The new Chinese owner of the British department store House of Fraser has pledged to make the brand a household name in China. Will the gamble pay off?
Academics claim that more than half of all cross-border acquisitions end up in failure. Perhaps as a result, when news emerged that China’s Sanpower Group had acquired British department store brand House of Fraser, people were sceptical.
Yet, the last 12 months saw the retailer post record annual sales for the year ending January 2015, with sales showing a 5.8 percent uptick, including a 32 percent rise in online sales, altogether generating over £64 million in annual profits. However, since its acquisition for £480 million by a Chinese conglomerate in April 2014, observers are wondering if this tried-and-tested heritage brand will attempt to tap the potential of the People’s Republic.
At the company’s suppliers’ conference, held in London’s iconic Wembley Stadium in April 2015, the keynote speaker, billionaire chairperson of Sanpower Group Yuan Yafei, kicked off an agenda that focussed almost entirely on the Chinese market.
According to Yuan, meeting many of his suppliers for the first time at the Wembley conference, Sanpower has given the green light for £150 million worth of refurbishments in six of the brand’s UK stores in the UK, and has tabled plans to open outlets in Russia and the United Arab Emirates, also major growth markets for British brands. Star of the show, however, were the proposals to open branches in the Chinese cities of Chongqing, Nanjing and Xuzhou, with a view to expanding to 50 outlets on the Chinese mainland in the next decade.
The data on Chinese consumption patterns appear to be in the brand’s favour. A growing Chinese middle class have contributed to retail sales worth £2.6 trillion in 2014, 90 percent of which were at entity outlets rather than online. Meanwhile, the firm is hoping that strong online sales growth in China, and the success of its online store in the UK, will also allow for a strong opening in the Chinese market. The company has already announced plans to launch a platform for the brand on the popular Chinese e-commerce site Tmall, part of Alibaba’s e-commerce empire.
Yuan Yafei, who already owns department stores in China, stressed that House of Fraser must take a “Chinese approach” to retail in China, with the business developed independently “in China with Chinese staff ” with the “British flavour added afterwards.” His argument follows a common perception among Chinese businesspeople, that foreign business models don’t work when applied to the Chinese markets.
Commanding a business empire worth billions of dollars, Yuan, as with many of his business contemporaries, claims a “rags-to-riches” origin story, and has been vocal in his criticism of the UK’s recent record in industrial and agricultural production. In terms of retail, however, he openly admires the ability of British brand names to attract the world’s richest clientele, and it was pursuit of high-roller spending that initially attracted him to House of Fraser. He perceives a gap in the Chinese market for such high-value brands, and with competitors like the Australian brand Lane Crawford and France’s Galeries Lafayette having already made landfall in China, Yuan is aware this gap will likely narrow in the near future.
Sanpower’s acquisition of House of Fraser is another powerful example of the continued pursuit of “win-win” outcomes by Chinese conglomerates seeking to diversify formerly low- to mid-range business models and acquire footholds in less rapidly growing but generally more stable overseas retail markets. By minimising interference in its UK model while also seeking to localise proposed outlets in China, House of Fraser could prove a major success story in an already well-established tradition of high-end foreign retailers using China as a vehicle for growth. Whether China’s notoriously trend-centred consumers will go for this heritage brand name, however, remains to be seen.