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La Chapelle: Clothing The 1.4 Billion People In China
Corporate Digest | 20 October 2014
By: Shane Goh
Articles (99) Profile

China’s population as of 19 October is just shy of 1.4 billion people according to the National Bureau of Statistics of China (NBSC), ranking first in the world. Ever wonder who clothes them?

Enter Shanghai La Chapelle Fashion Co (La Chapelle) (HK:6116). The company designs, markets and sells apparel products with a focus on mass-market ladies’ casualwear. Its popular brands include La Chapelle and La Chapelle Sports.

On 9 October, La Chapelle listed on the Hong Kong Exchange at HK$13.98 a share. Since listing, the counter’s share price has recorded a 6.9 percent increase in over a week to close at HK$14.94 on 17 October.

Favourable Macro Trends

Expenditure on clothing is closely tied to brand awareness and income levels. According to the NBSC, China’s per capita disposable income over the past five years has been on the uptrend.

In urban cities, the figure has enjoyed a 11.9 percent compound annual growth rate (CAGR) from 2009 to hit Rmb26,955 in 2013 while rural cities has seen a faster 14.6 percent CAGR to reach Rmb8,896 over the same period.

Source: National Bureau of Statistics of China

Along with the rise in disposable income, China’s urbanisation rate has been on a steady rise. In 2013, NBSC shares that 731.1 million, or 53.7 percent, of its population lives in urban area, up from 645.1 million, or 48.3 percent, in 2009.

Source: National Bureau of Statistics of China

Combined, the two have lifted China’s total retail value of consumers goods from Rmb13.3 trillion in 2009 to Rmb23.8 trillion in 2013.

Shift In Point-Of-Sales

La Chapelle markets its products through specialty stores located in shopping malls (standalone retail outlets) and specialty counters in departmental stores (concessionaire counters).

For the six months ended 30 June, revenue derived from concessionaire counters made up 71.2 percent of La Chapelle’s top line with 28.8 percent from standalone retail outlets.

While concessionaire counters retains the majority share of its turnover, the figure has reduced considerably since 2011, where it made up 85 percent of total revenue. By 2020, the company targets to sell 70 percent of its brands via standalone retail outlets.

La Chapelle has been on a strong expansion path in the past few years. The company opened over 1,200 and about 2,000 stores in 2012 and 2013 respectively. For 2014, the figure is estimated around 1,600 stores. Moving forward, La Chapelle intends to open 1,500 to 2,000 stores per year.

Challenges Faced By International Brands

While China’s fashion brands possess relatively shorter histories compared to their international counterparts, their understanding of the market allows an edge.

International brands, such as Zara, tend to have a standard style and size, possibly mixing them up with several colours and usually with four seasons in a year. These brands focus on setting up shops in China’s first-tier cities. Additionally, their stores need not necessarily have to serve their customers on an individual basis.

In La Chapelle’s case, the firm churns out products which are more localised (size in particular) and are able to come up with designs suited for the domestic market. They are able to serve customers, particularly in second- and third-tier cities, which helps build their reputation and branding.

Key Investors

Existing pre-initial public offering investors, Beijing Goldman Sachs and Legend Capital chose not to sell off its stake through the offering.

Additionally, two cornerstone investors, Chow Tai Fook and Senda International, took up US$50 million worth of stock and are subject to a six-month lock up. This creates a positive signal on the investors’ belief in the prospects of the company.

However, as the roadshow and marketing efforts coincided with the recent protest in Hong Kong, it’s possible that the interest garnered could be hampered. This led to an undersubscribed retail order book.

SI Research Takeaway

Looking ahead, China’s expected to remain one of, if not the most, populous nation. Even though the country’s growth is expected to slow, a growth rate of more than 7 percent is impressive in the current global economic climate.

Coupled with a rising per capita disposable income and increasing urbanisation rate, the outlook, for now, seems to favour consumer companies such as La Chapelle.

However, apparel is a highly competitive product with many players and new designs need to be constantly rolled out in order to retain customers. This could be an insurmountable hurdle if La Chapelle is unable to cater to its clients’ interest.

With contribution from Goh Lih Fang

Currently pursuing his Chartered Financial Analyst qualification, Shane provides coverage on the property, consumer and environmental sectors at Shares Investment.

Please click here for more information about this author.

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