podcast fashion China

Podcast transcript #11: fashion retail industry in China, dos and don’ts

Find here the full transcript of China paradigm episode 11. Learn more about Stephane Torck’s story in China and find all the details and additional links below.

Matthieu David: Hello, everyone and welcome to this episode of our China podcast, China paradigm, where we interview entrepreneurs in China. Today I’m with Stephane Torck. You are the CEO and the president of Asian Market Development Company, which you founded close to two years ago now and you’re also the founder of GED. We’ll talk about it in the distribution of cosmetics in China and the fashion retail in China later on. You have been about 20 years in China. 20 years next year I find that’s on or maybe even now already 20 years. You have worked for Camaieu first then for Groupe Beaumanoir and most specifically for a brand called Cache Cache. At that time, you increased the number of retail stores in China from 200 to 1000 shops.

I believe that’s strongest, the largest network of French shops, I mean with French origins. I think that the audience would be very interested to learn about it. Thank you very much, Stephane to be with us in this China business podcast.

Stephane Torck:               It’s a pleasure, Matthieu. So, yeah, you’re saying you’re 20 years in China, yes, sure. I arrived with my family in 1999 in the 20th century. So I would say so, but in fact I moved in Asia in 1996 with my family, my wife, and my kids and I remember one thing in 95 I was in like you mentioned in Camaieu in France starting and developing a Camaieu for kids would become today okay/ The famous kids company for ready to wear. In 95 I did not know anything about Asia, and I bought four days to HEC Eurasia a subsidiary of French in high school, and it was very interesting going four days. We talked about Asia, and the one thing was some, for me still in my mind and drove my sense it was at that time, the University people, all the people coming from the big companies, bank and so on.

Everybody says in 1985, I’m sure you know, don’t go to China. China, it’s not the place, it’s not the future. It’s soft because at that time we talked about Thailand. We talked about Indonesia. We talked about Malaysia. We talked about Italia, all these parts of the world, and so I moved.

In fact, I moved to Jakarta because I followed those people who know the future. I realized that it was, as you can imagine, totally wrong, and so I arrived in 96 in Jakarta with my four kids plus my wife. A few months later, I wanted to see what happens in China, and I think my first trip in China was in 96, the end of 96. I realized that it was totally wrong, but at least China, they are something to do, I could work there and be an entrepreneur in China.

You cannot predict the future, and I started a business in fact in the sourcing industry for Camaieu in 97 from Jakarta. You’ll remember in 1998 was big trouble and financial trouble. It was the end of this, what we call it this Asian tiger with the destitution of swath in Jakarta. I worked in Indonesia with a bigger base because they refused to sign the IMF agreement. So I just want to say to this one thing that in fact, sure there are some … The future will be impacted by the, but it also taught me that in fact, you create a future also. So, it means when you start something when you develop things, you have many, many things, many people who can tell you its impossible.

You will never. If I went to Camaieu when Camaieu was also created in 93, everybody says there is no space in France for a new retail fashion company. It was at 93. We were fewer competitors. When you see the success of Camaieu in the year 2000 and even now and when you see also which companies came, and our French market was certainly developed by many companies. Ours was not there at that time. Even with the digital now it’s also in the same direction, the same fate. You will never be careful about what you put around you, and because in fact, many things are kind of what you want to do, your strategy. Sure, in a good environment, with sometimes some difficulties, and to come back to, because there are many, many points.

I went far from your point, but to come back to the same idea when I joined Beaumanoir Group to develop Cache Cache in China. It was the same story because at that time it was the end of 2008. I decided to resign from CAMAIEU and to stop my business relationship with them because I was not able to establish in retail in China. Then if I try in 2003 and 2007, and later I will be able to elaborate, but what was the reason besides this, because it’s quite related to some difficulties that the company has today. We’re going to investment forms the LBO, the excess of LBU, excess finally but so excess of don’t take a risk and look at image results.

We can see that so many prominent today for this company, and many companies in the setting. But to come back to Beaumanoir in 2008, this company, start a small business from 2006/2008 with around let’s says 80 stores for 10 million Yuan business. What I say to Beaumanoir, if we want to do something in China, we have tracing that needs to be reminded and followed through. The first thing is to think that China is big and for you have to take this. In fact, from day one, you have to say my business will be in Chinese every month with competitors. Local competitors will develop their business in this size. So, if you as a foreign entrepreneur in China, as foreign investors, you don’t think as the side of China, but I’m sure you can have a problem later.

This was the first thing. There are several things that also mentioned. I say we also need it to be not Chinese company, but using the centaurs and like a Chinese company and adding at the top of this or mixed with this, all your assets coming from your own country, from Europe, from France, and to say if I bring this, plus I add all the Chinese way as they do business, the tools and so on. If I can find manage to get into this, potentially I would have brought something different than them, and potentially I can develop something a big. This means, I realize and say at that time that one thing that’s important in China is speed, the speed of development, speed of decision, speed of action because it’s a country which compels on this question of speed compared to France. It’s totally different.

So, if you are working with your French speed, it doesn’t make any judgment, but it’s just a reality. So you put a face upon, and the first thing was a question of speed in your decision speed on many subjects. The first thing was to say also again, it’s a very basic thing, but we every time, forget this, China, it’s when bay 20 or 25% of the worldwide population business approximate. Anyway, so this kind of thing. So, you can imagine that one day you will have people coming from China who can be worldwide, the number one place and will have their own product coming from China made for Chinese people.

So, it’s the only place in the world where you have a big interest to do specific products for Chinese people because of the size and the question of to move. So the point was the adaptation of the customer, but now it’s easier to understand this because everybody talks about this because of the digital transformation and so on. But I remember 10 years ago with the power of the brands that everybody is a concept to say, okay, my product must be a worldwide product. I will make lots of money with this. I can organize my product and so on. I need a bigger big thing. But in fact, in this specific country, it’s really important to think about adaptation, an adaptation of the product and the position of your company management.

It’s a good necessity, and it’s what we did, but even with this, and I come back to my point and so it will be long and to be, I hope, clear, even with this, I remember when I say this, many people have told me, but it’s impossible. You cannot think about old China, and I said no, we would develop our brand, our concept to be able to sell to any kind of young Chinese woman because it was our position on the 15 to 23 years old. But not for Shanghai, but for Wulumuqi, for Harbin, for Changsha, and from day one, we built a product. We built a company where we’ll be able to do this and to develop this concept and this product and to sell this product everywhere in China. I think it’s one of … It’s not only rhythm, but it’s one of the rhythms for overall success. As you mentioned it, sure, five years later, in 2015, we arrive at a size of 1,115 retail stores in China, for the revenue at almost 350 Million euro.

Matthieu David:               A lot of questions lead to what you’ve said. It’s very intense. It’s good to be right on the market, and you have been writing the Chinese market. But what I’m wondering is how you came to this conclusion. We understand that you went to Jakarta based on the conclusion of this think tank or educations of an organization called Eurasia, but how did you conclude that those three aspects would be key for China? Well, because I see also that by saying we need to adapt to China, we need to do it in a Chinese way. Oh, so you are communicating with the group you were working with before that you had to be free. They have to let go, and in some way, you have to justify a strongly your point. How were you so sure of you at the time?

Stephane Torck:               I was not sure to be able to do it. The question is not to be … It’s not sure. This trick point is very basic things. When you say China is big, it’s a reality. Nobody can go against this. When you say, they are 1.3 billion people and 700 million young women and perhaps 300 million or 400 million young women. It’s true. Nobody can go against these facts. When you talk about the speed of decision, nobody can go around against these, and when you say about adaptation about your business and your product, nobody. Now many people-

Matthieu David:               That time was new. This aspect was new, but the adaptation.

Stephane Torck:               It was new perhaps because nobody wanted to say this, but it was what I observed because I was in China for more than 10 years at that time. So, it’s my conclusion, because I was inside and I mostly worked, and I developed things with this concept, but it’s a fact. Nobody can go against this and go to your point, in fact, it was my, say I decided to join and to develop this project based on this condition and with the shoulder. It’s another point that … Today when I talked to a board or two, I insist about this, China, it’s so because of this, because of the size, because of many aspects that will even potentially destabilize your company because of this one. I would just come back in two minutes about this.

I say to Roland Beaumanoir the owner of the company, of component Cache Cache, I say, okay, I’m ready to join you. I’m ready to take this company and to continue and to go in this direction, but it will be under this condition. Means under this plan but also the conditions that I will have a company. I will set up a company in China with the capacity to decide by ourselves, the company from there and not from France. I will decide on the company we decide to pick up what’s needed in term of the IT infrastructure tools, in term of anything to France, but you will not send me telling me what I need to use. So which means it was an independent company in term of the decision, using it as they need, as she needed at the time, at the right time.

Also a set of the mother company and not the mother company. We decide to put this kind of nonproliferation just this morning on it AT stall. We use parts of the tools, but we also use local tools, even phone number for development of our digital face later on and business. So it was a, for me, possibility. I joined them because of this condition and probably also one of the reasons for the other — also the commitment between the shareholder, between the board without any capacity or discussion. And even Roland Beaumanoir, let’s say, okay, let’s start and let’s come back in four years. Even told me, I remember. I don’t wait for anything for four years.

On the question, we are talking about the future. So I was very free about my timing, but in fact, it’s a reality, it’s a good face. So a company becomes a profit two years later. End of 2010, the profit arrived even more in advance than we have expected because of this-

Matthieu David:               You were taking over a company which was actually not profitable with AT stalls to remember the numbers as we remember the number. So about 80 stalls, was not profitable in China and you were calling and saying, give me freedom, and I will make it profitable. Then two years ago, it was profitable. You move to up to 1200 stores two years ago when you stopped working at Cache Cache in China if I’m correct. Those are the numbers.

Stephane Torck:               Yeah, but profit arrive at 250 or so something like this, and even at the time, we said, okay, let’s go to 500 stores, and we’ll see. But, so it’s a question of a long-term view, and I would mention one point at this stage about when I say the importance of commitment. It’s a basic thing. You cannot do anything if you don’t commit. The question of the commitment is so committed of the shareholder. It depends on which with time, what is your time of review choice. You have six months, but nobody realizes that if you are successful in China, you become bigger and you become big. So it means that one day, China subsidiary will be bigger than the global company.

So, you can imagine what does it mean for your organization as a company? What does it mean for the board? What does it mean for you? I think it’s really important to think about this from day one. If you have a plan to go to China, it’s to say, okay, I’m going to China to be successful so I will be potentially one day at this success. Or I will be bigger than my mother company. It will be the biggest subsidiary and so on. So what does it mean for my organization? I think you need to be prepared for this. Otherwise, when you are totally in the middle of this field, it’s impossible to solve it.

The trophy so often, even for the Groupe Beaumanoirthe problem arrived for the same question, and my living of Groupe Beaumanoir a major culture was parts coming from something this problem of board, of the shareholder because when in 2015 when I was at this 250 million a year old, I say to one of the board, today, Matt is the next man to multiply by four for the years of the company. Why multiply? I say we are too small. From the point of view or France. It was big. We bring 70% of the result of the goal, 30% of the turnover.

But at the size of China, it was small. I have one competitor at that time was when I started. I say we did the 10 million Yuan revenue. I think this company, they did 30 million, something that needs 25 million in 2009. In 2015 when I was at 350 million, they were at 1.2 billion Euros already.

Matthieu David:               Euros?

Stephane Torck:               Yes, Euro.

Matthieu David:               1.2 billion Euro and you having 300-

Stephane Torck:               For my competitor, million, yeah.

Matthieu David:               You had already started.

Stephane Torck:               Yeah, and we started almost on the same line. We were in the same business. So it’s, and I just said, okay, we are too soon because we were on not so good. We just scratched it to mass market business. It virtually has to do this and to give you an idea; it’s $24, millions of PCs of selling barrier to achieve this turnover. So, it’s really a question of size and again, over the competition. I am in front of my competition, and some problem sucked because of this, of my point, and I don’t want to elaborate about the reason because it was an internal problem. I decided in 2016 to stop, and I bring somebody to take my seat and my position.

I accompanied him during the one year, and as you say, as you mentioned from 2017, I take back my freedom to develop other things.

Matthieu David:               I see. Going back to your new position, you have now founded the Asian Market Development Company. We have not talked much about it, but I think the time to talk about it. So you are working on implementing a fashion brand in China, brands you may actually be associated with the capital or through a partnership or the contract can be distributed as well. The point I saw very interesting when we were preparing for this China vlog when we talked before is about starting the brand from second-tier cities.

You have some example of the experience of starting a brand in … Not starting a brand in China. I mean, introducing brands in China through not so shy, not to Beijing, not through necessarily a Bond or Hong Kong, but from Inner Mongolia and so on it. Could you tell us more about it and how you see this way of entering China?

Stephane Torck:               Yes, sure. So to come back, just to add on to this one, one point about what I consider today, the first thing is I think a lot of opportunity for the foreign fashion brands in China, even though if a business is becoming more difficult as everywhere else. A lot of newcomers, everybody is in one to be in China. So the competition, it’s quite huge, but you know, with digital we can say today the competition is everywhere huge because everywhere you can get access to the worldwide product. So based on this, so that means this and fix it’s so there are many a lot of money in China.

There are lots of company, well not at the level of development as we are or as the good Chinese company, the best Chinese company, and it’s, for me, there is a lot of opportunities create some win-win deal. What does it mean win-win deal? It means you can bring from Europe more than your brand. You can come to China for more than get some result on the market. You can also bring your way of thinking, your way of management, your technology where even if it’s not uptake and so on. But even on our industry of fashion retail in China, we have the technology, the way to build a collection and then you can develop some very good association with a Chinese company.

We need this because they are accessible to the market, but they don’t know how to do it. This, it’s one of my key thinking in this company is to build some association between the Chinese company and your friend’s company based on this bringing technology in exchange for the access to the Chinese market. This you can imagine that when you’re talking about Harbin or Zhengzhou in Henan Province or the city size of France. So you can imagine that our many companies in this area and they are not at the same level of development in Shanghai, but what shows up in this area. You have the same structure of; if I talk about the customer positioning, you have the same structure position. You have people who have money.

You have people who want to apply that to a new level of access with more revenues that they kind of consumer. I don’t say it’s easier, but at least it’s opened a good opportunity with perhaps less competition. But it’s not true in fact because digital can change but people or company with local access and more desire to develop things. This is one thing and comes back to 2009 with Cache Cache in China. I developed all these stores with a business model based on the partnership with around 200 partners. We developed stalls for me in all these provinces, and I realized that all those people they ever have a lot of money and they need the project to do, any project to use, to invest the money.

So, you cannot imagine that there is a lot of money everywhere in China and when you go deep inside this province you will discover very interesting kind of investors, who have a huge potential, a lot of assets, with big access to and more precise access to what you want to do. It’s interesting and for recently launched a new brand, and we start, as you say, the social was in Wulumuqi. The second one was in Harbin, Changsha. We arrived in Beijing, I think at stall number five and Shanghai on number nine or something like this. I think it’s a; we don’t have to forget this kind of, this big book on showed of China

Matthieu David:               Because I feel … I finally understand I feel, it’s not something you have insisted too much right now, but I feel there’s also an approach of cost. Is that starting from Wulumuqi, starting from Changsha, the cost of retail in China, the cost of rent is much lower than Shanghai, but here the pressure seems always existing and people are willing to go and to go shopping. So the payoff maybe should be higher. Is it something you found out or it’s not really the case?

Stephane Torck:               I think, no it’s not the case. The cost to develop something in China it’s huge. So it’s. Also, I think, don’t go. You will not go to this province because of the cost, and it will be the wrong decision because you have other problems. When you go to Wulumuqi, it’s also difficult to access. It’s far from Shanghai. You also need someone. I’m not sure if that’s a question. The question of the cost it’s definitely not the way to develop things in China. You have to take another job. China is very costly in term of people; in terms of … Sure if you hire people from a room, it will be cheaper than Shanghai.

Now if you want to find the right people in, it’s you with a lot of money because you don’t find a lot of people as a level of a unit. So now the real question for me, it’s a question on the market. There is an opportunity to question business. To develop things in China, you have to consider. You often take another example. You have many companies will try to do things in China, and if I use a concept of another concept, that image of the cell, you’ve seen many people, many companies were trying to stay in the form of the small vague, the smart ways of the self. They don’t think about the big ways. If you are not focusing on the big ways to serve, you will lose a lot of money.

So, the question is you need to consider that you need time, but you need again, as I said before, something that they want to think of ways or otherwise it’s no meaning. Don’t come to China. It’s better to invest in Belgium or whatever in your country. If you want to come to China, you have to think about this big wave because again, this big wave will be for you. So you will be totally destroyed by this because your competitors will serve this way.

Matthieu David:               So you pointed out that actually there is market potential in those places. 70 cities, 30 cities 40 cities, because it’s underserved because the other brands, the offer is low.

Stephane Torck:               Lower, let’s say lower, but it’s quite fast also to move fast because of digital access where now with all these bigger player in digital, since they bring a lot of big access to everything, everywhere. So it changes a lot, but definitely, you have less foreign company in this area than in Shanghai or Beijing. I don’t believe about the fact that this concept that people say to be successful in China, you’ll need to be in Shanghai as a reference and Beijing as a reference.

Matthieu David:               I have that.

Stephane Torck:               Yeah, perhaps for Shanghai, but even if you think about Chengdu, China, they don’t care about Shanghai development. They do their own development and their own things, and they don’t care if you are already in Shanghai. For them, what is important is what you bring to Chengdu, to this area.

Matthieu David:               You were just mentioning that you had 250 partners when you had Cache Cache to create a distribution network,  retail stores in China. Could you tell us more about how your contract with them? How you organize them? I understand that they do a lot of leverage with them, to work with them now. So could you explain to us what a franchise system is? How did it work?

Stephane Torck:               In fact, in our industry, we develop what we call Commission/Affiliation It’s like a partnership. You gave your stock of goods, and your partner develops an item for you-

Matthieu David:               You give, meaning? You mean they don’t pay upfront?

Stephane Torck:               They pay at the back, not up front, and so you look at eyes, you’re stoking some stores managed by your partner, and the faster you get money according to investors. They invest in the project CapEx using your brand and your workers to distribute your branch and product. Again, I talk about adaptation and for China, I have adapted this business for them with two things. First of all, I say to my Chinese partner. I will guarantee you a margin. I will give you … I will bring me… I would propose you to sell my product on under my brand with my concept. So you have to invest in finding the location.

You have to invest in those retail stores in China. You have to pay the staff and manage the rent and so on. You would develop some sort of retail, but I will guarantee you the margin. I will take back LL inventory you didn’t send. But as I didn’t want to go everywhere in China to take care of my stuff, take back my money. I told him, okay, you pay upfront what we say you’re on delivery. Like this, for me, it was safer, but anyway, you should not say I take back your stock, and then you box what’s the total price, what you pay. Also, you have a guaranteed margin. So which means if my collection is not good, if I have to discount for you it’s fixed, right? With this business model, where it was secure for me was also another very interesting advantage because it gives me the capacity to get negative.

Matthieu David:               Capital.

Stephane Torck:               Yes, to get a lot of cash. It was very successful because for them, I was the first one to bring business, was secure in term of margin. In fashion retail in China, it’s quite difficult to build a connection, and so on. Especially when you don’t have a big network because you need to buy a small quantity, it costs a lot. Again, we’re bringing our know-how, we bring our technology to these markets. We adopt it, and we get success, and my 200 partners with people were already some stores, they work for some competitors and so on. It was not a big investor, and it was funny.

So, you can imagine I had to bring a foreign brand in their city. So, there were some a lot of them. Also they are quite happy about this. So there are many factors, and with this, we leverage this development.

Matthieu David:               I see. 250 partners, so on average they had like four stalls, right?

Stephane Torck:               Yeah, it was between one too. I think the biggest one got to something. I didn’t give any exclusivity in some area. Nothing. Just the best place.

Matthieu David:               I see.

Stephane Torck:               If you find the best place you can get it, and I have a team of 20 people to manage this, to choose and then to decide and so on, and also the decision of investments were under my control. This is also important. So it means it’s one of the keys of your assets because you have direct access to the customer. So for me, it was important even to show to my partner that it was a decision coming from the CEO, from the top and like this you cannot, in China sometime you can play with specific things, one that’s necessarily right. It’s also important to show because many people say it’s taught me also how you will control 200 people. It’s impossible. I said, yes, I will not control.

They will control … They will protect my business, by themselves because you cannot, 200 people cannot be all agree together. So you can be sure that you can get some idea and you can play with this. I say today you have two choices. Now you’ll take one partner, and you give all your assets, all your development in China with one partner, but you have a strong faith, or you have a lot fewer partners. It’s terrible. I understand a few companies … You understand it’s a question, and with this 200 partners, in fact, I was very strict because if someone doesn’t follow our rules, now internal regulation coming from the other one because they cannot tolerate destroying the company.

It was also the way we use these partner to protect yourself, and there are many advantages because when you are in what I can tell you for foreign people to develop, open a branch, company, it’s not easy. I can tell you, even in Shanghai. So with a partner, it’s more definitely easy and the other advantage, you get access to things that you cannot get or so access by yourself because you are a foreigner.

Matthieu David:               I guessed when people were saying it’s difficult to manage 250 people, I mean companies partners, they were talking about branding. How do you make sure the brand was consistent all over the shops? I know some other fashion brands in China which had concerned about it and actually had their own shops in some places. They wouldn’t go through partners in other places, and they didn’t have the same experience. The consumers had the same experience in all the shops. What is the topic for you? Or basically, it was pretty well aligned with your partner?

Stephane Torck:               It’s a topic for any brand, any kind of organization, it’s their topic. Let’s say you show up in your own shop; you have the same problem when you just start your business in China. So considering that ads, it’s a question of people, it’s not the customer. It’s a question of management. I’m not sure in China is more difficult than to do by yourself to manage. You can imagine it’s 1000 retail stores in China. It’s more than 500 salespeople. So you can imagine if you have to manage 5,000 salespeople by yourself as a foreign company in China, you have to send programs to manage 200 partners. Just same thing and when you manage 200 partners, you have people who at manage, okay. So, I don’t say it’s easier, but you can build something strong with them.

Again, they can regulate also buy themselves. I didn’t get, for example, any exclusive city to one partner. Different partner in the same city. You create by yourself some competition, and with this competition, it’s easier to control your brand, of your asset. But it’s every time the problem, is it true?

entrepreneurs China interviews fashion
[Stephane Torck, an expert in the fashion retail industry in China]

Matthieu David:               In 2016, when you left, the Internet, e-commerce was already big. How did you organize the e-commerce retail in China because the e-commerce I guess, was your own thing? You imagine yourselves, you connect with maybe a tableau partner, top, but basically was managed from the headquarters, and you had all these partners, like 250 partners in different provinces. They may feel it’s a bit unfair competition because you are offering to their clients as well. How did you manage that?

Stephane Torck:               From day one when we started to develop our first T-mall shop was, I think, in 2009. It was at the beginning, and from day one I’d say, oh we need to … The question of e-commerce retail in China, it’s a question of a product and customer. Cache Cache was not a brand. So when we developed this concept with these friends and we’ve got this result because we have a product line for a specific kind of customer. So it was a deal between customer and product. So when you write this, you don’t think about your channel of distribution, you think about your customer hands-on, and from day one, we established one thing.

We consider that the relation, it’s between the stores and the customer and we register, we attach all our database, all our customer to our shop. This shop becomes the link with our customer, and we decided to distribute some percentage of sales on the digital sites attached to the customer, to the shop, where they are located. With this extent, whatever it’s a partner shop or brand shop to the people from the shop also partner from the shop, receive some percentage of sales made by digital. So we don’t consider that digital sale as my own business, for me from the beginning as a retailer in China.

We consider, again, the global fleet or a new challenge. But the key point, the key things, it’s personal. So from the issue should know your customer. You can, after, do whatever you want with the channel generated by the customer. The question today, and if we go farther from your point on the friendship and the big problem on the retail today, it’s because we consider offline. We consider online. Now we talk about tool. I think this is totally wrong. The question is not this, so retail. Somebody write no channel, I think it’s better but the retailers in China, the business is what product plus customer. So, the retail of today you can calculate your throne according to your customer.

After you have your channel of distribution, the problem is until you calculate how much you do on online, how much you do on offline. You cannot transform your company. There are many companies in total respect in this concept because it’s a financial organization, and it’s not just an organization. So, when we say you need to turn your company to the customer, the customer has some treats, it’s near the actual … We need to talk like this, but in fact, as I remember, I have more than 30 years in this business. Old business, I developed for 30 years. It’s customer-centric because it’s a basic point of retail in China. You need to create a product, and you need to give access to your customer, to this product.

Matthieu David:               For me to understand when you are saying that the online sales were linked to shopping, but it means that in terms of delivery, you were taking into the stock of every shop, deliver the client. Is that how they were making money? Because the Internet is a centralized basically, from the server, database, sometimes server. You cannot split the database between all the shops and have one shop for one online shop. So basically, I find a stand, if I’m correct…

Stephane Torck:               No, link to the customer, so which means all our customer of our database register from online or register from offline. At least register from offline, they’re attached to the shop because they register in the shop and at any later on if they bought, for example, in another shop it stays in the shop where they bought. Now if they buy goods on the internet, we give a pass of the turnover to the origin of the first buy issue, where they registered in this shop. Okay, this is passing. To come back to your question of starting with also important points in our visit but for another subject.

Also from the beginning, we decided to say, okay, it could be really interesting to deliver, to send a product from the stores instead of from our central warehouse, because in a retail business in China, especially in our business, the stock is a key. You’ll make money with your stock, but you can be bad because of your stocks. So we say, okay, so we are in a fast fashion, so it’s a fresh product. So when you manage the offline shop, you have to consider that you need to keep your stock because your shop, it’s smaller so you cannot get. So what we did and we start to work on the product, okay, if I can deliver from my shop, I can make a space to replace a product with your new product.

We call it the situation, a positive situation. So we started to develop things according to this, not necessarily to ask the customer to come to your shop, but just for question of rotation of stuff and also for another things that for me, but I was not able to go to the end of this project, but it’s what I impairment to say. It’s more important than … So it’s to change a way of moving stock falls to the digital sides, is to say today a lot of companies think according to managers, according to the cost of the logistics. What I say it’s we have to manage, according to the value of the product you can generate.

Means in our industry we have a lot of discounts because of this fresh one. So if I am able to move, for example, T-shirts short sleeves from Beijing to high in September or the beginning of autumn or the beginning of winter. I will not discount later on because I can sell it. So perhaps it’s more interesting to send from Beijing, from the store than from Shanghai from my central warehouse. Even if I spend a little more money on logistics and I will get full price, full reviews of my product if I can move on with this. There are many. It was interesting because we start to work with some companies to find a great company to work on the IAE to develop this kind of a concept to base on not only the cost but on the product value.

It’s also another concept in our industry, but for many industries, I think today one of the reasons that many companies have some difficulties in turning around in front of this new era of retail is because it’s managed by the cost instead to manage by the creation of value with busy things. But when you look at our accounting, it’s organized and according to many companies are driving by a bottom line that in fact, the company resident coming comes top line. This is, of course, a key event going back to the point of China, you can … There are many points among this. We talked about before, when I see the situation of today of Canada, we didn’t become an international company because in 2000 we say, well, they make a lot of revenue with shopping because of the cost of shape.

Matthieu David:               So, shift cost.

Stephane Torck:               Yes, because of the value of the money between RMB and Euro at the time. It didn’t make a lot of money on the wrong things, not on business, okay. From 2000 to 2008, everything was easy to make a small developer here, but when you see the results and this company was taken over by your investment from them. It’s a huge profit. There’s an excess of bills that I took at the beginning of our discussion and the situation of today. This company was, let’s say the depths of the company was more than 1 billion Euro for turnover 800 million Euro, and today even the sets are batch two years ago to achieve, to get only $500 million debt.

Today they are still in the dispatch. The company is profitable, but it’s not an international company, and they are totally blocked. If I compare this with a company like you’re in detects like H&M, like Prima, like Ikea, when you look at this, when you check this company, they never stopped to do development. Say every time thing to be worldwide and so on, and they achieve it where it was not our case in France. I know why you look at Givenchy it’s the same question and so on. So, we have a big question around this that link to what I say about the top line, about the things that a company need to grow need to … We are in the world wide web and digital showbiz, so there are many companies that are late on this question of development, digital bringing now a new opportunity. But you need to move.

Matthieu David:               About that, you’re already; you have been into the business of cosmetics in China for years. You have successfully introduced several fashion brands into China, mostly in retail, in a retail store in China. I find a stand or not. You’re going to tell us. What have you been doing in cosmetics? That’s my first question, and the second question, if you could share the key success of being into cosmetics in China, and the opposite is a failing factor. Why are some brands failing?

Stephane Torck:               It’s a big question. It’s a question of product. Again, it’s a question of products. The point is, is your customer able to understand your product. So it’s coming to the question of a new way of communication about your product but just talk about digital anyway we come back to this just to come back at the beginning. Yes, sure, we started this company in 2005 and other funds we give it a capacity to … Our business model was to say, okay, come with us. This will help you to enter the Chinese market. You know in cosmetics in China there is one thing’s quite important and quite difficult. You need to register all your product one by one according to that formulation. It cost money, and it costs time.

Matthieu David:               How much time on average?

Stephane Torck:               At that time, it was eight months. Now I think it can be four months; it depends but we create some expertise on this and in 2005 we use that to the channel. We worked very closely to save, and we would get capacity. We bring the capacity to do some run through to the Chinese market to make your link with safe on their shop and so on and to develop. So we did this and so on. So, the question was the capacity to register properly and the capacity to register in a shorter time as possible. This was a key question in 2005. Now, many things change with the one new tool that Alibaba creates, which are Chinese authorities, it’s for totally cross border.

The capacity to sell from overseas directly to the customer, B to C, B from overseas to C in China, will give the advantage to, you don’t need to bring your stock in China. You don’t have to show to pay your fee to pay your import tax for all your stock in China. So less cash to do, to use. Yes, another advantage for cosmetics in China, you don’t need to register because you are not in China and you are selling to the final customer. This cause was big tools using cross fitting. For some reason, it’s very practical and very efficient for cosmetic, and it seems now four to five years with big, big potential and big results. Means our cosmetics it’s really interesting because of this; you don’t need to register.

Another thing also it’s a small product. So, you can imagine if you have to move from even from France, it’s easier than clothes and the last point, it’s when you buy cosmetics in China, you rarely return to the company, when you do for closing. You have a precise program. Sometimes you don’t like exactly the product and so on. But cosmetics you know the product, at least, we try, you try. If you don’t like it, you don’t buy it anymore, but you don’t send. Those are many advantages. So our company now it’s more focused on using this channel of distribution. Just to give you fewer one thing. So for a very brand, it was 11/11 mid sales.

Matthieu David:               Yeah, I think it’s the 16th today, so five days ago was that.

Stephane Torck:               Just to give you, for one brand that I will not mention the name, but we have one brand, one product by this system of a Cosmo girl. We sell I think for on these dates, something like 10 million, which I may be of a turnover.

Matthieu David:               Within one day?

Stephane Torck:               One, day, yeah. [crosstalk] for a brand with no direct access coming from overseas. Okay, so you can imagine we use the channel of communication to Caldwell to We Chat, this kind of things. We make some marketing, some communication, but it’s something very interesting to start on the Chinese market with low cost on long term, and it’s why for cosmetics in China it’s very interesting because you can try, and you can see as soon as we’ve less cost, as soon as if you have a product, your brand takes it up to be accepted by your Chinese consumer, on a certain stage, you can go to this big process of registration.

So it’s really interesting tools, and interesting to see that with this system of course welder, you have another access to the Chinese market for any kind of product because I talked about cosmetic, but it’s also, its sounds more visible for cosmetics in China. But there are many kinds of, type of product also using this channel.

Matthieu David:               To be more specific on this case, I think it’s a very interesting case, even if you cannot disclose the name of the company and the brand, but doing 10 Million RMB one day on one product, 1.5 million US. What channel did you use? Was it team all global? So you say what global. Was it JD.com was it VIP.com and what kinds of software and social networks you used in order to get way more? Was it Webo? We Chat all of it? You talk about OL, Could you share a little bit about key aspects of making it happen? So actually the effort was less intense. Was it a noun? Could you tell us a bit more about the context and how we could be successful within one day?

Stephane Torck:               To do this, you need to be able to be visible by the customer. So you need to get a distribution network so you can use Simone. You can use jD.com, as you mentioned VIP. You also have another very interesting channel for Cosmetic it’s Taobao shop in China or small, who can sell for you. This is, again, it’s not the same story as my partner, but it’s similar things. You can make big things like creating big things, or you can do big things by addition of smart sheets and toggle are a very good channel, and using often-

Matthieu David:               Or going to different shops.

Stephane Torck:               Yes.

Matthieu David:               Different shops on Taobao. You sell to them, and they resell for you, I see.

Stephane Torck:               Ye, and brand, not necessarily yours… The question is today you need what you need. A customer will know your product, so you invest on the marketing or the channel of communication, which are to use, you publish, you explain your product and after, the question is to give the capacity to the people who are interested in your brand to give access to your product. So you need to build a stock somewhere where you can connect your supply chain to all this android of a seller, okay. For this, you put a, what we call it, a tip of the needle. Why? But to manage this for you so you can open the T-Mall shop. You have many men. I think for me, they are not.

Again, it’s a channel of distribution. You have many ways of yours. You can write many channels of distribution, and you would need to be also very flexible, very agile on this. So, but the key things, it’s how I can explain my product? How can I show the advantage of my product? Which kind of price? How can I control because this is something important? To give value to your product, you cannot; you need to control what happens on your market in terms of price, in term of image and so on. So it’s really important to have somebody to help you to control this.

The aim of our company is this; it’s to be the representative of the brand in China even if we don’t have … Then to manage all this communication to give access to all this channel of communication and to be able to put their stock somewhere and so on. This is a way of generating this kind of business.

Matthieu David:               I see. It has been already one hour. We are talking about fashion retail in China. I think we could continue and a lot of topics to cover that we stick to about one hour. Thank you very much, Stephane for being with us. It’s always very interesting, very stretching, very specific. We see the details of the different stories in the fashion retail in China, that’s very instructive. How did you like it?

Stephane Torck:               It was a pleasure, and I would be happy if anybody wants to get access to me, it’s a pleasure to go more in detail to discuss some specific case. I will be more than happy to be able to connect to people.

Matthieu David:               How can they reach out to you? What’s the website of your foreign company in China?

Stephane Torck:               They can reach by We Chat or email. We Chat it’s Stephane Shanghai, or by email. It’s very easy, stephanehourbus.torck.net. It was a pleasure to talk to you Matthieu and to participate in this episode of your China podcast. Thank you very much, and see you again.

Matthieu David:               Yeah, see you too. Thanks, everyone for listening.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.