By Jane Ho
For a mushrooming number of new occupants in China’s seemingly uncoolable housing market, the close of the deal is not the end of the story: They are also looking to dress up their home. No wonder Xue Weicheng, founder and chairman of Luolai Home Textile , China’s biggest manufacturer of home textile products (including sheets, mattresses, quilts and towels), has reason to feel optimistic.
“We are planning to hit 10 billion yuan [$1.6 billion] revenue by 2016,” says the 54-year-old with a 31% ownership stake, “and our goal is to become the benchmark in the global market.” Last calendar year Luolai made $63 million net profit on $447 million revenue and qualified for FORBES ASIA’s Best Under A Billion companies list.
“We provide different products for different customers,” Xue says. Luolai has ten lines of its own, each targeting a specific consumer group. Among them its hit brand, Luolai, caters to high-end customers; Saint Marc attracts urban youth; Lacasa aims at third- and fourth-tier cities; and Luolai Kids features child-friendly patterns, including cartoons by Jimmy Liao, a Taiwanese picture-book writer popular on the mainland. Prices for a four-piece sheet set of different brands range from $100 to $5,000.
“This multibrand strategy is scarce in the China market,” says Zhaohua Yang, chairman of the China Home Textile Association in Beijing. “One of Luolai’s advantages is it already has a high-profile brand, thus making it easier to promote other lines.”
The company also distributes a dozen foreign brands, including Italian air-freshener maker Millefiori and British luxury-towel producer Christy. Foreign labels brought in 20% of its revenue last year. Most of Luolai’s own-brand products are manufactured in its factories in Nantong, Jiangsu Province; some are imported from India, Pakistan and Italy.
A native of Nantong, a significant hub for China’s textile sector, Xue stepped into this industry peddling pillowcases across China. In 1992 he and his younger brother, Xue Weibin, now 48-year-old president of Luolai, rented an unused dining hall in their hometown and set up Huayuan Embroidery to make bedding with 20 employees.
Two years later Xue Weicheng put in $300,000 to relocate the small workshop to a decent factory and also spent $60,000 hiring an advertising company, an unusual move and a fairly large amount at the time, to come up with a brand image campaign, including designing a new logo and renaming Huayuan Luolai.
Soon after opening its first store in Nantong, Luolai’s headquarters moved to Shanghai in 2000. It went public on the Shenzhen Stock Exchange in 2009 and became China’s first listed home textile company. Today, with a $940 million market capitalization, Luolai has 4,100 employees and 2,700 stores and counters, of which 360 opened last year.
“Right now we are increasing the number of directly managed outlets in the top-tier cities,” Xue explains. “With the economic slowdown it’s hard for our franchisers to keep up with rising costs in those places, but we still need to maintain a strong presence to guard our market share.”
This strategy works great for Li Guangliang, 32, an assistant president of a publishing house visiting a Luolai outlet in downtown Shanghai. “I can’t really tell the difference between brands, so I just get what I can find, and I see Luolai everywhere,” he says. Jinny Chen, a 26-year-old preparing to study abroad, disagrees with Li. “Luolai’s products are more durable compared with other domestic brands. I’ll even bring some with me to my new school.”
Most of the company’s competition comes from domestic players, and there are tens of thousands of them. Having been the market leader in China for eight years, Luolai takes up only 5%. Two close followers, Fuanna and Mendale, achieved $291 million and $197 million sales, respectively, last year. “In developed economies the leader in our industry usually accounts for a much larger share,” Xue says. “Traditional sales channels won’t have room for so many companies, and a massive shuffling is on its way with the slowing of China’s growth. The good old days are gone.”
Tapping into new channels, Luolai launched a brand, Lovo, exclusively for e-commerce in 2009. “It is one of the earliest online brands in China’s home textile market,” avers Xue. Luolai’s other brands are also sold online but at the same price as in brick-and-mortar stores, thus minimizing the impact on its franchisees.
“Luolai is also considering expanding its business in overseas markets through e-commerce,” he adds. “Our own resources are limited, so we are looking to enter into partnership with third-party platforms.” At just over $100 it could undersell U.S. home textile brand Luxor Treasure’s sheet set onAmazon.com AMZN +0.86%.
The wholesale department of Luolai makes room fabric for luxury hotels and supplies promotional gifts, such as towels with company logos on them, to international and domestic giants, including P&G, Bank of China and China Telecom CHA -0.5%.
Employees of a U.S. company usually just wear corporate trademarks on their clothing, but “gifts are an important part of Chinese culture,” Xue points out. “Today it is still an emerging market, but I believe the cake here will be bigger than e-commerce. Unlike e-commerce, B2B wholesale does not affect franchisers’ business at all, so we can bring them in and utilize their local sales network.”
Spending $14 million on R&D last year, Xue considers Luolai a high-tech enterprise: “Most textile companies study how to make their products look better, but we care more about how to make them feel comfortable.”
An example of his extra effort to make customers more comfortable can be found in Luolai’s product-inspection system. Besides state standards, the company also implements its own criteria, such as stipulating the permissible percentage of feathers that come out of an eiderdown quilt during use. Xue also established a joint research institute with Dong?hua University in Shanghai in 2011, focusing on new materials and sleep technology.
Earlier this year Luolai’s headquarters relocated from downtown Shanghai to a 51,000-square-meter complex in the suburbs, where the staff, using relaxed office protocol rare in China, addresses him as Weicheng or David (his English name). One likely exception: his older son, a department head at the company.
Luolai plans to use its new site to set up Asia’s largest one-stop home- furnishing center. “All the brands we sell will be displayed here,” Xue says. “We are also adding furniture and soft decoration, like lamps and photo frames, into our product line. Here our customers will find all they need for a sweet new home.”
Luolai plans to use its new site to set up Asia’s largest one-stop home- furnishing center. “All the brands we sell will be displayed here,” Xue says. “We are also adding furniture and soft decoration, like lamps and photo frames, into our product line. Here our customers will find all they need for a sweet new home.”
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