HONG KONG — Coach Inc. is out to make a splash in Asia this week — and other brands may soon follow.
This story first appeared in the November 30, 2011 issue of WWD. Subscribe Today.
The luxury firm will be the first American company to list on the Hong Kong Stock Exchange, with trading scheduled to start Thursday. Coach, which is already traded on the New York Stock Exchange, will not be raising any new capital with the listing. Instead, the goal is to raise its profile in a market that is the brand’s fastest growing and where its products are in hot demand.
Coach has applied to list 293.6 million depository receipts, with each depository receipt representing one-tenth of one share of common stock, according to documents filed with the Securities and Exchange Commission.
Asia and its consumers are becoming increasingly important to luxury goods brands. Prada SpA raised nearly $2.5 billion in an initial public offering on the Hong Kong exchange, while Samsonite, the luggage maker, raised $1.25 billion in June. More recently, sources said London-based jeweler Graff could raise up to $1 billion through an IPO in Hong Kong, while Chinese jeweler Chow Tai Fook has reportedly started taking orders for a $2.8 billion IPO. Ducati is said to be eyeing Hong Kong for an IPO, while Burberry could be looking to do its own secondary offering on the exchange.
Coach executives declined to comment on the listing given SEC regulations. But in September, Victor Luiz, president of Coach International Retail, told WWD, “China is by far the single biggest geographic growth opportunity we have.”
The brand’s sales in China are about $185 million, including the Mainland, Hong Kong and Macau. The brand, which has 71 stores in China, 171 in Japan and six in Singapore, plans to open about 30 locations in China during fiscal 2012, most of them in Mainland China.
In addition to store openings, Coach has made moves to gain control of its Asian operations. It acquired Coach retail businesses in Hong Kong, Macau and Mainland China from its former distributor, ImagineX Group, in 2009, giving them greater control and “enabling Coach to raise brand awareness and aggressively grow market share with the Chinese consumer,” the company said in filings. It also entered into agreements in 2011 and fiscal 2012 to assume direct control of its retail businesses in Malaysia, Singapore and Taiwan, which have been operated by Valiram Group.
Analysts see the Coach listing as mainly a marketing move in the increasingly competitive Chinese market.
“It gets people talking about the company,” said Philippe Espinasse, a former investment banker and now independent consultant in Hong Kong. Coach “hasn’t been in China for a long time so they are generating some buzz.”
Coach, in company filings, has said the secondary listing should help expand its investor base, demonstrate the company’s commitment to and focus on Asia, and raise its profile with Asian customers and investors. The company also said it decided to seek a listing of depository receipts instead of common shares on the Hong Kong exchange because it’s “faster and less costly.”
“There’s a bit of a herd mentality. One company does something and others follow,” he said, citing the flood of anticipated luxury-related IPOs from Ducati, Burberry and others.
Market watchers say they see some demand for the listing, though liquidity is likely to be low.
“I think there would be a group of Asian or Hong Kong-focused investors that would want more exposure to the luxury goods sector and are unable to invest in no-Asian listed companies. We believe globally recognized luxury goods brands will take an increasing share of wallet over time,” said Aaron Fischer, analyst at CLSA Asia- Pacific Markets in Hong Kong.
“The timing of the listing is tricky,” Espinasse said, citing the end-of-the-year rush to the market. A number of these deals have been repriced or restructured before coming to market.
Liquidity in depository shares is likely to be quite low, he said, noting that on other exchanges such as London, the trend has been to unwind dual listings, which can be expensive and time-consuming to maintain. Trading in depository receipts of British insurer Prudential plc and Vale SA, for instance, have become very thin since their listings.