Made in China: The Shoe Guy

New series in which successful people tell us how to make cash and not lose your shirt doing business in China. CREAM, get the money...
Last updated: 2015-11-09


We’re always hearing hard-luck stories about venues shutting down, Chinese partners screwing over poor laowais, landlords jacking up the rent and employees stealing their boss’s business model. It seems like everyone’s got a reason why they failed to make a fast buck in China.

So we went and found a few people who bucked that trend, opened a business here and made a success of it. Here are a few tips from our first subject, Danish shoe guy Kasper Leschly. He and his Norwegian business partner opened D:FUSE in 2006, which manufactures and sells shoes in over 200 outlets around China. They just sold a stake to a massive Chinese shoe firm.

ADVICE:

1. There’s More to Success Than Studying.


I came here in 1995 to learn Chinese. I studied for about half a year then started to cut class and work with a Danish trading company. I did that for about a year and they gave me a traineeship, which was a big deal for me because I hadn’t even graduated. From there I was headhunted by IKEA and ended up running their purchasing for south China for two years. Then I went home to graduate because I still hadn’t gotten around to doing that.

2. Invest Other People’s Money.


I did an MBA and then worked for McKinsey the consultancy, but I knew I wanted to come back to China, so in 2006 I raised some money from American investors and came back with my business partner to start D:FUSE. The business plan was big. We were going to open 42 outlets in department stores within two months. We had high start-up costs but we had a big pile of money.

Just this year the American investors sold up and part of the company was bought by a firm called “Saturday”, which is a huge Chinese shoe company. I think it’s the fourth-largest shoe company in China. The US investors made a nice profit. But we still have a big owners’ share of the company.

3. Go Big or Go Home.


Most businesses start small and expand, but depending on your industry it’s often good to hit the ground fast and expand quickly. That’s what we did and it worked well. Our first collection, the autumn collection of our first year, was 200 styles with an average order of 400 per style. So we made about 80,000 pairs of shoes, each costing around 150rmb to manufacture. Our first ever order was for something like 12 million RMB. And that was just autumn. Then came the winter collection, which was probably double that amount. But we had 42 outlets and they needed to be filled up.

4. Find Your Market.


Most companies manufacture in China and try to sell abroad. But we wanted to make shoes for the Chinese market. We thought there was a room here for trendy shoes, shoes that looked a lot like Western brands but with more bling and sparkle for the Chinese consumer. At the time, there were lots of Chinese shoe companies selling in department stores but nothing really trendy. We had a Western name and in some senses we could get away with calling ourselves a Western brand, because the designers and founders were Western, and Chinese consumers liked to buy Western fashion brands.


Sexytime... Kasper's shoe band, as modeled by an avid fan.

5. Then Do Your Market Research.


Before we launched we prepared for a year. But we did very poor market research. We just went around to department stores — hung-over half the time — and said, these are really boring shoes. Let’s make more interesting shoes. We didn’t want to go in too pricey. We’re mid-high, so we sold our first collection for about 600rmb for a pump and maybe 1200rmb for boots. But when we started we didn’t realize the importance of discount in China. That was our first major oversight.

6. The Importance of Discounts.


We expected to break even within one year but it actually took three. That was because we didn’t understand about discounts. With fashion retail in China, everything is sold at a discount. You can usually take the list price of any item and reduce it by a third and that’s what you’re going to end up selling it for – that’s the real price. You have to anticipate that most Chinese consumers are going to expect a discount from the list price, they will expect sales and promotions or they’re not going to buy. That’s just the rule here and you have to work that into your plan.

7. Adapt to the Market.


If you want to be successful here in China you need to retain 80% of your heritage – your European heritage and all that – and then 20% really needs to be adapted to the Chinese market. Here’s an example from our industry: the Chinese foot is shaped differently to Western feet. It’s a little bit broader at the front. Take Nine West: their shoe shape is made for the West, so the majority of women here in China won’t find their shoes comfortable. That’s the sort of thing I’m talking about when I say 20% has to change. And sure, we put a little bit more bling on the shoes. We try to do that as tastefully as we can, but we put some golden details, say, on the heel. Ours are a little more tasteful than many Chinese brands, so it’s not too crazy, but they have a little more bling than you see on shoes in northern Europe.

8. Hire the Right Staff.


How do you hire enough staff to fill 200 stores? Easy, you just go to the department store and try to hire the people working at the rival stand next door. That’s how you do it. Staff retention is very hard. I think for shoes it’s something like 50% of all your shop assistants are turned over every year, so every two years all your staff has changed. That’s just something you need to deal with. You just have to get good shop managers who can ensure standards, that knowledge is being transferred. I also used to travel a lot and go to every shop every couple of months and invite the whole team out for dinner, and that filters down to the area managers and the city managers. They see that we put in the effort.



9. Don’t Panic About Corruption and Bribery.


We never paid any bribes. It’s not an uncommon practice for brands to pay them to department stores to get the best spaces — maybe it’s a gift, an LV bag, a fancy dinner — but I’m proud to say that we’ve never done any of that, and that’s something that all our sales girls are also proud of, because it’s a well known fact. That made things a little bit more difficult at the beginning. I could point out a few department stores that we’ve still never got into because we don’t do that.

We’ve never had any complications with local government officials, either. In F&B, you need a piece of real estate and the approval of sanitation from the license people and I think that’s a little bit more of a hassle, but for our business we just don’t encounter that side of things. I think there’s a tendency that the more regulated industries – pharmaceutical, Telco – have to pay people off. We’re in an industry with razor thin profits, it’s retail, it’s nothing fancy, so there’s less of that.

Having said that, we do have this quality bureau that comes around in certain cities — maybe five cities out of the 50 we’re in, I won’t mention which ones — and every five years they come and they take a shoe and they say there’s some problem with it, that it’s failed some quality test and then we have to pay them a fine. But it’s not a lot, 10,000 or 15,000rmb, and it hardly ever happens, so I don’t think that’s a lot.

10. When Trouble Does Arise, Roll With It.


Some factories don’t deliver on time, that’s the closest we come to being screwed over. One factory delivered shoes worth half a million and the quality was appalling. We owed them 150,000rmb and I said we’re not paying, so they then hired some guys from Dongbei, heavies carrying man-purses who came to our office three days in a row and demanded payment. In the end we went to the police station but the police said we did owe these people money so what could they do? They were just stalking us until we paid. In the end we just paid them, because it creates a bad vibe in the office — the staff thinks, do we owe people money? We sit in an open-plan office. It’s bad for morale. So we said fuck it, it’s just 150,000rmb. When in Rome, do as the Romans do. So you learn a little bit to play ball and to compromise.

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Kasper Leschly runs D:FUSE. See them at a department store near you, or online here.

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