TOKYO -- Renown, the Japanese brand-name clothier, has suffered consecutive losses because it cannot collect 5.3 billion yen ($49 million) in outstanding debts from its Chinese parent.
Tokyo-based Renown in 2010 agreed to fall under the control of Shandong Ruyi Group, the apparel empire that includes internationally recognized brands such as British trenchcoat maker Aquascutum. For the storied Japanese maker of D'urban suits, a marriage with Shandong Ruyi appeared to be the ticket to revived earnings.
The strategic partnership was meant to achieve growth in the rapidly expanding Chinese market. Instead, it has resulted in a series of costly missteps.
On Monday, Renown turned in a consolidated net loss of 6.7 billion yen for the year ended in December. That follows a 3.9 billion yen loss for the financial year through February 2019, before the company shifted its reporting period.
"We couldn't recoup funds due to the impact of the Sino-U.S. trade war," said Renown President Yoshiyuki Jinbo.
The problem stemmed mainly from Shandong Ruyi subsidiary Forever Winner International Development, a Hong Kong-based supplier. Renown would sell Forever Winner cotton and textiles it procured from around the world. Forever Winner would then resell the material to apparel companies and wholesalers in China.
Those end clients ran into financial problems, and Forever Winner failed to collect on outstanding invoices. The blowback reached Renown, which was forced to book a loss provision for irrecoverable debt.
Under an agreement, Shandong Ruyi is supposed to cover for Forever Winner if the unit is unable to fulfill its liabilities to Renown. But the parent prioritized paying off corporate bonds due at the end of last year.
Shandong Ruyi "expressed its intent to pay, but the timeline was not made clear," said Jinbo.
Shandong Ruyi now controls 53% of Renown as a result of their partnership dating back to 2010. Renown, whose history spans more than a century, sought to crawl out of its financial hole by leveraging China's rapid economic growth. In exchange for Shandong Ruyi's access to the market, Renown provided its expertise in retail.
The two in 2011 established a joint venture in China with the goal of opening as many as 1,000 outlets in 10 years at the most. The business was terminated in 2014 before reaching that goal, with fewer than 100 stores actually opening.
Shandong Ruyi's inexperience in retail was compounded by Renown's lack of familiarity with Chinese business practices. "We could not open in prime locations," said Jinbo.
Renown later settled on tapping the sales networks overseen by the parent, but that move ended poorly too. In 2016, Renown started selling made-to-order D'urban suits. The business folded last year due to poor earnings.
The misfortunes Renown faced contrast with the experiences of other Japanese businesses bought out by Chinese interests.
NEC and Toshiba jettisoned their personal computer and appliance businesses as part of their respective restructuring efforts. Chinese buyers of those assets went on to aggressively develop their home market using their deep pockets and strong leadership skills. Those acquired businesses have been making names for themselves in the West as well.
An example of a successful turnaround is the take over of golf equipment maker Honma Golf by Shanghai businessman Liu Jianguo in 2010, through his investment fund. In the year ended March 2019, Honma Golf reported an operating profit of 5.3 billion yen, with the black ink growing 2.7 times over four years.
The lessons learned from Renown show that if a Japanese business does not possess enough strengths, there is no route to success in China's market, even under a Chinese parent.