La Chapelle bleeds cash as shoppers shun boring offer

Troubled Hong Kong-listed fashion retailer La Chapelle has recorded a nine-month loss of more than HK$1 billion after sales plunged 18.8 per cent year on year.

But while many retailers have been blaming protests, the appreciating Renminbi and sagging consumer sentiment for their sales challenges, La Chapelle has no such excuse. Its products are priced at the lower end of the scale but unlike their European and Japanese fast-fashion rivals, La Chapelle’s clothes are dull, dated and uninspiring, according to shoppers. 

Group revenue for the first three quarters was RMB5.757 billion (US$817 million), a decrease of RMB1.329 billion ($189 million) from the RMB7.086 billion ($1.005 billion) of the corresponding period last year. 

While not referred to in its results announcement, La Chapelle built a two-story flagship store in Ho Chi Minh City, Vietnam last year, adjacent to the highly-popular Vivo City shopping centre which targets expats and the rapidly rising Vietnamese middle class. The store lasted barely three months before it was abandoned because despite its high-profile standalone street-fronting location, no one shopped there. Three young Vietnamese women in the brand’s target demographic who visited the store during its short tenure told Inside Retail Asia the offer was “ordinary”, “dull” and “boring”. One said the colour palette was offseason and many of the clothes were “shapeless”. 

“Their fashion taste made me think of old Chinese housewives,” said one. “I was not surprised at all when they shut down.”

Besides its own name brand, La Chapelle sells under the Puella, 7 Modifier, La Babite, Candie’s, and 8EM labels. During the period it acquired the Naf Naf business. Sales by every single one of those brands – and of its menswear offer – fell during the September quarter, by rates ranging from 8.5 per cent (for Candie’s) to 35.7 per cent (menswear).

Sales at standalone stores fell by 9.7 per cent, through concession counters in department stores by 30.8 per cent and online by 35.6 per cent. 

The official view

Unsurprisingly, La Chapelle chairman Xing Jiaxing offered a different view of the reasons for the company’s poor performance so far this year. 

“The period-on-period decrease in revenue for the reporting period was mainly attributable to a slower growth in consumption of the entire clothing industry and [a] decrease in store traffic,” he said in a stock-exchange filing. 

He also cited the implementation of the company’s strategy to reduce its business scale, decreasing “low-efficiency and loss-making sales channels” and proactively reducing the non-core brands business.

He said despite the decreased revenue, the company still ended September with more than 12 million active members in Mainland China, sales to whom accounted for 40 per cent of group turnover, double the rate of the same period last year. Its WeChat account had more than 6.56 million followers and during the six months to September, readership was up by 184 per cent year on year.

He said the net loss attributable to shareholders for the period of RMB824.7 million* ($117 million) was mainly due to decreased sales and the speeding up of clearance of off-season products. The ongoing closures of loss-making or underperforming retail stores had an impact on expenses as well. 

Xing said that in the final quarter of the year the business will focus on reducing costs, increasing efficiency and “accelerating model innovation” to lay a good foundation for next year. 

There is some indication that the company recognises its offer is failing to meet the market. Top priority for the fourth quarter was listed as: “Refining clear brand differentiation while resources will be focused on the key women’s wear brands’ development, operating decisions will be supported with data in order to align the changing needs of target consumers, optimising the integration of supply chain resources and  focusing on the improvement of the quality of products and services.”

Among other initiatives planned, La Chapelle will look to integrate resources from online and offline to perfect the development strategy of all channels, “improving the sales rate of the quarterly new products while accelerating sales of offseason inventories so as to increase the inventory turnover rate”.

(*Several beneficial one-off items during the period actually lessened the loss. With those removed, the loss was RMB912.5 million ($129.5 million), down 645 per cent.)

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