Summary of Key Points
Hailan Home once became the leader in men's clothing business with its "quasi-direct sales + returnable goods" model, reaching a market value of nearly 50 billion yuan at its peak. However, due to changes in the industry over the past decade (e-commerce, consumer upgrading, pandemics, etc.), despite still holding the top market share and expanding its store network to 7,000 outlets, its market value has remained stuck around 30 billion yuan for a long time. After the second generation took over, they tried new businesses such as multiple brands, international expansion, and acting as an agent for Adidas, but failed to find a clear path for secondary growth. Now, with its second listing on the Hong Kong stock market, it needs to present a story of new growth to investors. However, issues such as its unclear positioning (whether it is a brand or a retailer) and inefficiencies remain unresolved, making it difficult to break through the 30-billion yuan market value ceiling.
Detailed Analysis
1. Why Didn't the Former "Easy Profit Model" Work?
Hailan Home's early success relied on a clever strategy:
- Channel Side: Franchisees invested in opening stores and paying rent and labor costs, while the headquarters managed all operations (pricing, inventory, employee training), with profits shared after sales—franchisees essentially acting as "financial investors," with Hailan controlling the retail outlets.
- Supply Chain Side: 80% of products were sold under a returnable model, allowing returns to suppliers if they couldn't be sold, shifting the inventory risk upstream.
This model worked well in an era when clothes were in high demand: franchisees were willing to invest, and suppliers agreed to take on the risk of returns since Hailan sold well. The company's main brand revenue peaked at 17.4 billion yuan in 2019.
However, this strategy no longer works:
- The men's clothing market has almost stopped growing (average annual growth of 0.1% from 2019 to 2024), and consumer demands have become more selective; Hailan is far from consumers and cannot respond as quickly as brands that interact directly with them.
- Brand growth has slowed, and suppliers are reluctant to bear the risk of returns, turning this former advantage into a burden, leading to increased inventory pressure.
- Average sales per store have not increased, and despite accounting for nearly 70% of revenue, the main brand's growth is stagnant, resulting in lower profits.
In short, the strategy that relied on shifting risks and rapid expansion no longer applies in today's market.
2. The Second Generation's New Attempts: What Are the Real Opportunities, and What Are the False Positives?
Under Zhou Lichen's leadership, Hailan Home tried three new directions with mixed results:
- JD Oulei: An attempt to enter the lower-tier market as a discount store (modelled after TJX in the U.S.), collaborating with JD.com to sell discounted sports brands at 30%-50% off. However, this model is problematic:
- It's based on consignment sales rather than outright purchases, and Hailan lacks the experience of TJX's extensive purchasing team, making it difficult to secure cheap bulk discounts from suppliers.
- It competes with Hailan's main brand for customers in the same target market, potentially diverting its own traffic.
- High rental costs (similar to VIP.com's struggling offline stores) may reduce profits as the business expands.
- Adidas FCC: Selling Adidas' affordable products in lower-tier cities, but with nearly zero net profit, this effort is more of a cost-effective entry into the market rather than a profitable strategy.
- International Expansion: Hailan has opened 147 stores in Southeast Asia, generating 450 million yuan in revenue (27.7% year-on-year), but the local market is small (only 2.7% of the global total). Despite this growth, it faces competition from other players, limiting potential expansion.
In summary, these new businesses either generate no profit or operate on a small scale, failing to become a significant source of secondary growth.
3. From "Selling Its Own Products" to "Selling Everything," Has Hailan Become a Retailer?
Hailan Home is increasingly acting more like a retailer than a brand:
- Its main brand operates as an "in-house brand retail" business.
- JD Oulei focuses on "multi-brand discount retail."
- Adidas FCC acts as an agent for brands, selling products on behalf of other companies.
Its core asset is its network of over 7,000 stores, and all management efforts are aimed at making these stores more profitable by increasing sales.
However, it has not successfully emulated two key benchmarks:
- Uncovering the Strengths of Uniqlo: While Uniqlo's "value for money" strategy helped it thrive in a shrinking Japanese market, Hailan lacks quality and price competitiveness, and its direct-sales model has increased costs, limiting consumer benefits.
- Lacking Retail Expertise: TJX's success relies on a strong purchasing team and bulk discounts; Hailan's limited purchasing power and weak brand portfolio make it more of a middleman rather than a discount retailer.
As a result, Hailan is stuck in a position without the premium value of a brand or the efficiency of a retailer.
4. Can Listing on the Hong Kong Stock Market Break the Pattern?
The goal of listing on the Hong Kong stock market is to raise funds and present a growth story. Investors are concerned about whether Hailan can generate higher profits in the future. Current issues include:
- Unproven new businesses with limited success.
- Unclear positioning: Whether it aims to be an affordable men's clothing brand or an efficient retailer.
- Inefficiencies in supply chain, product selection, and customer response times compared to industry leaders.
High dividends (80%-90% annual) may stabilize the company's stock price but not drive growth. Investors want a story of sustained value creation, not just stable cash flows. If these issues are not resolved, even with additional funding, it will be difficult to exceed the 30-billion yuan market value ceiling.
5. The Ultimate Question: What Does Hailan Really Want to Be?
Hailan's dilemma stems from a lack of clear positioning:
- To become a brand, it needs to improve its "value for money" and connect better with consumers (e.g., by collecting feedback and quickly adjusting products).
- To become a retailer, it must enhance efficiency (e.g., by developing a strong purchasing team and optimizing the supply chain).
If it continues to struggle to define itself, it will remain trapped between the limitations of its current market value.
Conclusion
Hailan Home's story illustrates the transformation challenges faced by traditional Chinese clothing companies. While past growth was driven by channels and franchising, they must now adapt to a consumer-centric era. The second generation's efforts are commendable, but to break through, Hailan must clarify its core mission: whether to continue as an affordable men's clothing leader or transform into an efficient retailer. Only by resolving this question can it truly overcome the 30-billion yuan market value ceiling.