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Casual wear company's move aimed at hitting 20pc same-store sales growth

Casual wear retailer U-Right International Holdings will sell products of a mainland fashion brand in its Hong Kong stores before June to achieve its 20 per cent full-year growth target in same-store sales.

Chairman Leung Ngok said U-Right would sign a deal on concessionaire sales with a mainland fashion brand whose average selling price is 10 per cent higher than that of U-Right - the first time U-Right stores are selling other brands.

'The mainland fashion brand is very different from U-Right in terms of product design,' he said, adding that the brand had 500 sales outlets in the mainland.

Same-store sales rose a single digit between October and last month, according to Mr Leung.

U-Right's tie-up with the mainland brand might help it fend off intensified competition in Hong Kong, as evidenced by Bossini's HK$20 million re-branding targeting young people and a HK$3 million re-branding by Bluestar Exchange involving more stylish designs.

The tie-up comes after U-Right heavily expanded its store network  in Hong Kong last year by  renting 15 outlets in shopping centres owned by the Link Reit.

U-Right has 65 stores in Hong Kong compared with only 18 at the end of September in 2005 and it aims to have 100 Hong Kong stores next year.

U-Right's new stores were opened at shopping centres at private housing estates in such districts as Yuen Long, Fan Ling and Kennedy Town.

Mr Leung said rents, which increased slightly last year, were showing a decreasing trend, prompting U-Right to open more stores.

Rental expense accounted for 20 per cent of the company's sales while staff cost took 10 per cent. A new Hong Kong store, which costs between HK$1 million and HK$1.2 million, took two years to break even, said Mr Leung.

U-Right posted a 16 per cent increase in net profit to HK$66 million for the six months ended September on a 56 per cent increase in sales to HK$896.6 million. Hong Kong accounted for 6.6 per cent of the company's sales and 5 per cent net profit.

In China, U-Right has 40 self-owned stores and 360 franchised stores mainly in second- and third-tier cities.

The company, aiming to tap the first-tier cities' fashion market, recently launched Sevendays - stores that sell 20 fashion brands - and Pezzx - the company's first high-end fashion brand.

Sevendays, which has four outlets - one in Beijing, two in Shanghai and one in Xian - has a gross margin of 65 per cent and average selling price of 500 yuan.

Pezzx, which has two stores in Shanghai, has an average selling price of 800 yuan and a gross margin of 75 per cent compared with U-Right brand's 50 per cent gross margin.

The company, which expects profit contribution from Sevendays and Pezzx next year, plans to invest HK$100 million in the two brands in two years and expects revenue of HK$280 million  by the end of the year.

The company wants to boost the number of Sevendays outlets to 42 and Pezzx  to 20 this year.

Mr Leung admitted that the company's nano-technology business, which involves applying the technology to clients' apparel products and accounted for about 33 per cent of the company's profit, was facing fierce competition.

Revenue from the nano-technology segment dropped 7 per cent to HK$266.5 million in the first half.

'We may lose our leading position on the mainland,' Mr Leung  said.

Mr Leung said the company's nano-technology business, in which it had invested heavily in the past, was pinning its hope for growth on the company's new Jiangsu factory, which will process cloth with nano-technology and has an annual output of 30 million square metres. This cloth will be selling at 10 yuan per square metre, he said.

Shares of U-Right, which had fallen 2 per cent in the past 12 months, dropped  1.96 per cent on Friday to close at  25 HK cents.



U-Right to retail mainland fashion brand in HK outlets