Hong Kong-listed Mainland Headwear Holdings is diversifying into Hello Kitty accessories in China, hoping retail sales will mimic its core hat business by 2008, in the face of cheaper mainland manufacturers after global textile quotas ended in January. The firm's sales of Hello Kitty items through its Sanrio retail stores in China will break even in 18 months, and its hat retail business in the counrty will break even in two years, said deputy chairman Pauline Ngan Po-ling. Mainland Headwear aims to have its China retail business account for 50 per cent of turnover by 2008, hopefully much of it from Hello Kitty sales, she said. 'Our hat retail sales are not gaining much revenue in China, so we are diversifying with Hello Kitty sales, through items like handbags and watches.' 'China's market potential is huge,' said Ms Ngan, noting that Hello Kitty sales in Hong Kong (which are not handled by Mainland Headwear) exceed $200 million annually. Retail accounted for only 1 per cent of Mainland Headwear's turnover of $557.5 million last year, while 99 per cent came from hat manufacturing and trading. Mainland Headwear sees retail sales of more than $2 million a month, chief executive Peter Ho Hung-chu said. This year, the company plans to open 30 to 40 Sanrio stores selling Hello Kitty items on the mainland and 30 Lids hat stores in China and Hong Kong, he said. Since the first Lids store opened in July last year and the appearance of Sanrio shops in the mainland from May last year, the company has grown its outlets here and across the border to 21. Mainland Headwear is banking on retail for growth, Ms Ngan said. 'Manufacturing is a tough business. The end of textile quotas really affected us. There are no more quotas for fabrics such as polyester, so we compete with many mainland manufacturers. It's hard to beat them on costs, so we have to move up the value chain, from contract manufacturing to brands,' she said.