- Company to split off clothing label into own unit before sale
- Chinese labels are competing for growing urban middle class
South Korea’s E-Land Group said it will sell clothing label Teenie Weenie to Chinese fashion house V-Grass Fashion Co. in a 1 trillion won deal ($900 million) that reflects Chinese consumers’ shifting preference for more premium products.
Privately held E-Land will split off the Teenie Weenie business in China into its own unit before the sale, the company said in a e-mailed statement Friday. V-Grass was not immediately available for comment.
The acquisition, at a price which could outstrip V-Grass’ market capitalization of about $685 million, comes as Chinese middle-class shoppers shift to higher-priced premium purchases. Meanwhile, in Korea, E-Land and other retailers are struggling to attract consumers to stores and malls as more shoppers there spend record amounts making purchases on their mobile devices.
While the purchase will help V-Grass extend its brand, it will likely take on debt to finance the sale and compete against international labels, said Ben Cavender, a China Market Research Group analyst.
“The Chinese brands are hunting for new brands to add to their portfolio, so the strategy here for V-Grass is to get a brand that’s targeted at a very different shopper profile from their own,” Cavender said. “They’re paying a ton of money, and Teenie Weenie is in a segment where it’s tough going head-to-head with established fast-fashion brands like Uniqlo and Forever 21.”
V-Grass shares, which were suspended from trading in Shanghai Monday, have dropped 8.4 percent this year. The stock gained 0.6 percent to 30.90 yuan Monday.
V-Grass is a high-end women’s clothing label with its own-branded boutiques across China’s biggest cities. Teenie Weenie is aimed at younger consumers and sells T-shirts emblazoned with its bear logo priced at about 300 yuan ($45).
Price is no longer the top concern for Chinese shoppers, according to a June survey by OC&C Strategy Consultants. Consumers in the country spend around 6 to 7 percent of their disposable income on clothes monthly, according to the survey. They also prefer foreign labels, including J. Crew and Forever 21, and are willing to pay a 20 percent premium for international brands.
In China’s $1.7 billion apparel market, local retailer Heilan Home Co. and Fast Retailing Co.’s Uniqlo Co. are market leaders, with 1.2 percent and 1 percent of the market respectively in 2015, according to data from Euromonitor International.
A total of 25 apparel companies held IPOs in China and Hong Kong during the past three years, raising a combined $2.2 billion, according to data compiled by Bloomberg.
E-Land group companies saw their credit ratings downgraded in December by Korea Investors Service, as an economic slump contributed to a drop in profitability of its units in the country.
— With assistance by Rachel Chang