Hand holding 2 billion Hong Kong dollars to buy overseas brands
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Recently, several Chinese clothing companies and distributors have secured the rights to sell globally recognized fashion brands (such as Yage, Dan, and Pierre Cardin) in China. China Mobile (03818, HK), which focuses on "Kappa," is also exploring new opportunities in the U.S. market.
After years of producing under the "Made in China" label, the Chinese garment industry is now shifting toward Original Design Manufacturing (ODM) and building both domestic and Western brands, leveraging China's massive 1.3 billion consumer market.
Ding Shuibo, president of Xtep (China) Co., Ltd., told the "Daily Economic News" that expanding overseas is a key goal for the company. As a major shareholder, the renowned international venture capital firm Carlyle has supported Xtep's growth and may help it acquire a foreign brand by 2010. Currently, Xtep holds over 2 billion Hong Kong dollars ($258 million) in cash, which could be used for such acquisitions. The targeted foreign brands are also expected to be in the sports apparel sector.
However, Ding Shuibo noted that private enterprises acquiring foreign brands must balance promoting their own brands with addressing cultural integration and other hidden factors, estimating the success rate at around 50%. Some industry insiders, like MOUSEJI, chairman of Far East Fashion, expressed concerns, pointing out that while opportunities for overseas acquisitions have grown, so have the risks, especially given the financial crises many target companies face.
Xtep recently signed five rising stars as endorsers, a move some industry analysts believe is a strategic response to Kappa's collaboration with Huayi Brothers Media Group. Ding Shuibo emphasized that competition drives market progress, noting that Xtep targets mid-to-high-end markets, whereas competitors like China Dongxiang focus on popular-priced segments.
Data indicates that China Dongxiang's gross profit margin for footwear exceeds 60%, compared to Xtep's less than 40%. Analyst Wang Rong of United Securities explained that this discrepancy stems partly from differing operational models—China Dongxiang adopts a "light-asset" approach, outsourcing production and focusing solely on branding, while Xtep employs a "vertical integration" model, which helps control costs and manage risks but ties up financial resources in production equipment.
This vertical integration model results in higher proportions of non-current assets compared to light-asset strategies. While Xtep's approach ensures greater control over quality and supply chains, it requires substantial upfront investments in manufacturing infrastructure. Despite these challenges, the shift reflects the evolving ambitions of Chinese brands to compete globally while balancing innovation and tradition.