Focusing on Consumption and Fashion: Interpret JD Capital’s Investment Strategy in Consumer Sector

2013-11-29

In a recent interview, JD Capital remarked that the consumer goods sector covering food, clothing, housing, transport and other daily necessities, has always been their important investment orientation. In fashion industry, mid-and-high-end female garment brands are with the largest investment potential. Mr. Sun Yi, vice chairman of JD Capital commented that the domestic female garment market is huge with an overall market capacity of hundreds of billions. JD Capital was quite optimistic of the growth of domestic female garment industry, especially those excelled in mid-and-high-end female garment. It has invested in a number of enterprises in the high-end female garment sector which boasts vast market prospect. bMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

An Investment of 100 million yuan in LancybMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In 2010, JD Capital made an investment of 100 million yuan in Lancy, the first Chinese stock of mid-and-high-end female garment company. Lancy launched its IPO succesfully in SME board in 2011. Over the past three years, its compound growth rate in revenue reached 58%. According to Mr. Qian Peng-fei, senior investment manager of JD Capital, Lancy might rank the top three in local mid-and-high-end female garment enterprise. Its multi-brand operation pattern demonstrates the respective multi-angle understanding of Lancy to fashion, covers all consumer groups and satisfies the fashion demands of women of different age. It has developed core brands including LANCY FROM25, ZOOC, LIME FLARE as well as liaalancy positioning high end and marie n°mary targeting at young ladies launched in 2011. “Currently, we are still assisting Lancy with the search of good acquisition targets to further promote its multi-brand businesses.”bMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

An Trial Investment of 50 million yuan in WisemanbMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

As a matter of fact, before Lancy, JD Capital had run a trial in fashion sector. In the end of 2009, JD Capital invested 50 million yuan in Wiseman, a fashion brand based in Zhuhai. Wiseman features in private-label fashion brand chain retailing and sweater ODM and OEM. It produces more than 6million sweaters annually and owns over 400 chain outlets nationwide. In 2008, it was recognized as China Fashion Sweater R&D Base by China Fashion Association. Currently, Wiseman has submitted its IPO application and is now waiting for the approval of the CSRC. bMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “We chose JD Capital of all the investment institutions for its professional team and the complementary advantages to both sides.” Mr. Qiuhe XIE, chairman of Wiseman, remarked in the press release of the time. It is learned that since its participation in Wiseman, JD Capital has helped it in various aspects covering brand enhancement, distribution expansion, financing support and IPO promotion. bMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Other than Wiseman and Lancy, JD Capital is also an investor of Jefen, a high-end female fashion designer brand. Other than equity investment, it has offered Jefen with a large amount of value-added service covering high-end channel expansion, management enhancement, talent introduction and standard operation and is now helping Jefen with further cooperation in industrial M&A. bMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

It is said that JD Capital is currently focusing on and shall invest in some Tao Brand in female garment sector as their outstanding feature of “Buyer Oriented” is of certain value. bMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In Need of Money despite Good Cash FlowbMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

According to Mr. Sun Yi, there are some enterprises in female fashion industry which are mainly directly operated and targeting mid and high end with prominent style and thriving sales performance. With an annual sale of over 1 billion yuan, they are low profile and focus on their own business. They are the favorite and main support of shopping malls. Those enterprises, boasting abundant cash flow and stable self-development system, seem to have no worries about money. Yet they shall be in need of capital in a long-term perspective as the market, though large , lacks in concentration. There are no more than 20 enterprises who have a sales scale of over 1 billion yuan. By the lights of the development of foreign female fashion enterprises, they are mostly a large and well-established fashion group with a number of subordinate brands that differ in market positioning and style. In China, however, of all the female fashion enterprises, only a few, namly Lancy, Xinhee in Xiamen and Shenzhen Ying’er, stand out in brand operation. bMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Under these circumstances, if an enterprise intends to maintain the present operating model, the only way to achieve fast expansion and grand goal is to attract strategic investment and quest for IPO.  bMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In the development track of the world fashion industry, the development of fashion groups is closely associated with the power of capital. Capitals are needed in the expansion of fashion group and global transmission of fashion power, M&A in particular. According to the statistics of Alacrastore, a consulting company, LVMH Group has accomplished 62 acquisitions since 1987 and bought shares in 74 enterprises t to achieve its Master position now. bMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Three Internal Review Standards of JD CapitalbMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

According to Mr. Sun Yi, in evaluating the investment value of a fashion brand, JD Capital applies the following three standards. bMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The first is to consider whether the positioning of the brand differs from others. The field of sportswear targeting mass market is basically saturated with few variations, while brands in the segmented field targeting fashion and individuality still have large investment potential. For example, attentions may be drawn to those with special designs or interesting designers or good stories to tell in the brand development. What JD Capital would invest are the fashion brands that are different from others and their products follow a coherent style.  bMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

According to Mr. Qian Peng-fei, many domestic popular female fashion brand targeting mid-and-low-ends are weak in brand design and thus keen on buyer mode. As in mid-and-high-end female garment sector, most brands have their own original designs that differ from others, know better about the consumption characteristics of local consumers and thus are more likely to cater to their needs. Those brands are of more investment value. bMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The second is the financial indicators. The competitive edge of a brand would eventually be shown on the financial indicators, namely markup override ratio and turnover rate etc. A brand with high markup override ratio and turnover rate is definitely a wonderful target. If it has high markup override ratio and low turnover rate, then you need to conduct concrete analysis to make a decision. If both the markup override ratio and turnover rate are low, then it is unworthy of attention. bMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The third is the direct-operation capability. Most domestic fashion brands, menswear brands in particular, apply the franchising mode. JD Capital contends that those with strong direct-operation capability can grasp the need and preference of terminal consumers more accurately, which also reflects the enterprise’s operation capacity. Mr. Sun Yi remarked that there was a big difference in the operational models between local fashion brands and foreign ones. The terminal sales of foreign brands are accomplished by department stores and shopping malls, while that of domestic brands are done by the brands themselves which emphasizes the importance of final kick. One can tell the management capacity of an enterprise from the display and training of shopping guides of terminal stores, which becomes an indicator of the brand value.  bMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

To find a good fashion brand, the first move is to be in touch and get to know each other. Mr. Sun Yi joked, “It’s like two individuals going on a date. You need to know each other and see the quality appealing to you before falling in love.” If there is chemistry, then it’s time to take the next move. bMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

As is learned, JD Capital would initiate a thorough Cooperative Intention Report based on its understanding of the enterprise. The report would elaborate in detail JD Capital’s understanding of the industry as well as the enterprise, covering the competition confronting downstream shopping malls and department stores, inventory of the enterprise’s franchised stores as well as the strengths and weakness analysis of its brand operation. bMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Entering due diligence, JD Capital would send a team consisting of industrial investment managers and financial experts to conduct comprehensive on-spot research over the target enterprise. Suggestions would be given with regards to the issues discovered in the due diligence even if it doesn’t invest in the end. “There is plenty to cover, including development strategy, business model, management optimization and improvement etc. No matter we invest or not, our experience in the fashion industry would do good to the enterprises by all means to jointly promote the industrial development. bMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Capital Connecting Macro-consumptionbMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Data shows that in the macro consumption field, other than the above garment enterprises, JD Capital also invested Juewei Food, Huida Sanitary Ware, Universal Marble & Granite Group (UMGG), Maydos, Golden Monkey Food, Doctor Glasses, Sauna King, Hongqi Chain, Fusen-Nobel House, UTour, Lafeng Entertainment, Oppein Wood, Adel, Monarch Washing and Yalu Holdings, etc. From the business statistics of JD Capital, the investment in consumption field covers a large proportion, both in invested capital and in amount of enterprise invested.bMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

   It is learned that there are two teams in JD Capital responsible for investment in the consumption field. One is in charge of investing those well established and large scale targets and the other is responsible for VC projects of smaller enterprises at their early age. Each investment manager would focus on one to two segmented sectors, following the business movement of listed enterprises weekly and organizing investment strategy seminar of the sector monthly, inviting experts of all sectors so as to get a better understanding of the industry. In the meantime, summarization of the common problems that Chinese consumer product enterprises are confronted with, nationwide business network, hundreds of LP resources and 200 invested enterprises help to provide custom-made value-added service to those enterprises to be invested or already done. In early 2011, JD Capital also established JD Business School, the first senior management exchange platform of invested enterprises found by PE firms in China. Up until now, there have been thirteen sessions with thousands of senior management joining in for communication and training, which is another post-investment value-added service provided by JD Capital. bMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


bMF九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

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