Acquisition- The Fashion brands’ shortcut to success in the overseas market

In the process of globalization, the planning of international strategies is vital for companies. Moreover, the brand influence and the consistency in the management may be the decisive factor for global success. Occasionally, foreign acquisitions can help companies to adjust their strategic layout and penetrate new markets faster.

 

Shangdong Ruyi is the largest luxury-clothing group in China today. At the beginning of 2017, the company had a total turnover of USD 1.3 billion and thus became one of the most important Chinese clothing brands.

The history of this clothing group started back in 1972, when it was founded, the primary business of this textile factory was apparel fabric production. Until today, well-known brands such as Hugo Boss, Armani, and Zegna are purchasing raw materials from this Chinese manufacturer. However, the fabrication of low-end raw materials does not allow high-profit margins after all. When looking at the turnover resulting from sales in the luxury clothing industry, most of the income is earned by brands. In the luxury fashion industry, the OEMs usually have a profit margin of less than 10%, while a brands profit margin can be up to 50%

For this reason, Ruyi group started to build its own brand. In 2016, it acquired over 84% of the French fashion group SMCP for 1.3 billion euros. As a result, three famous French brands: Sandro, Maje and Claudie Perlot now belong to this Chinese company.

Since it was a high scale acquisition, the curiosity over the development and the outcome of the operation rose. Moreover, the results showed that it was a successful deal. With a compound annual growth rate of 32.8%, the SMCP group was mentioned in the global luxury top 100. Its excellent performance allowed it to be listed on the Paris stock market too. Thus, Ruyi Group became the leader of China’s clothing and luxury industry, with a net profit of USD 7.1 million in the first quarter of 2017 with an increase of 93.99% over the previous year.

 

Indeed, Ruyi Group’s international strategy was thoroughly planned for a long time. Since 2010, it acquired 41% of the Japanese clothing company Renown Inc; in 2012 it purchased 80% of Australia’s largest cotton farm Cubbie Station; in 2013, it invested in the Scottish tweed manufacturer, Carloway; and in 2014, it became a major shareholder of the German suit manufacturer Peine Gruppe, owner of various brands such as Barutti and Masterhand. In the first quarter of 2018, Ruyi took over the Swiss brand Bally for USD 700 million.

Statistics show that the market for Chinese designer clothing brands is proliferating, sales increased from USD 1.57 billion in 2011 to USD 4.03 billion in 2015, the annual compound growth rate is 26.2%, and it is expected to maintain a compound growth of 26.6% until 2020. For years, many Chinese apparel manufacturers were providing textile for foreign brands. Therefore, their brand awareness is weak, which resulted in a lack of brand value. Nowadays, they realized that not only the product is essential, but the branding strategy is the turning point for Chinese companies to stand out in foreign markets.

Chinese enterprises should not see themselves only as “factories” for global brands anymore; they should start focusing on their own brand. In order to achieve a global success and create profit, cultivating their foreign and local brand portfolio, tailored to fit different markets is the key

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