The Shandong Ruyi Technology Group — China’s largest textile manufacturer —which owns, or part owns, a host of international fashion brands is no stranger to roadblocks. From key investors withdrawing to a poor 2019 financial performance to several brands under the group filing for bankruptcy, and now, the advent of a global pandemic has only accelerated the group’s problems. The journey for the group to become the “LVMH of China” is looking less likely.
In their 2019 annual financial earnings report, the group posted 1.15 billion yuan in gross revenue, a decrease of 13.39%. Net revenue was 4,816.95 million yuan, a 51.35% decline from the same period last year. Besides the weaker-than-expected financial performance, on June 1, the supposedly second largest stakeholder of the group, the government-backed Ji Ning City Urban Construction Investment, put a pause to the 3.5 billion yuan value of acquisition. This is a significant setback for the group as it was relying on this capital injection to help with its serious debt load.
Since 2010, the group has snapped several menswear brands, including the Japanese menswear brand, Renown, the Peine Gruppe from Germany, the Trinity Group from Hong Kong, and the Bagir Group from Israel, as well as French accessible luxury group SMCP. It’s most famous deal, however, the acquisition of a 70% stake in the luxury brand Bally has still not closed.
Ruyi has also purchased the Lycra Company, the elastic material used in yoga pants and skinny jeans, for $2 billion in January 2019. Despite the strategic purchase to build up a Chinese homegrown fashion group, the company, to date, has been less than successful. Both Renown and Bagir have filed for bankruptcy, in May and April respectively, due to Ruyi’s failure to pay its debt.
Moreover, the group has been downgraded by the debt rating agency Moody’s three times in the last 12 months, reasons being: “heightened refinancing risk, given its large upcoming debt maturities, continued weak liquidity and limited progress on its refinancing plans.”
The purchase of over 35 billion RMB valued brands was able to push the Shandong Ruyi Technology Group on the top 20 of Deloitte’s top luxury brands list in 2017. However, as of June 2019, the group’s debt load was $34.1 billion, more than triple than what it was in 2013. The question remains: could Ruyi still become China’s LVMH? The chairman of the group, Qiu Yafu, has debuted such ambition in a recent interview with Vogue Business in China, stating its three core areas of focus are high tech material, advanced technological materials, and management of fashion brands.
However, the management of these brands requires a consistent injection of capital and a collective operational effort, with any missteps leading to a vicious cycle. During the ongoing COVID-19 crisis, all eyes are on whether Ruyi can weather the storm. If not, many of its sub-brands may be scooped up by other interested, and financially better off, global players.
The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.