“It’s a pity to officially withdraw from the market this year, but it’s actually quite inevitable.” Zhang Ying, executive director and President of La Chapelle, sighed in an interview with surging news.
Xinjiang La Chapelle Fashion Co.Ltd(603157) (hereinafter referred to as “La Chapelle”) announced that as of May 17, 2022, the company’s A-Shares had been traded for 15 trading days in the delisting consolidation period, and the delisting consolidation period had ended. According to the relevant provisions of the Listing Rules of Shanghai Stock Exchange, La Chapelle will be delisted by Shanghai Stock Exchange on May 24.
For a time, there were nearly 10000 Direct stores, “Chinese version Zara”, invested by Lenovo and Goldman Sachs, and China’s first “a + H-share” listed garment enterprise… Once the halo around LA Chapelle faded. The company founded for more than 20 years is now seeking brand reconstruction and business focus.
La Chapelle: financing, direct business expansion and listing
Before 2018, it was La Chapelle who “ran wild”.
Zhang Ying admitted that since 2018, the overall operation of the company has shown pressure. “In fact, we have too many offline stores that expand too fast and are directly operated stores, so the operation pressure is relatively high. The burden of store costs and personnel costs is too heavy, and the whole structure is unbalanced.”
Back in 1998, founder Xing Jiaxing founded the “La chapel” brand in Shanghai, catching up with the golden era of offline retail in China. At that time, La Chapelle started as a franchise agent and established Shanghai Xuhui La Chapelle Clothing Co., Ltd. (hereinafter referred to as “La Chapelle Co., Ltd”) in March 2001.
In 2007, La Chapelle Co., Ltd. initially received capital assistance. Wuxi xinbaolian Investment Co., Ltd. invested 30 million yuan and Nanjing Jinlu Garment Co., Ltd. invested 10 million yuan. In August 2019, Xing Jiaxing admitted in an interview with times weekly, “it was a very painful period from 1998 to 2007, but because we also insisted, we got the first round of financing in 2007 to solve our survival problems.”
Three years later, in 2010, La Chapelle’s fast fashion women’s clothing business attracted the attention of Lenovo capital. The fourth phase fund managed by Junlian Capital Management Co., Ltd. (hereinafter referred to as “Junlian capital”, formerly known as “Beijing Lenovo Investment Consulting Co., Ltd.) established a subsidiary, good factor, which injected nearly 100 million yuan into La Chapelle Co., Ltd. in two times, with a shareholding of 25%, becoming the second largest shareholder of the company.
From 2011 to 2013, La Chapelle successively completed the transformation of the limited company into a joint stock limited company, cut off franchisees, and comprehensively turned to direct sales and multi brand expansion.
La Chapelle’s series of actions may be to prepare for the sprint to market. La Chapelle said in the Hong Kong stock prospectus that the direct marketing model distinguishes it from most competitors. Before 2011, the company had only 3 women’s clothing brands and 1841 stores; By 2014, the number of brands of the company had increased to 8 and 5671 retail outlets had been launched nationwide.
In 2013 on the eve of listing, another broadstreet Bohua (formerly known as Beijing Goldman Sachs investment center (limited partnership)) was added to the list of shareholders of La Chapelle. Goldman Sachs invested 300 million yuan and held 5% of La Chapelle.
In October 2014, La Chapelle was listed on the Hong Kong stock exchange. Three years later, in 2017, La Chapelle successfully impacted A-Shares for the third time and became the first clothing enterprise listed in “a + H shares” in China. La Chapelle ushered in a high light moment, but at the same time, the crisis also appeared.
Since May 2016, good factor under Junlian capital has successively sold off its current H-shares of La Chapelle. La Chapelle (6116. HK) also experienced a year-on-year decline in net profit for the first time in 2016, while the share price of H shares broke for a long time. In April 2017, good factor completed the reduction, cashed out and left the market. At the end of the same year, La Chapelle had 9448 offline direct outlets, but it fell into a strange circle of increasing income without increasing profit.
Since then, the all direct + multi brand model has dragged La Chapelle into the mire. According to La Chapelle’s A-share annual report, the company’s revenue exceeded 10 billion in 2018, but lost 160 million yuan, a year-on-year decrease of 131.24%. Since then, the company’s revenue began to decline, shrinking from 10 billion yuan to 1.8 billion yuan in just two years.
In the 2018 annual report, La Chapelle attributed the decline in performance to the decline in the passenger flow of physical stores and the decrease in the revenue of the company’s main brands under the downward pressure of the economy. Meanwhile, large discounts have dragged down La Chapelle’s profits.
Zhu Fengwei, Secretary of the board of directors of La Chapelle, replied to the surging news reporter that as early as 2018, due to the adoption of channel expansion and all direct marketing strategy, the company’s fixed expenses such as rent, decoration and labor remained high, resulting in the imbalance of cost structure and substantial loss of profits.
Net profit and year-on-year growth of La Chapelle over the years. Source: wind
is negotiating with external investors, focusing on brand reconstruction
“It’s like a mountain falling ill,” La Chapelle described the company’s situation in an open letter.
In 2019, La Chapelle began its strategic contraction, closed nearly 50% of its direct sales outlets in China, got rid of the unprofitable men’s clothing sector and sold the equity of its holding subsidiary.
But the sudden covid-19 epidemic became the last straw to crush the camel. “As for covid-19, in fact, some actions done in the early stage are simply not enough to make up for the operating pressure of the previous rapid expansion and high cost.” Zhang Ying believes that if LA Chapelle still adheres to the previous business model, “delisting is actually quite inevitable.”
In November 2019, the shares pledged by Xing Jiaxing to Haitong Securities Company Limited(600837) were sold out. During the same period, all of his direct shares in La Chapelle were frozen. In February 2020, Xing Jiaxing, who was deeply involved in the “position explosion” crisis, resigned as chairman of the company. At the same time, La Chapelle also fell into high-level personnel unrest. In November 2021, La chapel was applied for bankruptcy liquidation by suppliers, which once triggered “wild consumption” among consumers, and hundreds of thousands of people poured into the live broadcast room of La chapel e-commerce flagship store to “pick up leaks”.
At a time of domestic and foreign difficulties, the delisting of La Chapelle A-share market may not be entirely a bad thing. “It may be a pity from the capital market, but after delisting, the company’s business can be more focused.” Zhang Ying said that now the whole management team is full of confidence in the follow-up brand promotion and the operation of the company.
By the end of March 2022, the number of La Chapelle stores was reduced to 263 and 9000 stores were closed within two years. “One is to change the original all direct marketing strategy. The core business district of the first and second tier cities will be directly operated, and the rest will be the mode of franchise, joint venture and agency.” Zhang Ying said frankly that in the future, Tuodian hopes to do every store finely, open new stores and good stores. “It may make less money relatively, but it’s more stable.”
“The whole management, including shareholders, agree that brand remodeling is very important.” Zhang Ying revealed that from the beginning of this year, the company will focus on distinguishing the main brand La chapel and other sub brands. The main brand La chapel is relatively aging. In the next few years, it hopes to keep the La chapel brand and attract new consumer groups through a series of actions such as IP linkage, theme promotion and image improvement. In addition, the core 4-5 sub brands are positioned younger and hope to return to the market by “planting grass” and other means.
It is worth noting that at the end of the first quarter of this year, the total amount of litigation cases involving La Chapelle was about 2.433 billion yuan, and bank deposits, real estate, equity of subsidiaries and other assets were frozen or sealed up.
Zhang Ying pointed out that financial creditor’s rights account for the majority of the debt, but the company basically provides sufficient value mortgage guarantee, and there can be a proper solution by disposing of non core property assets. Many suppliers are also willing to support the sustainable development of the company through debt discount and exemption. The company has reached a tacit understanding with many creditors to shelve historical debts and jointly carry out new business.
At present, La Chapelle has reached an agreement with the major shareholder Wensheng assets. Wensheng assets has made it clear that its main work is to help La Chapelle get out of the debt dilemma. “(major shareholders) have helped the company in terms of debt and capital, and have given (management team) sufficient autonomy in terms of operation and management.” Zhang Ying said.
“The introduction of external investors is an important help for us to finally solve all problems and return to sound development.” Zhang Ying admitted that there are a lot of negotiations, but it is not clear. The specific situation is not convenient at present. Finally, it should be disclosed in the form of announcement.
