STRATEGIES FOR
SUCCESSFUL ENTRY OF FASHION AND
RETAIL BRANDS
INTO CHINA
ERIC MATRULLO, MANAGING PARTNER
ANDREW TRAUB, MANAGING PARTNER
KEY POINTS
Opportunities and challenges
Limited traditional entry
strategies
Successful innovative market
entry strategies
CHINA - FASHION MARKET
CHINA - MARKET OVERVIEW
Size of the fashion market
The new China fashion customer
Ecommerce and distribution opportunities and challenges
Retail opportunities
APPAREL MARKET: RAPID GROWTH
13%
+
27%
+
262
$
Billion
163
$62
$
Billion
Billion
2008
2012
2016
APPAREL MARKET RETAIL SALES IN CHINA
**
RISE OF THE MILLENIAL GENERATION
UPPER MIDDLE CLASS EXPANSION – 2012/2022
Urban private
consumption,%
$ 1.7
trillion
11
Income
segment
$ 4.4
trillion
25
Affluent
56
Upper middle
class
Mass middle class
15
14
5
2012
2022
20
54
*Source: McKinsey & Co. report*
Poor
CHANGING CONSUMER ATTITUDES
Greater brand awareness
Increased desire for self expression
Greater willingness to try new brands
New price awareness
E-COMMERCE: WILD GROWTH, WILD
WEST
Impressive statistics
Ferociously price competitive
Brand building difficult
US and European retailers
challenged
DEPARTMENT STORE/ MULTI BRAND
OPPORTUNITIES
New market entrants: Galleries La Fayette, Marks and Spencer, 10
Corso Como, Lane Crawford
Domestic players
New global department store hybrid
DEPARTMENT STORE CHALLENGES
Dominant apparel channel
Expensive rent
Fragmented distribution
Financially driven
HIGH - RENTS IN MALLS
USD sqft/year
1st-tier cities
average
2nd-tier cities average
$ 253/sqft/year
$ 141/sqft/year
MIDTIER AND CONTEMPORARY BRANDS
OPPORTUNITIES
SEGMENT
RETAILER
# YEARS IN CHINA
# STORES
Dept Stores
Galleries La Fayette
1
1
Mid tier
Zara
7
125
H&M
6
135
Gap
3
80
Uniqlo
11
242
Marc by Marc Jacobs
5
33
Alice +Olivia
1
1
Ted Baker
1
4
Paul Smith
1
1
Contemporary
APPAREL OPPORTUNITIES
APPAREL CATEGORY
MARKET SIZE 2012 $ BILLION
GROWTH THRU 2016
KIDS (O-5)
$5
30%
OUTDOOR
$1
22-25%
MENS SPORTSWEAR
$56
15-17%
WOMENS
$67
15%
MENS TAILORED
$19
6%
MENS ACTIVE
SPORTSWEAR
$10
3%
MARKET OVERVIEW TAKEAWAYS
Exceptional opportunities
Daunting challenges
Entry strategy considerations
CHALLENGES OF DISTRIBUTION & LICENSING
Hong Kong distributors
Sales and Royalty reporting
High cost of building brands in China
Uncertainty of partnership
CHALLENGES OF OWNERSHIP & JV
Need resources and expertise.
Best Buy exit after 5 years.
Acquired firm for $185 million.
Home Depot lost $160 million after
failed acquisition of Home Way.
JV from day 1?
TAPPING WORLD’S LARGEST IPO
MARKET
China largest IPO market in 2010 and
2011
Average P/E ratio still in 30s
High P/E ratios create M&A
opportunities
INNOVATIVE STRATEGIES
TO ENTER CHINA
1.
LICENSE - TO - JOINT VENTURE
2.
LICENSE - TO - OWN
3.
CHINA IP ACQUISITION WITH CASH + EARN OUT
LICENSE - TO - JOINT VENTURE
STEP
1
Licensing deal with Performance Criteria
Option for Chinese Licensee to form a JV
Licensee meets criteria and exercises option to JV
STEP
2
TM in China injected to the JV
Brand receives cash and/or equity in Licensee
STEP
3
Hottest IPO market/high P/E ratio = Maximize financial return
If no IPO, options to buy TM back or M&A
WIN-WIN - BENEFITS OF LTJV
Attracts the best Chinese companies
Aligns interests of US brand and Chinese partner
Time to evaluate the Chinese partner
Flexible exit strategy
LICENSE - TO - OWN
Step 1 same as License-To-Joint
Venture
Step 2: Option to buy the TM in China
A.
Maximize TM valuation
B.
No need to participate in a JV
C.
No upside if brand is extremely
successful / IPO
IP ACQUISITION
1.
Trinity acquired Cerruti for $70M
2.
Trinity purchased Gieves & Hawkes for $50/$150M
3.
Dongxiang purchased Kappa for $40M. 4,000 stores. IPO $1B
LTJV - EXAMPLE IN
CHINA
BRAND: FREEGUN
LICENSEE: HAILIN
ALFILO's SOLUTION:
LTJV – FREEGUN CHINA
ALFILO RETAIL USA
New York
ALFILO WFC
Paris
ALFILO GILOBA
Munich
ALFILO GERMANY
Milan
ALFILO FUTURA
India
ALFILO LW
Seoul
ALFILO KOREA
Shanghai
ALFILO SHANGHAI
Hong Kong
ALFILO BRANDS ASIA
Singapore
ALFILO SINGAPORE
ALFILO - GLOBAL ENTITIES
ALFILO – USA/CHINA TEAM
ERIC MATRULLO
(NEW YORK)
ANDREW TRAUB
(NEW YORK)
YIZAN HE
(SHANGHAI)
FRANK ZHANG
(SHANGHAI)
HAN JING
(SHANGHAI)
ISABELLA CINDY AGUS
(SHANGHAI)
ALFILO - BRANDS
WHAT IS YOUR CHINA STRATEGY?
Develop the right entry strategy
Find the best partner in China and motivate them
Don’t wait. The door won’t stay open for ever…
CONTACT ：
NEW YORK & NORTH AMERICA
ERIC MATRULLO | MANAGING PARTNER
E-mail: [email protected]
ANDREW TRAUB | MANAGING PARTNER
E-mail: [email protected]
Q&A