China retailer Belle seeks digital revamp via $5.8bn privatization

HONG KONG — Chinese footwear and sportswear retailer Belle International is preparing to delist its shares in Hong Kong ahead of a long-overdue digital overhaul aimed at breathing new life into its struggling business.

Belle, which operates some 20,700 outlets on the mainland, sells such big-name brands as Nike and Adidas, as well as offers dress shoes from such brands as Joy Peace and Staccato. But the largely brick-and-mortar retailer is losing business to online players and feeling the squeeze of a shift in consumer preferences from high heels to sports shoes.

“This is to find the way out for the company, and for myself,” Sheng Baijiao, Belle’s chief executive, said of the privatization plans, at what could be the company’s last full-year earnings briefing on Tuesday.

Sheng said the privatization move would provide the “resources and talent” required to revive Belle, though he offered few details about the digital revamp.

An emotional Sheng expressed regret for lacking the expertise needed to transform the 26-year-old company, which is based in the southern city of Shenzhen and earns up to 90% of its profit from traditional channels such as department stores. The 65-year-old executive admitted that he was not tech-savvy, saying he would rather “use his brain” than computers and WeChat, the popular Chinese messaging app. 

“I should have taken the biggest blame for the current troubles,” he said about his failure to embrace the rise of e-commerce. In 2011, Belle tried to set up its own online platform, called Yougou, to rival JD.com and Tmall, but the initiative failed. “As a listed company, you can’t afford to burn money for too long.”

Last month, Belle received a 45.3 billion Hong Kong dollar ($5.82 billion) buyout offer from a consortium led by Chinese private equity investors Hillhouse Capital Group and CDH Investments.

Sheng Baijiao, Belle’s chief executive, announces the company’s earnings on May 16. (Photo by Jennifer Lo)

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Sheng Baijiao, Belle’s chief executive, announces the company’s earnings on May 16. (Photo by Jennifer Lo)

Hillhouse has invested in such Chinese internet companies as Baidu and Tencent Holdings. CDH owned a stake in Belle before the latter’s initial public offering in 2007, and CDH Managing Director Hu Xiaoling sits on Belle’s board as a nonexecutive director.

Catherine Lim, a consumer analyst at Bloomberg Intelligence, said that while privatization might give Belle the flexibility to venture into new business areas, it is far from a complete solution to its problems. “It’s just a means to finding a solution,” she told the Nikkei Asian Review in a phone interview.

Lim said a large-scale digital shift would require a substantial investment for Belle. “The dollars and cents may not necessarily result in profit for the company in the near-term.”

Belle will be privatized at a cash consideration of HK$6.3 per share, a 20% premium over its closing price before trading was halted in April. The company will delist from the Hong Kong Stock Exchange pending approval by shareholders.

Analysts have described the offer price as “unexciting.” In January, Chinese department store operator Intime Retail Group was privatized by Alibaba Group Holding for $2.6 billion, a 40% premium over its closing price.

Belle’s Sheng said the price is fair considering the company’s challenging outlook, and that it reflects the highest target given by analysts.

For the year ended February, Belle posted its weakest annual earnings since 2008, with net profit plunging 18% to 2.4 billion yuan ($348 million). Revenue edged up 2.2% to 41.7 billion yuan, as a 10% decline in footwear sales was offset by mid-double-digit growth in sales of sportswear and apparel.

Asked about his plans, Sheng said he hopes to remain in his current post for the next two to three years to help with the transition. “Even if the privatization plan fails, Belle’s long-term goals should not be crippled by short-term operating results.”

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