Fashion retailer I.T (0999) expects its annual net profit to reach HK$300 million in three years by building its in- house brands in the mainland market.
Unlike Hong Kong, the market in China has ample room for us to expand. This year, we will put most of our resources in China, says vice chairman William Lo Wing-yan.
I.T expects mainland operations to contribute one-third of the HK$300 million figure, which will be a 76 percent increase from the HK$171 million it posted for the latest fiscal year to the end of February.
The HK$300 million target is possible as we are striving to report an annual retail sales growth of between 50 percent and 60 percent in China in the coming three years, says Lo.
Listed in March 2005, I.T already has 165 stores in the mainland, compared with 150 stores in Hong Kong.
The chain offers a range of fashion wear and accessories at varying price levels, targeting different customer groups.
This year, we will expand our mainland network to top second-tier cities such as Hangzhou, says Lo.
The multi-brand retailer added that it will focus on selling in-house brands in the mainland.
For the last fiscal year, I.Ts total revenues jumped 32 percent over the previous year to HK$2 billion, with gross profit rising 35 percent to HK$1.2 billion and the gross profit margin improving to 59.5 percent from 58.2 percent.
According to Lo, the gross profit margins for in-house brands are about 70 percent to 75 percent, while that of internatio
nal brands is only 50 percent to 55 percent.Unlike international brands such as Billionaire Boys Club, in-house brands are more suitable for local tastes, therefore offering us a larger customer base, he says.
Furthermore, an Asian brokerage analyst noted I.Ts in-house brand products can be exempted from import taxes as the company can outsource the production work to mainland factories.
The group expects the profit contribution from its in-house brand business to increase to 70 percent by 2011 from 50 percent last year.
In-house brand CHOCOOLATE, for which Lo has high hopes, will be launched in the mainland next year.
CHOCOOLATE is the new brand we introduced in Hong Kong last year. Before bringing it to the China market, we want to make it more popular in Hong Kong as people in China who love fashion follow the trend in Hong Kong, he says.
Hong Kongs position in the global fashion industry, according to Lo, is similar to that of Tokyo, New York, or London.
Hong Kong is the leading fashion city in China, says Lo.
Despite I.Ts mainland expansion plans, Hong Kong will continue to be the groups bread-and-butter business.
In the next three years, it expects the Hong Kong segment to report top-line revenue growth of 15 percent to 20 percent annually.
Compared to the 50 percent to 60 percent growth in China, Hong Kongs growth is rather slow. But that is actually quite good as Hong Kong is a very mature market, says Lo. We will open stores to maintain growth . . . but not blindly.
For example, it was certainly expensive to open a CHOCOOLATE store at the site behind the Sogo Department Store in Causeway Bay. But we did the sums. We know that the number of customers visiting the store will be able to offset the rental cost.
Looking forward, Lo says I.Ts business growth in the SAR cannot be sustained simply by opening new stores.
We will have to look into new business segments. In fact, we have been doing this. In the past, we only had I.T. But now, we have a+ab, izzue and many other brands, Lo says.
As for the groups other areas of business, Lo says the group will not pull out of Taiwan despite reporting losses for the past few years.
We have already closed some of our stores in Taiwan. But we will keep [the others] as we are familiar with the market there.
Taiwanese, he says, like to shop at department stores.
Operating stores in Taiwans department stores is also very flexible. Compared to the traditional three-to- five-year contracts, our contracts with Taiwan department stores are only for sixmonth [terms], says Lo.
Currently, I.T stores in the Greater China region are run by the company while those outside the region are operated by franchisees or wholesalers.
If you want to run the business well, you need to know the market. Thats why we tend to operate shops in the Greater China region ourselves, while those overseas are run by franchisees or wholesalers, says Lo.
