2010, Ruyi bought a controlling stake in the Japanese apparel company Renown, which owns menswear label D’Urban (see WiC63). Two years later, it invested in Scotland-based tweed maker Carloway Mill and led a consortium to buy Cubbie Station, an Australian cotton farm, for $232 million. In 2014, Ruyi was in the news again for snapping up shares of the German menswear company Peine Group. In March this year, the textile giant closed another deal with the Hong Kong-listed YGM Trading – which owns the British heritage brand Aquascutum – for $117 million.

So why are we talking about SMCP now? Proving second time’s also a charm, the company raised around $635 million in an initial public offering on the Paris Stock Exchange this Tuesday at a valuation of $2 billion. After the IPO, Ruyi still retains 51% of the fashion group.

Since Ruyi’s takeover of SMCP, Sandro and Maje have expanded aggressively in China. Out of the 105 new stores it opened in 2016, 67 were in China. The company also boosted its presence online by opening a virtual storefront for Sandro and Maje on Tmall, Alibaba’s e-commerce platform, with similar plans in the works for Claudie Pierlot and Sandro Homme.

SMCP has also increased ad spending in China to raise awareness among consumers, says LadyMax.cn, a popular local fashion portal.

The expansion plan has paid off. Sales in the Asia-Pacific region (it does not break out China sales figures) rose 51% year-on-year in the first half of 2017. For comparison, sales in Europe went up 26% during the same period.

Industry insiders believe that SMCP has struck a chord with Chinese shopper by keeping its designs on-trend (it keeps its production runs nimble like Zara) but with a focus on quality. “After buying a bunch of luxury handbags, these mature high-end consumers now look for affordable high-quality clothing. This is precisely why SMCP has done well in China: it has managed to tap the rise in consumption for high quality clothing in the country while appealing to the aesthetics of Chinese female consumers with its feminine designs,” one fashion blogger wrote.

But to justify the hefty price it paid for SMCP, Ruyi still has more work to do. Huxiu says so far there has been little integration of resources between the two companies. “Ruyi has contributed little to SMCP so far [apart from capital]. At best, the deal means that a factory owner now tells the store manager what to do,” says one insider.

© 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.