China Consumer

Rue ye the day?

How a century-old Japanese clothier perished under Chinese ownership

Aquascutum-w

One of Ruyi’s other labels

It was the HMS Renown that took Prince Edward (later King Edward VIII and Duke of Windsor) to Japan as part of his goodwill tour around Asia between 1921 and 1922. The battlecruiser captivated Sasaki Yasohachi so much so that he renamed his textile business after it. The British navy ship survived two world wars and was retired after 32 years service. The Japanese firm lasted much longer – 118 years – but has sunk after barely 10 years under Chinese ownership.

In a month’s time the Tokyo-based apparel firm will begin its liquidation process following a court ruling on October 30 that ended bankruptcy protection of its assets. Since May, the indebted company – it owes ¥13.9 billion ($130 million) – has been selling some of its most well-known divisions such as suit brand D’urban and Arnold Palmer shops.

Renown is the first listed Japanese firm to go belly up since the Covid-19 pandemic – and it has come as a shock locally.

It was Japan’s largest fashion firm in the 1990s. Since 2010 it has been under the stewardship of Shandong Ruyi, an acquisitive apparel firm from China. The tie-up, which enabled Ruyi to build a 53% stake in Renown, was Ruyi’s first overseas acquisition. The deal was meant to help Renown expand in China and turn around its business, which had been limping along in the prior decades (see WiC63).

Ruyi’s plan for Renown was ambitious: open 1,000 stores in five years and double the footprint again by 2021. However, unlike its Japanese counterpart Uniqlo, Renown has failed to gain traction with Chinese consumers, not even meeting a third of that store target by the third year of the partnership.

According to Huxiu, the crux of the problem is a misalignment between Ruyi and Renown in terms of growth strategy and management style. Ruyi hoped to quickly scale up Renown’s presence in China through franchising in non-tier-one cities. But Renown was afraid that this would cheapen its brands – of which there were 62 in 2008 – especially the ones that it had tried to position as premium.

The predicament was aggravated by the rise of e-commerce and fast fashion (see WiC455 on “Tao labels”, which adjust quickly to Chinese consumers’ fickle preferences). Unable to move away from traditional retail channels, Renown relied for 70% of its sales on department stores, according to Asahi Shimbun, a Japanese news outlet. That made it particularly vulnerable to social distancing rules this year, as more shoppers stayed away. A month before the company went bankrupt Renown’s sales were down 80% on the year.

Yet, its Chinese parent was in no position to help. In fact, Ruyi was the very entity that plunged Renown into a cash crunch. Renown’s net loss of ¥6.7 billion last year was largely the result of a provision against the ¥5.3 billion in accounts receivable that it could not collect from a unit of Ruyi. While Ruyi was supposed to be the funder of last resort, it had prioritised repaying its own overdue corporate bonds, noted Nikkei Asia.

We reported in WiC481 that Ruyi got into financial distress after spending $4 billion acquiring a dizzying number of luxury brands including the UK’s Aquascutum and Gieves & Hawkes; as well as France’s Sandro, Maje and Claudie Pierlot.

Its financial position could have been stronger if the local government of Jining city – where Ruyi is based – had not pulled out of a bailout plan. In June a local government vehicle said it had rescinded an offer to acquire a 26% stake in Ruyi for Rmb3.5 billion. Instead it would only retain a 0.01% stake, valued at one yuan.

Over the past year the company has breached at least 10 court orders in relation to debt repayments amounting to Rmb990 million, an official database of “discredited entities” shows. Ruyi’s boss Qiu Yafu is also on the same list, defaulting on Rmb127 million of loans.

A number of Ruyi’s acquirees are suffering as a result too. One example: Swiss luxury brand Bally has yet to receive the $600 million financing it was promised upon selling a controlling stake to Ruyi in 2018.


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