Me&City drags down Meibang's multi-branded game

Confucius Temple in Nanjing, visitors such as Weaving, Metersbonwe and Me & City two stores across the street. The Metersbonwe store was full of people, while the Me&City store on the other side was slightly deserted. The sign of the entrance SALE (markdown price) was prominent.

After 15 years of making Metersbonwe a market size of nearly 5 billion yuan, Zhou Chengjian, Chairman of the Group, aspired for a higher gross margin, and in 2008 launched a new brand, Me&City, with a higher price point. In more than a year's time, Zhou Chengjian generously invited Hollywood celebrities to endorse and at the same time widely used commercial real estate throughout the country for Me&City to “shop.”

However, in the first quarter of 2010, the company's net profit fell sharply by 90% year-on-year. Me&City failed to achieve its goal of breaking even in 2009 and is still losing money. Zhou Chengjian frankly stated "very dissatisfied."

Shareholders may worry about Me&City's drag on the performance of listed companies. What's more worthwhile at the decision-making level is why, after investing so much money and much effort in Me&City, why has there been so little success?

First quarter profits plummeted

On August 28, 2008, Meibang Fashion successfully listed on the Shenzhen Stock Exchange and raised more than 1.34 billion yuan.

Together with Zhou Chengjian on the list of the board of directors, Wang Shi and Niu Gensheng also appeared. Two months later, Zhou Chengjian announced the opening of the second brand Me&City flagship store in Nanjing East Road, a bustling area in Shanghai. He invited Winterthwaite Miller, the lead actor of the American drama “Prison Break”, to a hot scene.

Ten years after starting her business, Mebon clothing presented a strong picture, and Zhou Chengjian’s net worth soared to more than 16 billion yuan. With a solid capital and high-end dreams, Me&City started to attack the city.

However, Zhou Chengjian may not have expected that in the first quarter of 2010, after the first year of 2010, Smith Barney made a public announcement that its net profit declined by 90% year-on-year. The company also expects that the decline in net profit will be between 70% and 100% throughout the first half of the year.

The explanation of the forecast data in the announcement is that in the first half of 2009, the company had obtained a lot of financial subsidies. However, starting from the third quarter of 2009, people began to pay attention to Me&City's drag on the company's overall performance.

Mr. Cai, head of the public relations department at Mamba, told reporters that the prevailing situation in the apparel industry is that a brand needs 3 to 5 years from on-line to maturity.

Mr. Cai told the reporter that over the past year, the growth rate of Me&City was “distant” from Zhou Chengjian’s request. The company had previously overestimated the speed of development of the brand, and Me&City is still in the stage of investment. As of the end of 2009, it still has losses and hopes to achieve profitability in 2010.

In early 2010, Zhou Chengjian also frankly stated that he was too optimistic about the launch of the new brand Me&City. In the third quarter of 2009, Zhou Chengjian experienced a negative growth in the third quarter for the first time in 15 years. He later revealed in the media that the financial statements look more "faster heartbeat."

The company explained in its annual report that the multi-brand strategy has just started, and both the decision-making team and the business team lack experience. In addition, the obvious lack of planning, the overall cost control is ineffective, and some of the resources are not used efficiently.

Exorbitantly, the cost of "Clam Shop" is too high?

Every aspect of Me&City consumes a lot of costs.

At the end of 2008, the company made drastic changes within the company, dividing Metersbonwe and Me&City into two business units and operating independently.

“Low-end and high-end brands are very different in market rules and back-office operations. Separately operating independently is a way to avoid going along low-end brands.” a fashion industry source told reporters.

Marketing methods also try to distinguish from Metersbonwe. The early spokesperson for Metersbonwe was Aaron Kwok, and the successor was Jay Chou. Me&City started to look overseas. In addition to the earliest spokespersons, Winterworth Miller and supermodel Bruneteno, they later signed Orlando Bloom, the "prince of the elf", and recruited internationally renowned photographers.

"Me&City's vision is to take the high-end line of internationalization." An employee at Me&City told reporters in this way.

However, it is most representative of management's cherishment for Me&City. In 2009, all stores were opened directly, and they were not open to join. And Metersbonwe is already the mainstream franchise store. As of the end of 2009, there were 2863 stores in Meibang Garments, including 523 directly-operated stores and 2,340 franchised stores.

The endorsement of international celebrities and a large number of publicity and promotion are just the tip of the iceberg of huge investment. Over the past year or so, the company has spent most of its costs on commercial real estate.

The company's annual report disclosed that in 2009, the company spent 820 million yuan in shop purchases and leases, and spent more than 50 million yuan on decoration of stores. Or buy or rent, Smith Barney has a large number of shops, and most stores are in a loss-making state.

Throughout 2009, Metersbonwe’s sales revenue was 4.8 billion yuan, while Me&City was 350 million yuan. Me&City is currently losing money and still needs Metersbonwe's "transfusion."

Positioning Ambiguity

Zhou Chengjian’s dream of entering the high-end is not difficult to understand. However, going "upwards" is much more difficult than "going down."

Prof. Zhang Xinke from the China Academy of Art told reporters that it is relatively easy for foreign garment companies to set a precedent for downward development. From the highest-end "advanced customization", "high-grade garments" are developed until "ordinary ready-to-wear."

Yuan Yuezeng, chairman of Zero Research Consulting Group, told reporters that some enterprises starting from low-end brands have adopted the “isolation” method in order to create high-end brands. They did not let outsiders know the connection between the new brand and the original brand. Under normal circumstances, high-end brands are easy to drive low-end brands, while high-end brands are based on the high-end, consumers will reject.

In May 2010, Yanai, the founder of the Japanese clothing brand Uniqlo, revealed to reporters in Shanghai that Fast Retailing, which has a high-end brand Theory, has entered China, and has several brands in Japan. However, not many people know that Theory and Uniqlo line up.

According to Zhang Xinxin, Me&City still failed to make a big breakthrough on the basis of Metersbonwe. The current position of the brand is still somewhat vague, and the brand's lack of cultural connotation is the biggest problem.

Because Metersbonwe is located in the 16 to 25-year-old campus community, Me&City has targeted its target customers as the "urban white-collar stratum of the fashion age between 22 and 35."

Zhang Xin can observe that dividing the customer base by age has become obsolete. Me&City's products are comparable to Metersbonwe. They are just "deep in design, better in fabrics, and finer in workmanship." Many customers even treat Me & City and Metersbonwe as equals and cannot notice much difference.

At the same time, some commentators believe that Me&City is embroiled in the "fast fashion" that arises. Compete with H&M, Zara, Uniqlo.

The annual report of Smith Barney’s clothing repeatedly mentioned the adjustment of brand positioning. Xu Bin, a representative of securities affairs at Meibang Apparel, told reporters that Me&City must learn from international brands, but its product positioning is not the same and will become “more and more clear” in the future.

For the company’s performance in 2009 and Me&City’s immediate performance, the company’s annual report concluded that on the one hand, franchisees were affected by the economic environment and lacked confidence; followed by the increase in short-term operating costs brought about by the independent operation of the two brands; and The store's investment exceeded sales growth.

Management is still looking for ways to adjust Me&City. The company announced that it will soon open up to join Me&City and expand with the help of franchisees. Shortly after the first quarterly report was disclosed, an equity incentive plan for management also surfaced.