HONG KONG — Sourcing company Luen Thai Holdings is to become the China retail partner of casualwear brand Chaps, and plans to launch the label in the region late this year or early next year.

A licensing agreement is to cover China, Hong Kong, Taiwan and other select Asian countries to manufacture and distribute Chaps apparel and footwear, Luen Thai said in a statement to the stock exchange on Tuesday said. The company expects to finalize the deal with Chaps parent Ralph Lauren Corp. by mid-September.

Luen Thai is also in talks with other retail nameplates in a strategic pivot away from its core manufacturing business, which has suffered thinning margins over the years. Luen Thai has distributed Skechers in the region since 2007.

“I think the knowledge and our experience in Skechers and our infrastructure in Skechers is actually very helpful in helping us to jumpstart this project,” Luen Thai’s executive director Jason Tan told WWD.

“We don’t expect it to be profitable for the first year or even second year,” he noted. “It requires a time of investment to build up the brand, to build up the process, to build up the brand awareness and equity in China. We are very confident that it will be a good project for us.”

The company manufactures for retailers including Ann Taylor, Coach, Fast Retailing and Ralph Lauren.

“I think one of the reasons that Polo chose us to distribute Chaps is because of the long-term relationship we’ve had with Ralph Lauren over the last 20, 30 years,” Luen Thai chief executive officer Henry Tan said.

The Hong Kong-listed firm also reported first-half profit dropped 55 percent on the back of poor apparel orders. Profit for the year to June came $7.5 million, compared to $16.4 million the same time last year as revenue slid 7 percent year on year to $522 million.

The company blamed weakness in its casual and fashion apparel segment, which accounts for approximately three-quarters of turnover. Accessories make up most of the remainder of business.

Results were affected by a subsidiary, Ocean Sky Group, that was in the midst of revamping factory operations and redeployment of its employees in Cambodia, plus lower-than-expected orders from a major Japanese customer in the first half.

Also, increasing operating costs in China led to a drop in luxury bag orders in its factories based there, the company noted.

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