The Chinese shoe producer has announced new agreements with Nike, H.H. Brown and a Brazilian company, Arezzo, to open a new series of single-brand stores in Mainland China. It has also reported the launch of a new store concept, called Shoeshop, starting in the second quarter of this year. In releasing its financial results for 2007, Prime Success International Group indicated that it will reduce contract manufacturing, trying to secure high-margin orders from selected well-known brands, while exploring opportunities to develop more products under its own brands.
The deal with Nike calls for the opening of 40-50 new points of sale in China over the next two to three years featuring the company’s sport performance lines. Prime Success has already been working with Adidas, and last year it extended the cooperation to the Adidas Performance range, adding 35 Adidas stores based on its performance concept in view of the 2008 Olympic Games in Beijing. With 139 points of sale open at the end of last year, the Adidas business generated an operating margin of 9.2 percent on sales of HK$284.1 million (€22.9m-$36.5m), up by 46.6 percent or by 26.0 percent on a same-store basis.
Prime Success will also open 10 points of sale with its own independent show windows this year under the Arezzo banner in high-end shopping malls in first-tier cities. A similar number of POS will be opened for two women’s footwear brands of H.H. Brown, Sofft and Born. Arezzo already has 225 shoe shops and 1,003 franchises in Brazil, other Latin American countries and Portugal (more in Shoe Intelligence).
Prime Success is also planning to open 50 stores this year under its new Shoeshop format, which is meant to sell high-quality footwear from its own factories to customers between the ages of 18 and 45.
First established in 1987 and listed on the Hong Kong stock exchange since 1995, Prime Success already operates more than 2,800 POS in Mainland China and in Taiwan. That includes 346 Shoebox stores and 1,577 stores, 518 sales counters and 279 franchised outlets running under the company’s older Daphne brand, first introduced in 1990. With average selling prices of 116 renmimbi (€10.44-$16.63) per pair, the Shoebox stores saw their sales grow by 6.1 percent on a same-store basis. Sales at Daphne stores, where the average price was 188 RMB (€16.92-$26.96), grew by 5.8 percent on a same-store basis.
Sales of the Daphne Young and Daphne Classics brands, which are supported by two celebrity endorsements, grew last year by 29 percent to HK$2,562 million (€206.6m-$328.8m). Introduced more recently, the lower-priced Shoebox store concept began to make an operating profit as its sales jumped by 110 percent to HK$299.6 million (€24.2m-$38.5m). The company opened 404 Daphne POS and 182 stores in the course of last year.
Total revenues increased for the group by 25 percent to HK$3.85 billion (€310.4m-$494.1m), and net profit rose by 32 percent to HK$388.7 million (€31.4m-$49.9m).
The group’s branded business improved its operating profit by 46 percent on 36 percent higher revenues of HK$3,145.8 million (€253.6m-$403.7m). The gross margin and the operating margin in this segment rose to 54 percent and 15 percent, respectively.
Prime Success’ brand business consisted last year essentially of sales through its Daphne, Shoebox and Adidas stores. They represented, respectively, 67 percent, 8 percent and 7 percent of total revenues. The proportion taken up by the OEM business instead declined to 18 percent from 25 percent in the previous year.
Faced with vigorous competition and rising costs, the group’s OEM business in fact recorded a drop in turnover of 9 percent to 707.7 million Hong Kong dollars (€57.1m-$90.8m) last year. The segment’s profit fell by 45 percent to HK$38.1 million (€3.07m-$4.89m), with decreases in gross margins and operating margins to 16 percent and 5 percent, respectively.
The company’s total staff costs went up last year to HK466.6 million (€37.6m-$59.9m), compared with HK$408.8 million the year before, partly through the introduction of a share-based incentive scheme, involving extra costs of HK$11.8 million (€951,000-$1.51m) for the first time.
