Shift to B2B from B2C
Eland, South Korea’s apparel retail giant, is shifting its business strategy from B2C to B2B as part of its efforts to improve its financial soundness after aggressive pursuit of an M&A strategy. It is the part of the shift that the company recently teamed up with local small medium enterprises (SMEs) in developing new materials at the newly established R&BD Center in Vietnam, and subsequently supplied the newly developed materials to other multinational fashion brands.
The extensive M&A campaign that the Korean fashion retail brand has pursued since 2009 has backfired, which hurt the group’s financial health. In the past 6 years, Eland has aggressively expanded its B2C business portfolio through M&As in hotels, department stores, marts and fashion businesses by taking over more than 20 companies. These include Ashley, Bears Town Resort, Daegu Prince Hotel, Carrefour Korea, Kim’s Club, Ashley the restaurant, Teenie Weenie, Mandarina Duck and Coccinelle. As a result, as of January 2016, the size of its debt has increased from 2.1588 trillion won (US$1.877 billion) in 2010 to 5.2081 trillion won (US$4.528 billion) in 2015, and its debt to equity ratio marks 345 percent.
Recently, the credit rating agency Nice Investors Service degraded E-land Park’s credit rating from A3+ to A2-. An economist at the Nice Investors Service noted, “It's hard to upgrade ratings of affiliates of the group, despite their good business performance, unless they decrease the amount of debt."
Against this worrisome backdrop, the news of the Eland’s shifting to a B2B strategy is a groundbreaking move. Eland has recently established a strategic alliance with KOTITI Testing and Researching Institute, Hyosung Group, and the Korea Institute of Industrial Technology (KITECH). Currently, E-Land is supplying the newly developed materials to the world's leading multinational companies such as Marks & Spencer and 3M.
Last year, Eland set up a research and business development (R&BD) center in Vietnam with a view to jointly developing new materials with local small and medium enterprises (SMEs), and on July 26 the group announced the first new materials developed at the R&BD center were ready for sale.
One of the newly developed fabrics is dubbed “Sun Shot Tech.” Using a nanocoating technology, the material is endothermic. The company said that Sun Shot Tech can raise body temperature up to 1 degree Celsius higher than currently available endothermic fabrics. In addition, the company has successfully developed techniques such as an IR-cut method that creates a cooling effect for the wearer, a technique to use anti-bug properties treated with permethrin, and a glow-in-the-dark technology that absorbs light in daytime and emits it at night.
Industrial sources said Eland’s shift from B2B to B2C can also be attributable to the sluggish consumer market both at home and abroad, particularly in the Chinese market. Some also hint at the stock market pressure on Eland to restructure its deteriorated financial structure following the aggressive M&As.