This article first appeared in The Edge Malaysia Weekly on July 16, 2018 - July 22, 2018

FOR any start-up, getting the backing of a well-established name is a bonus, especially if it is operating in a competitive environment such as the apparel business.

Three years ago, Joey Chong Yan Kit and Dino Lim Kin Ann co-founded homegrown clothing brand LOL, a new concept store that sells affordable fashion apparel. The two entrepreneurs, who had a stint in prominent garment retailer Padini Holdings Bhd, were backed by Singapore-listed Parkson Retail Asia Ltd, which is 67%-owned by Parkson Holdings Bhd.

But Chong and Lim have now parted ways with the Parkson group, helmed by tycoon Tan Sri William Cheng Heng Jem, even as LOL is still building its brand and customer base and competing against the likes of H&M, Zara, Pull & Bear, Padini and Brands Outlet.

To recap, Super Gem Resources Sdn Bhd, a 70:30 joint venture, was formed in November 2015 to operate LOL stores. Parkson Retail Asia, through wholly-owned Parkson Corp Sdn Bhd, took up a 70% stake in Super Gem for about RM702,000 (S$230,000), with the remaining 30% controlled by Superb Apparel Supply Sdn Bhd, a private vehicle equally owned by Chong and Lim.

On June 22, Parkson Retail Asia announced it had disposed of its entire stake in Super Gem Resources to Superb Apparel Supply for RM2.4 million (about S$811,000). It said the company “has been consistently operating at a loss since the establishment of the JV in 2015”.

“The company was of the view that the disposal was in the interests of the group as it enabled the group to dispose of a loss-making entity, which the group no longer considered viable, for valuable consideration,” it said.

A quick check on the Companies Commission of Malaysia (SSM) website shows Super Gem Resources’ net loss widened to RM8.07 million for the financial year ended June 30, 2017 (FY2017), compared with RM2.39 million a year ago.

Revenue, however, more than tripled to RM30.42 million, up from RM9.25 million a year earlier. Despite the stronger sales performance, the company remained in the red as it incurred heavy set-up costs in FY2016 and FY2017.

While some might see Parkson’s disposal of its stake as a move to exit its investment in the joint venture, to Chong and Lim, it is more of a management buyout deal that enabled them to gain full control of LOL.

“All this while, our team has been running the company. We have always believed in our business, which is why we decided to acquire Parkson Corp’s 70% stake in Super Gem Resources,” Chong tells The Edge in an interview.

Lim concurs, saying LOL is “our brainchild” and their ambition is to take the local brand to the international leagues. “Since day one, our vision and direction have been set and we know where we are heading. We know what is happening with the current and upcoming trends and the lifestyle our customers are looking for.”

Chong and Lim, who are general managers of Super Gem Resources, have 15 years’ experience in the retail apparel market in Malaysia, Thailand, Indonesia, Vietnam, Saudi Arabia and the United Arab Emirates.

Lim says LOL’s positioning in the mass market is to offer the best value for money as 80% of its products are priced below RM50.

“We are targeting the late teens and young adults to the late 30s — people who are enjoying their life, have a lot of choices and want to look good and fashionable. We have a team of designers and carry many in-house brands, which are outsourced to original equipment manufacturers in China, Bangladesh, Indonesia and Vietnam.”

While Super Gem Resources remained loss-making in FY2017, he says the company is aiming for revenue growth of 30% in FY2018 and is on the right path to achieve a better bottom line, Lim adds.

Building a brand from scratch requires extensive efforts to create the customer base, marketing the new business, hiring employees and establishing cash flow, he explains.

“All this is coming to an end and we are seeing our efforts bear fruit. The numbers are getting better. We are almost there. We are confident we will break even this financial year (FY2018) and generate profits after that.”
 

Rapid expansion

LOL opened two stores in 2015 but its first store, in Maju Junction in Kuala Lumpur, was shuttered a year later as it was not doing well. Today, it has 16 stores across the country — 11 in the Klang Valley, two in Johor, two in Sarawak, and one in Melaka.

Chong says LOL will continue expanding as it has been doing over the past three years, with a 17th store to open soon in Sunway Pyramid. Going forward, its plan is to move into the bigger shopping malls such as Pavilion KL.

“In the next three to five years, we are definitely looking at rapid expansion. Domestically, we plan to have 40 to 50 stores in total. We have yet to expand to Sabah, but we will first prioritise the top malls in the Klang Valley,” he says.

LOL is also eyeing regional expansion in Southern China and Southeast Asia and is “actively in talks with a retail group in China to explore an option to open LOL stores there. We hope the plan can materialise as soon as the end of this year.”

LOL sees strong prospects in some Southeast Asian markets such as Thailand and Indonesia. “People in these countries understand fashion and lifestyle and they know what they want. In fact, we have tried selling to the Indonesian market before, and the response was good,” Chong notes. He declines to reveal the capital expenditure budget for new stores, but says Super Gem Resources needs to get the right partner who can add value to the company.

He says there are no immediate plans for a listing to raise capex. “Instead, we are looking for private equity funds and bank borrowings.”

To get to 50 stores in Malaysia by 2023, LOL has to open 33 new stores within the next five years.

Channel checks show that the average set-up cost per store is about RM3 million. That means Super Gem Resources would need about RM100 million, a back-of-the-envelope calculation shows.

LOL may not have been a significant investment for Parkson, but for Chong and Lim, they are building their life’s dream. Time will tell whether the brand, without the backing of Parkson, can shine in a highly competitive landscape. 
 

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