One of I.T’s stores in Shanghai
Everyone in the West recognises household names like Joyce and Lane Crawford as the big retailers in the Far East. The real one to watch out for however, especially when it comes to growth in China, is I.T. The edgy retailer was founded back in 1988 by Hong Kong born and bred Sham Kar Wai, who wanted to bring niche, experimental labels to Hong Kong.
Fast forward 25 years and Sham has built an empire that earlier this year recorded net profits of HK$4.7 billion, up 22 per cent from the previous year. In addition to owning multi-label boutiques I.T and i.t, and over 10 in-house brands, I.T Hong Kong Ltd also operates stores for edgy labels such as Maison Martin Margiela, Alexander McQueen and Comme des Garcons, among many others.
While I.T is a Hong Kong company through and through it has proved itself to be a pioneer in mainland China. Sham opened his first boutique there in 2002. China now accounts for 26.9 per cent of I.T Limited’s turnover while retail sales have increased by 52 per cent in last year. The I.T Group has over 360 points of sales on the mainland (Hong Kong has 300 as of February 2012) with many more planned.
A few weeks ago I was invited to Shanghai to attend the company’s 10th anniversary and was granted an interview with the usually elusive Mr. Sham. Read on to find out more…
Founder and chairman of I.T HK Ltd, Sham Kar Wai
UNLIKE many high powered fashion moguls, I.T’s chairman and founder Sham Kar Wai prefers to keep a low profile and steer clear of public appearances.
A few weeks ago however he made an exception on the occasion of his company’s 10th anniversary on the mainland. Held at a specially designed space nearby Shanghai’s hip Xiantiandi complex, he went unnoticed at the event as he made his way through the crowds dressed in a non-descript beige jacket, a blue button down shirt and jeans. When the fashion show and performance started he took a seat next to celebrities like Zhou Xun and actor Shawn Yue, only to slip out as soon as it was over.
It’s hard to believe that the modest Sham is one of Asia’s most powerful fashion forces. Recently named as one of the top 25 most influential Chinese in global fashion by Forbes China, he is also the mastermind behind the burgeoning I.T fashion empire, which boasts multi-label boutiques I.T and i.t, as well as over 10 in-house and licensed brands including Izzue, b+ab, 5cm and Chocoolate.
As of February this year, the company recorded net profits of HK$4.7 billion, up 22 per cent from the previous year. While Western luxury brands are experiencing a slow down in sales across the region, I.T’s fortunes are on the rise thanks to a distinct vision that has been there since Sham opened his first boutique at the age of 21.
“At that time I had no mission, I just wanted to open a store to fulfil my dreams. I loved fashion since I was a teenager and wanted to gather some friends and bring things that we liked to wear to Hong Kong. At that time the market didn’t have so many choices for young teenagers – there were lots of mass market and luxury brands but nothing in between, just like China was 10 years ago,” he says when we meet the morning after the event.
The company’s first boutique, a tiny 200 square foot space stocking edgy brands like Doc Marten’s, made its debut in 1998. It was an immediate hit with young locals who would later prove to be I.T’s core customer, attracted by the retailer’s smart marketing and approachable business model. Soon I.T gained a reputation for its cool edit of avante garde and edgy labels like Julius, Ann Demulemeester and Isabel Marant, differentiating it from other luxury stores like Lane Crawford and Joyce. Today the group’s multi-channel businesses include several multibrand concept stores, a collection of in-house labels, and freestanding boutiques for under the radar fashion brands such as Comme des Garcons, Gareth Pugh and Maison Martin Margiela.
While the majority of I.T’s businesses have been based in Hong Kong since its inception, Sham chartered new territory in 2002 when he opened his first boutique on the mainland, tapping into the industry’s fastest growing market.
“I first came to Shanghai in 1997 and remember thinking how behind Hong Kong it was. When I came back a few years later it changed so much. Xiantiandi had just opened and I loved the concept behind it because it wasn’t just about upscale brands. I felt there was so much potential – there were no mid range brands or multi brand designer brands and I wanted to bring something new to the market,” he says.
And so began an aggressive expansion plan for the group, starting with its multi-brand boutiques and later, the launch of new concepts such as Beijing’s I.T Market, which is a partnership with Japanese fashion brand Comme des Garcons (Sham says that Comme continues to be its most successful label). While many luxury brands are struggling to see a return on their mainland investments, I.T is prospering thanks to the rapid growth of the middle class.
“China moves at a lightening speed. A lot of Chinese can now travel, where as before they rarely left China. Now they demand international labels. People have become wealthier and the middle class is rising and they have a hunger for fashion. The spending power and demand is so much more different.
“At the beginning the business was luxury focused but now they want something individual that sets them apart. The middle class earns decent money so they can mix and match what type of brands they wear. They can’t afford luxury brands for everyday so we have seen the rise of a new segment, which is great for us. Psychologically they are people who are looking for an alternative,” he says.
In order to target this new market, I.T has taken an unconventional approach to its expansion by focusing on the second, third and fourth tier cities where education is proving vital to growth (currently I.T has 360 points of sales across cities as far afield as Shenyang, Wuhan and Xi’an).
“10 years ago we already carved a presence in Shanghai or Beijing for capital I.T so now is time to target second and third tier cities to educate the people about the business and our reputation. Education is very important. Through media or the internet we are trying to expose people to what we stand for. The majority of people in China are not that fashion savvy so it’s important to move more into those cities. The sophisticated customer may still be a minority but eventually this minority will become the majority,” he says.
Part of the plan has also included a higher profile online to build awareness in areas where they don’t have bricks and mortar stores. Two seasons ago, they launched a Chinese website, with a small selection of goods available to buy. Sham says sales have doubled although the numbers are still small when compared to more established ecommerce platforms such as Taobao.
Of course like all growing markets, China comes with many challenges, especially compared with Hong Kong.
“The weather and behaviour is different from North to South, so we have to customise our selection. China functions like many countries inside one. Plus the customer tends to be more traditional and the culture of shopping is different.
“Then you have operating problems such as human resources. Finding the right staff and keeping them when the environment is competitive is tough. Compared to Hong Kong, marketing and distribution is hard. Hong Kong is small and it’s easy to spread a message. China in contrast is so big and the cost of advertising is around 10 times more. That’s why we need to find other outlets to promote our brands. For us we generate customers through social media, relationships, and special events. We do traditional elements like magazines and events but social media is starting to play an important role,” says Sham.
Naturally his biggest concern right now is the sudden drop in sales across all retail markets on the mainland. This is something he is not taking lightly although there are still plans to expand the business within the next year. Along with opening more I.T stores in second and third tier cities, there will be a stronger focus on in-house brands, which make up around 50 per cent of I.T’s mainland business.
“It’s easier to launch our in-house brands as the selection is easier and more suited to the local market. The Chinese understand it as it’s designed by a HK team. Izzue does extremely well compared to Europe, which we launched a few years ago. We can’t say it’s been super successful there as we are still growing. Now the most important region for us is greater China,” he says.
Always looking to differentiate themselves from competitors, I.T is also planning to open its first department store in China in the third quarter next year. The project is a joint venture with prestigious French department store Galeries Lafayette.
“We finally found the right location after several years. It will be a 500,000 sq ft space stocked with luxury brands, cosmetics, restaurants, and even a food court and supermarket. I.T of course will have a space inside and will bring a host of new brands from Europe and the West. Like I.T Market, we wanted to bring something new China. IMost of the department stores here look similar so we want to bring something European with a Western taste. Department stores are one of the biggest channels for sales in China so we couldn’t ignore it,” says Sham.
Also on the cards is rejuvenating Japanese label A Bathing Ape, which Sham incorporated into the company in 2011. After operating at a loss for several years, he is hoping to bring the brand back into the red. His midas touch has sparked insiders to speculate whether he is in the early stages of building his own fashion conglomerate similar to the likes of LVMH.
“Buying brands is interesting – I wouldn’t dismiss it but am open to opportunities. Let’s see, one thing at a time,” he says.
First published in the South China Morning Post on November 9, 2012