24 February 2019
Chinese menswear firm Heilan has struck a deal that allows internet giant Tencent to become a strategic partner. Photos: Baidu/Heilan
Chinese menswear firm Heilan has struck a deal that allows internet giant Tencent to become a strategic partner. Photos: Baidu/Heilan

Why 3 Chinese tech giants were interested in Heilan partnership

Rumors had been doing the rounds that e-commerce giants Alibaba and were competing against each other to acquire stake in Chinese menswear group Heilan Home Co.

There were reports that Alibaba founder Jack Ma visited Heilan’s headquarters in eastern Jiangsu province in August last year.

Ma was said to have been quite impressed with the Heilan brand’s online sales performance.

On Singles’ Day last year, the menswear brand reported sales revenue of over 400 million yuan that day, making it the best-selling menswear brand on the Alibaba platform.

Meanwhile, Liu Qiangdong, founder of the nation’s second-largest e-commerce firm, posted on his Weibo account a picture of himself wearing a Heilan outfit, a move seen as aimed at promoting the brand.

Liu even said that shopping at and wearing a Heilan outfit are the two fashionable things Chinese men would do.

Notwithstanding all this chatter, Heilan announced last week a deal with another Chinese internet firm, Tencent Holdings, rather than with Alibaba or JD.

Tencent paid 2.499 billion yuan for a 5.31 percent stake at 10.48 yuan per share, according to the announcement. That represented an 8.4 percent discount from Heilan’s last closing price.

Zhou Jianping, Heilan’s founder, now holds 64 percent stake in the firm following the deal.

And Tencent will become its second-largest shareholder.

Meanwhile, Tencent will invest another 10 billion yuan to set up an industrial investment fund together with Heilan to focus on deals that fit with Heilan’s business.

Heilan was founded by Zhou in 1988 with an initial capital of 300,000 yuan. The company was listed on the mainland in 2000.

Now, it has nearly 5,000 stores across the country. Heilan reported sales revenue of 9.25 billion yuan and net profit of 1.88 billion yuan for the first half of 2017. Zhou is ranked as the richest man in China’s fashion industry with a personal wealth of US$4.1 billion.

Heilan positions itself as an affordable menswear brand. Up to 98 percent of its 5000 stores are franchised and based in third or fourth-tier cities.

The company has quickly ramped up scale and profit via fast expansion of franchise stores. However, it remains unclear whether this growth strategy can sustain.

China’s leading internet firms are keen to push into brick-and-mortar retail, and have been acquiring firms with large physical networks.

Heilan does have the potential to be upgraded into a key part of the so-called new retail model.

This article appeared in the Hong Kong Economic Journal on Feb 5

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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