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Ports finds redemption in Shanghai

Ten years after it went bust in Canada, firm hotter than Gucci in China

Globe and Mail Update

SHANGHAI — Yang Zhuo has all the trappings of the new Chinese career woman -- an MBA, an Audi car and several outfits from Ports International, a Canadian-owned luxury fashion label. ''A woman's dress should match her work,'' says Ms. Yang, 30, a senior official for the city of Shenyang in Northeast China, explaining her preference.

Ms. Yang likes her Ports suits because they're smart and stylish, with prices that, while out of reach for the vast majority of Chinese women, are not beyond the emerging class of business and professional women.

This positioning has made Ports into China's leading luxury fashion brand, ahead of such glittery names as Chanel, Gucci, Louis Vuitton and Esprit, according to a 2002 survey by market researcher ACNielsen. Ports Design Ltd. is both hip -- commanding 25 per cent of ad pages in China's fashion magazines, featuring supermodels like Claudia Schiffer and Kate Moss -- and highly profitable, with annual retail sales growth of roughly 30 per cent a year.

All of which may come as a surprise to many Canadians who, the last time they heard of Ports, were watching its former parent company, Toronto-based Etac Sales Ltd., spiral into bankruptcy a decade ago.

And the last time they heard of Alfred Chan, Ports chairman and general manager, he was being savaged for undisciplined empire-building and questionable business judgment.

Today, he's sitting in the lobby of a luxury hotel, looking trim and relaxed in black slacks and a white golf shirt, on a visit to Shanghai to check out his newest boutique in the fashionable Xintiandi retail complex.

It's the latest addition to his integrated Chinese apparel juggernaut, with 288 boutiques in China, nearly $100-million in annual sales, an international wholesale arm and a new listing on the Hong Kong Stock Exchange.

Yet his stunning redemption seems to bring him little joy. "I feel sorry for the people who trusted in us and invested in us [in Canada]," says Mr. Chan, acknowledging that the Etac bankruptcy hurt his reputation.

Mr. Chan, born in China but educated as an electrical engineer in Canada, was first praised and later pilloried for orchestrating Etac's rapid expansion, which saw 150 stores assembled under such brands as Tabi, Alfred Sung and Bretton department stores, in addition to Ports.

When Etac collapsed in 1994 under crushing debt, the word on Mr. Chan was that he was a great acquisitor but had constructed an overleveraged house of cards, involving complex transactions between Etac and other family controlled companies.

He insists that Etac was largely a victim of the Canada-U.S. free-trade deal. Most Canadian fashion retailers plunged into financial crisis in the early- to mid-1990s, he says, offering Dylex, Grafton and Pennington's as examples. It was an economic force beyond the control of one man.

In the end, Etac's public shareholders got nothing, and Mr. Chan got China.

His family paid the receiver $6-million for assets that included a Chinese apparel factory in the coastal city of Xiamen, two test stores in Shanghai and Xiamen, and long-term rights to the Ports brand in Asia and Australia. In addition, they acquired a former Ports plant in Toronto.

Back in China, Mr. Chan found that after decades of communism, "people wanted to make money, to get ahead." But he couldn't foresee the speed at which China would develop a cadre of fashion-conscious professionals and managers, who would stretch their budgets to buy his $500 print jackets and $1,000 evening dresses.

Ports caught the economic upsurge. While 58 per cent of the world's apparel is made in China, Mr. Chan's achievement is not only to make clothes there but also sell them profitably to Chinese consumers from his own stores.

The fact that so many young women live at home allows them to save for coveted items that might seem to outstrip their incomes. Mr. Chan says evening dresses that cost 6,000 to 7,000 yuan (more than $1,000) are being snapped up as wedding dresses for young women making only 2,000 yuan a month.

Ports has had the luxury of starting small, and experimenting. In most cases, what was stylish in other markets was successful in China too, though there were some clunkers -- like the beige linen jacket that had sold well in North America but flopped in China. Mr. Chan, who had left China when he was two-months old, was mystified, until he learned that the colour was associated with funerals. It was pulled.

About 75 per cent of revenue flows from the Chinese stores, which garner 70 per cent of sales from women's fashion. (The company also has a wholesale business, and a number of menswear boutiques.) Profits have been growing at 40 per cent a year, the company says.

Mr. Chan insists that, as long as there are no shocks, such as a war over Taiwan, "China in eight years will be as big as the United States as a consumer market. I think we will be the most dominant high-end retailer in the country."

Last year, his family floated Ports Design on the Hong Kong Stock Exchange in a $47.2-million (U.S.) offering. The listing allowed an early institutional backer, Suez Asia bank, to cash out part of its six-year-old investment at a 250-per-cent profit. The government of Singapore took a 12.4-per-cent stake. CFS International Inc., a Toronto company controlled by Mr. Chan's family, holds about 50 per cent.

Mr. Chan says he learned one valuable lesson from the bankruptcy in Canada: The danger of confining yourself to a small domestic market. That narrow base left his company vulnerable to the buying clout and efficiencies of major U.S. retailers, when the free-trade era arrived.

In China, "we are getting scale and we can compete with the biggest guys in the world," he insists.

Indeed, Mr. Chan is preparing to spread his wings once more, taking Ports beyond its Chinese base to Korea, Japan, the United States and Europe. The expansion will largely bypass Canada, although his family still has three stores here, as well as a wholesale business and the Toronto plant.

He recently opened a wholesale branch in New York and is negotiating to lease Ports' first U.S. store on Los Angeles' Rodeo Drive. He also plans to put the Ports brand into European fashion hot spots such as Paris and Milan.

The company has a strong balance sheet to fund expansion, with $35-million (U.S.) in cash and no debt. "I have become extremely financially conservative," he says. "When you borrow money you will be at someone else's mercy."

Mr. Chan's white golf shirt bears the logo of BMW, signifying his latest project -- a new chain of BMW Lifestyle stores that sell apparel with the label of the German auto maker, but under the corporate umbrella of Ports Design. Ports, he says, is the only company licensed by BMW to make and sell products under its trademark.

The 15 BMW stores are just beginning to make money, and he is confident they will thrive as they keep adding economies of scale.

Ports employs about 3,600 people in China, with about half that number in the Xiamen factory. Mr. Chan goes to great lengths to tout its working conditions. Factory workers earn about 1,200 yuan a month, much higher than the average wage in Xiamen, and the plant is air-conditioned, set in a garden, and equipped with the latest production equipment.

Still, those workers earn only about 8 per cent, on average, of wages received by the roughly 300 employees at the family's Toronto factory. So how can Ports justify keeping the Toronto plant open when China operates on such low labour costs?

Mr. Chan concedes that the Toronto plant would not seem to make economic sense, but the people there have been working for Ports for a long time. The plant, he says, is not losing money and has carved out a role in the Ports distribution system, even at times sending its products to China.

Yet he admits that sentimentalism is a luxury these days in the tough global apparel market. "When a company dies, the whole world will not miss you," he says, with an air of painful experience. "You need to find your place in the world."

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