PARIS — How big is the opportunity for affordable luxury in China?
Very big, according to SMCP Group, now under Chinese ownership and steaming ahead with its global expansion, including 30 directly operated stores this year in Greater China.
“There’s a lot of runway ahead for the brand,” said Daniel Lalonde, president and chief executive officer of the French company that groups the Sandro, Maje and Claudie Pierlot chains. “In Greater China, we’re at the beginning of our brand and business development — and with incredible results so far.”
He noted that there are only 26 Maje stores in China at present, whereas many European luxury firms operate double that number in the market, and with units often fivefold in size that target a narrower, more elite slice of the population.
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“We have a larger, addressable market,” Lalonde said. “This is very much about continuing our strategy, and taking the company and the brand to the next level. We think we can become one of the most important global players in affordable luxury.”
According to Lalonde, the number of Chinese households entering the middle class could grow to 85 million by 2020 from 33 million today.
Next steps in the region include new Sandro and Maje flagships in the Fashion Walk outdoor shopping plaza in Hong Kong, along with the first Sandro men’s store on Wyndham Street.
Lalonde also revealed a new partnership with Alibaba’s Tmall platform that is set to go live in the second quarter with the Sandro and Maje brands, capitalizing on the fast-growing online and mobile channels.
Company-wide, digital sales accounted for 6.2 percent of the total last year, and vaulted 138 percent on year, Lalonde said.
Future growth vectors in China include the Claudie Pierlot chain, slated for accelerated development from the end of 2017. At present there are four locations.
As of Dec. 31, SMCP counted 60 stores in Greater China; three directly operated units in Singapore; 86 stores in Korea with a partner, and 30 stores with a partner in Australia and other parts of Southeast Asia.
As reported, Chinese textile concern Shandong Ruyi Group on Friday signed an exclusive deal to acquire a controlling interest in SMCP from private equity giant Kohlberg Kravis Roberts & Co., which held a 70 percent stake. KKR is to retain a minority interest in the group and the current management team also plans to put down money.
“We’re not only staying and continuing with our strategy, but we’re making a meaningful investment in the company for the future, so we’ve got skin in the game,” Lalonde said, noting the transaction is expected to formally close by summer after clearing labor and regulatory formalities.
As reported, the deal has been estimated at 1.3 billion euros, or $1.45 billion, including debt.
In a wide-ranging conversation, Lalonde stressed that SMCP’s expansion strategy is focused on multiple regions, revealing plans for “meaningful stores” in Italy over the coming months, particularly in Rome and Florence, as well as Spain and the U.K.
The Middle East, a key focus in 2015 with about 20 stores added, is considered a high potential region. In the U.S., the group is focused on increasing sales density in the existing 125 locations, and intensifying online sales, complemented by select openings primarily in the New York area and Florida, Lalonde said.
The executive declined to give sales projections for the group, but noted that it would maintain its expansion cadence, opening about 125 stores a year. Of these, about 90 will be directly operated and the balance with partners in various regions.
SMCP Group roughly doubled in size over the past three years and reported rapid sales growth last year.
Last month, SMCP reported that 2015 revenues vaulted 33 percent to 675 million euros, or $748 million at average exchange rates, while earnings before interest, taxes, deprecation and amortization advanced 44 percent to 107 million euros, or $118 million.
Asked about recent trading, Lalonde declined to share numbers, but offered, “The year has started off very solidly. It’s been a very strong first quarter in all regions.”
Beyond store expansion, Lalonde singled out the digital channel, men’s wear and accessories as the main “strategic levers” for the group. For the latter category, he trumpeted an “exceptionally strong” debut for Maje’s M bag, a square tote with an inset handle and a spill of fringe from each side.
Lalonde noted talks with Shandong commenced last December and the new owner is completely aligned with SMCP’s existing strategy, giving management complete authority over all parts of the business, including sourcing.
“Part of our business model is taking the codes of luxury and blending them with the codes of fashion,” he explained. “We want to keep all our strategies intact, our business plan.”
The 1,118-door business operated in 33 countries at the end of 2015.
Parisian sisters Evelyne Chétrite and Judith Milgrom founded Sandro and Maje in 1984 and 1998, respectively. Claudie Pierlot set up her business in 1984 and was acquired by Sandro and Maje in 2009.