LONDON — Luxury industry watchers commended Compagnie Financière Richemont’s decision to offload the small, struggling Shanghai Tang brand, purveyor of products ranging from enameled chopsticks and crystal-embellished dragon cufflinks to silk pajamas and beaded dresses.
On Monday, in a two-paragraph statement, Richemont confirmed it had sold the brand to Italian entrepreneur Alessandro Bastagli, president of Finalba SpA holding, and president and chief executive officer of the textile company Lineapiù Italia Spa and the clothing firm A. Moda SpA.
Richemont acquired a majority stake in Shanghai Tang in 1998 and bought the remainder of the shares a decade later. Although the terms of Monday’s deal were not disclosed, Richemont noted the transaction would have no material impact on its balance sheet, cash flow or results for the year ending March 31.
Analysts said the move dovetailed with Richemont chairman Johann Rupert’s cost-cutting program at the luxury giant, which is better known for Cartier and other hard luxury brands than for its fashion labels — other than Chloé. They said the sale showed that Rupert is standing by his vows to transform Richemont into a leaner and more efficient operation.
“Shanghai Tang was the least exclusive of Richemont’s brands. It is a premium, mass-market retailer, and the least matched to Richemont, where the focus is on hard luxury,” said Mario Ortelli, senior research analyst covering European luxury goods at Sanford C. Bernstein. He called the disposal “a positive sign, a sign that the company can be focused on making disposals.”
Shanghai Tang was established in 1994 in Hong Kong by Sir David Tang. It was China’s first contemporary luxury brand, albeit with a very Western twist and brand aesthetic. It sells men’s and women’s clothing, accessories and items for the home and operates 32 stores worldwide.
For the past year, Rupert has been cleaning house at Richemont, preparing the company for a “new normal” that involves slower sales growth, volatile demand, currency fluctuations, terrorist threats, geopolitical drama and a market that’s increasingly overcrowded with similar brands.
“Our attention is focused on transitioning the group to adjust to operating in a more sustainable growth environment by adapting our product offer, communication and distribution to new consumption patterns,” Rupert said in May.
He added that, going forward, resources would go primarily toward research and innovation, digital marketing, online sales platforms and training at all of the brands. He has reorganized management, eliminating the ceo role, bought back watch stock from third-party distributors and turned to cost-cutting and layoffs in his efforts to reshape the company into a leaner machine.
Observers believe that while Shanghai Tang will be the only disposal — in the short-term at least — it’s proof there are no sacred brands at Richemont. It is also proof, they say, that only those brands that show potential will be able to stay on board.
Analysts said it’s unlikely that Dunhill or Lancel — two brands that Richemont has struggled with in the past — will be sold anytime soon as they have both undergone a restructuring and need more time to prove themselves.
Thomas Chauvet, senior equity analyst at Citi, said the sale is a reflection of Rupert’s “new and more pragmatic approach” given the changes in the market and in demand. “Shanghai Tang’s operating losses were small in Richemont’s group context, but significant relative to its small turnover base.” He added that the decision was in keeping with Rupert’s belief that the problematic brands need to be fixed.
“He is continuing to adjust the business model to the ‘new normal’ of the market and to the rapidly changing consumer behavior and attitudes. This decision shows that he’s very pragmatic and very hands-on, so the disposal does not come as a surprise, or an isolated transaction. Richemont has never done fashion very well. It requires very different competencies from its core watches and jewelry businesses, where it excels.”
Chauvet added that Shanghai Tang has long struggled to position itself. “Was it a Chinese brand for Europe? A European brand inspired by China? Despite good product quality, the value for money proposition was not quite there. And the brand’s ‘East-meets-West’ positioning was rather confusing.”
In its quarterly results, Richemont principals rarely, if ever, talked about the brand, which was grouped in the “other” brand category along with Chloé, Azzedine Alaïa, Lancel and others.
Last November, Shanghai Tang’s ceo Raphael le Masne de Chermont told WWD the brand had been trying to reduce its reliance on the qipao dress and other traditional Chinese silhouettes.
Joanne Ooi, who served as the creative director of Shanghai Tang from 2001 to 2008, said the brand had failed to evolve with a fast-maturing and picky Chinese shopper.
“The brand was a pastiche of [Asian] culture, which disrespected the refinement of mainland and other Chinese consumers who, since the time it was founded, had grown up considerably and were looking for a much higher level of creativity and originality,” Ooi said. “That [evolution] unfortunately didn’t continue to happen.
“You want to know why it ultimately totally flatlined?” she continued. “It wasn’t creative. It was only on a scale of one to 10, maybe six and seven on its best season in the last several years. This is the truth. I believe that mainland [Chinese] consumers are among, and maybe the most, refined, sophisticated and jaded consumers of all these days.”
In 2013, Shanghai Tang inked a 12-year exclusive global licensing deal with Inter Parfums Inc. to create, produce and distribute fragrances and beauty products bearing the Shanghai Tang name. Inter Parfums USA Hong Kong Ltd. is managing the beauty products of the Chinese luxury products company.
Bastagli made the Shanghai Tang purchase with backing from the private equity fund Cassia Investments and a British investment fund. The entrepreneur said Monday he is already working to build a new creative and management team for Shanghai Tang.