Shoe Seller Belle Conquers China

It's not Manolo Blahnik, but the powerhouse footwear retailer is growing fast with a strategy of market saturation and tight supply chain

Whenever Ellena Yuan gets her monthly $1,600 paycheck, she likes to head out to the streets of Shanghai for a bit of shoe therapy. Though Yuan attributes her love of shoes to the TV series Sex and the City, she isn't on the prowl for Manolo Blahniks. Instead the 27-year-old senior merchandiser in the Shanghai office of a Hong Kong-owned garment sourcing company called Porta Asiatica heads for shops operated by Belle International, where she can find something she likes for under $80. "They are very popular, and the price is low," says Yuan.

That combination has helped Belle International become China's No. 1 woman's shoe retailer, with a 22% market share in the country, according to CLSA. And its dominance at the premium end of the market is even greater. Its three brands—Staccato, Millie's, and Joy&Peace—account for about a 50% share of the $90 to $150 shoe segment. "They are strongly leveraged to the rising office-lady class in China, which is relatively new," says Forrest Chan, a retail analyst at CLSA in Hong Kong.

No. 8 in the BusinessWeek Asia 50 (, 9/4/08), BusinessWeek's annual ranking of the top Asian companies, Belle International has leveraged the explosion in demand for consumer goods in China, especially among the urban classes. The company in 2007 saw profits soar 102%, to $291 million, on sales of $1.7 billion that grew 89%. According to a research report by Credit Suisse (CS), Belle is forecast to report first-half profit growth of 40.5%, to $137.5 million, backed by overall sales growth of 59.5%. A major driver of growth is the company's retail outlet expansion: It added 517 new shoe stores in the first half and an additional 950 stores through acquisitions. Credit Suisse expects 630 openings in the second half to bring the total to 5,828 by yearend.

Many Stores, Many Styles

Rolling out new stores is essential to survival in the fiercely competitive retail shoe segment, says David Lau, consumer analyst for UBS in Hong Kong. Many female shoppers buy on impulse, so it's important to have your brand in lots of places, he says. "The best strategy is to roll out as many stores and as many styles as you can," says Lau. As a result, he adds, "you have a lot of companies opening left, right, and center." Belle is particularly adept at this strategy thanks to its size, which gives it strong bargaining power over the department stores that account for about 80% of its shoe sales. An extremely tight supply chain also ensures a quick turnaround at company factories to respond to changes in demand at its retail outlets. That helps it avoid having to discount—so margins don't suffer.

Non-sports shoes account for 67% of sales, and licensing agreements with companies such as Adidas (ADS), Nike (NKE), and others make up the remainder.

Belle also has obtained the China distribution rights for Clarks and Timberland (TBL), which will be a good source of growth, says Chan.

Belle got started in 1991 in Shenzhen by Hong Kong businessman Yiu Tang—who is still chairman—as a shoe wholesale manufacturer, and didn't go into retail until 2004. It attracted private equity investors including Morgan Stanley (MS) and CDH , and in May 2007 it raised $1.1 billion in one of the hottest listings in the Hong Kong stock market of the year. It brought in an additional $775 million in two secondary listings in November 2007 and April 2008, replenishing a war chest that enabled it to buy several competing brands. Though Belle's stock is up 16% from its IPO price, it's down 33% since the beginning of the year, having suffered from a huge sell-off in China-play stocks.

And if fears of a faltering Chinese economy (, 8/14/08) prove correct, Belle could suffer too. "Given the size of the company it will be vulnerable to any slowdown in consumption," says Chan.

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