Ambitious Chinese garment maker Ever-Glory is pushing ahead with its expansion into retailing. The company's chief executive, Edward Kang, tells Dominique Patton how the firm is eyeing both the domestic and international markets in its drive to turn itself into a leading producer of branded as well as wholesale clothing. 

Nanjing-based Ever-Glory is one of China's leading garment exporters, supplying casual and sportswear names such as Next, Quiksilver and Levi's.

But as production costs in China move ever upwards the company is hoping to increase margins with a greater portion of sales in the retail sector.

After launching its La Go Go brand in January 2008, Ever-Glory's retail venture now owns more than 100 stores around China, mostly within department stores. They accounted for 12.3% of sales in the first quarter, or $2.5m.

The company wants to have 180-200 stores by the end of the year, generating 10% of total sales, and build this number up until the retail brand accounts for a significant portion of overall income in coming years, said Edward Kang, chief executive of Ever-Glory.  

Consumer spending boost
Recent moves by the government to encourage consumer spending should help the retail environment.

"In the past people in China always put their money in the bank. They always worried about their kids' education and healthcare.

"But a few years ago, the government started to improve the social security system. Now Chinese people are more willing to spend," explained Kang.

And the figures suggest that the Chinese are really spending.

China's retail sales growth averaged around 21% last year. Though it has slowed to 15% in the first five months of 2009, growth is still much healthier than the West's recessionary markets.

In the first quarter of 2009, Ever-Glory's wholesale sales to the US dropped 48% compared with the prior year's same period, underlining the value of increasing Chinese sales.

Retail challenges
But analysts have questioned how Chinese manufacturers, and their bosses who have grown up on the factory floor, will cope in the competitive retail world.

International heavyweights such as Bestseller, Mango and Zara are expanding in China and though the market is growing fast, sophisticated brand-aware consumers are still a minority.

Kang, who founded Ever-Glory in 1993, has experience in strategic planning but little expertise in the cut-throat retail world.

But he argues that his retail venture is better positioned for success than many of his peers that are eyeing a similar path.

For a start, the company is a joint venture with La Chapelle, a Shanghai-based garment manufacturer, which already operates 550 stores in more than 40 cities around the country and seems to have proven its distribution model.

"Everyone knows that there's a big difference between manufacturing and retail. Now we have to do branding, distribution, in-store displays...all for the first time. But we're learning from La Chapelle."

Casual clothing segment
Ever-Glory is targeting one of the most dynamic segments of China's retail market - casual clothing for young women.

"Our target customer is 25-35 years old and usually an only child. They have good jobs and get a lot of money and support from their parents."

Kang says his three-person design team in Italy, and the brand's French-sounding name, allows it to promote the clothing range as one influenced by European style, an important selling point among young Chinese.

And it should have its own niche: "We are older than Vero Moda and more sexy than La Chapelle." 

The retail division is a good fit with the wholesale side, says Kang. "Some [wholesale] customers choose new styles from the La Go Go collection.

"And for our new stores, we get experience of delivery and displaying goods. We now understand why the customer always requires delivery so fast."

Still, competing with internationally successful brands will be a challenge.

At the Jiamao mall in Beijing, Only's large store opposite the second floor escalators was significantly busier on a recent June afternoon than La Go Go's smaller shop several metres away.

"It's not so easy to compare to them. But we should be able to compete with international brands coming into China now," says Kang.

Kang says the company has learned a lot through its work with international brands. "We have international sourcing for design, production and good partners in manufacturing." 

International expansion
Kang is also eyeing the US as a potentially easier market for La Go Go.

Other Chinese textile manufacturers are also launching their own brands for the domestic market creating substantial competition. And many of the country's distribution channels are poorly managed. In the US, "you can find a good guy to open the door". 

The company has just created a new team to sell its label to US department stores from 2010.

The plan will allow the firm to get higher prices on its garments yet benefit from established client relationships with leading department stores and access their distribution channels.

"We have registered the brand and have two sales people and a designer working there." The brand will be priced between $29 and $49 per item.

Next year will be a good time to launch, he adds. "Since the financial crisis, some brands are finding expenses are too high. Some have disappeared."

He believes retailers will be looking for new brands, particularly for the younger market. "Young ladies don't focus on one brand. They look for new things." 

If this retail newcomer manages to appeal to the young American market, it is likely to encourage hundreds of other Chinese manufacturers to seek higher margins with branded clothing.