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Earlier this year, Hong Kong-based fashion conglomerate I.T made headlines with its relatively cheap acquisition of A Bathing Ape. I.T founder Sham Kar Wai goes on the record with The Wall Street Journal regarding I.T’s history, his approach to growing the company both domestically and in Mainland China, and the A Bathing Ape acquisition. The article in its entirety can be seen here.
WSJ: About half your revenue comes from brands you control and half from distributing imported lines. Which direction has the most potential?
Mr. Sham: Our in-house brand has become more important for us since 1995. Now, we have over 10 in-house brands. We can target different customers and markets. We find this is more flexible and at more price points.
China is Hong Kong from many years ago. People who are into fashion can’t afford designer brands, so our in-house brands are a good offering for them. And in China, there aren’t too many platforms yet—malls or street level stores—that are suitable for imported designer brands. That’s why there, we’re more focused on in-house brands. Right now, it’s a 50-50 split (in revenue from in-house brands and from imported brands). Our target in the coming three to five years, I want to get [the in-house share] to 70%.
Imported brands? We haven’t stopped expanding. But the pace is different. It’s more gradual. These brands need exclusivity and they need certain (store) environments. But our in-house brands, we can go into department stores, or stores in malls, or build our own flagship stores. In-house brands is really our focus in China. And the margin, of course, is way better with our own brands.
Where does the company see most of its growth?
We want to have 30% growth in China in terms of the area of our selling space (and our sales). In Hong Kong, we’ll have expansion, but it’s not as fast. In Hong Kong, we can expand 10% in sales; in China 30% or more. That is our target.
In February, I.T acquired the Japanese brand A Bathing Ape. Why did you buy the brand, and what is your strategy to incorporate the brand with the company?
A Bathing Ape is one of our favorite brands and it’s been very successful in Hong Kong. But in Japan, the economy hasn’t been so strong, and the company’s finances weren’t doing so well. They had some problems with their cash flow. So we had a chance to acquire it and we think we can help it develop even better than before.
We first have to figure out how to make it profitable. Then after that, we can expand its product range and bring it to more international markets. The brand is already famous in America and Europe. Also, we think having an operation in Japan could help us bring some of our other concepts over to Japan. But not now, of course. We’re still dreaming about that. After we acquired, the earthquake happened.
What are the unique challenges to managing a retail business in Hong Kong and China?
In Hong Kong, it’s the rent. In the rest of the world, where rent isn’t so high, people have more room to be creative. In Japan and Europe, you have very interesting stores, interesting concepts. But not in Hong Kong. There isn’t much creativity here. We have to pay high rent so stores are very commercial.
In China, the challenge is communication. In Hong Kong, we spread one message and we reach a lot of people. But in China, there are so many brands and advertising costs are three to four times more expensive in China.
The other challenge is the people. The service standards for our staff—I’m not satisfied. We have to spend more time to educate and train. And there’s a lot of competition for staff. Suddenly, everybody is opening stores, and so there’s a lack of good salespeople. This is the story of an expanding country—there is a manpower problem.