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In the past eight months, Zhou Chengjian, the head of the company, has acquired 39 commercial properties across 19 provinces and cities through purchasing or leasing, with a total investment of 785 million yuan. This strategic move was aimed at boosting the momentum of ME&CITY, a new brand under Smith Barney.
However, despite the rapid expansion, it did not meet expectations. Zhou had hoped to open hundreds of direct sales stores in 2009, but only 70 were actually established. “ME&CITY is growing too fast,†said an insider, “but even within just one year, it has already opened over 70 stores in major cities nationwide, with large store areas.†For instance, the smallest stores in Beijing are over 800 square meters, while flagship locations reach up to 10,000 square meters. “No way, the boss has money,†the insider added.
On August 28, 2008, Smith Barney went public, issuing 70 million shares at 19.76 yuan each. The stock opened at 26.9 yuan, giving Zhou Chengjian a market valuation of over 16 billion yuan in a single day. His heavy investment in ME&CITY fueled speculation that he was extremely wealthy.
But behind the scenes, things were not as smooth. In the third quarter of 2009, Smith Barney’s net profit dropped by nearly 60%, and ME&CITY, which had been heavily invested in, was operating at a loss. The plan to open 100 stores in a year was eventually abandoned.
Zhou Chengjian admitted that this was the first time in 15 years of business that he faced negative growth. “I couldn’t have predicted that the reputation of Smith Barney would be so impressive, yet the performance in one year was far from glorious,†he said.
According to the Q3 2009 financial report, Smith Barney's net profit fell to 68.372 million yuan, down 57.5% year-on-year. While revenue increased slightly by 7.88%, it still failed to meet market expectations.
As the company searched for reasons behind its poor performance, ME&CITY became a focal point. Zhou had invested heavily in branding, hiring actors like Winterworth Miller and international models like Bruna Tenorio, as well as bringing in top designers. Many mistakenly believed that Smith Barney was solely focused on ME&CITY during that period.
In reality, ME&CITY was meant to be the next step in expanding the Smith Barney brand, targeting young consumers who had grown up with the brand. However, the venture turned out to be more of a burden than an advantage.
The strategy involved acquiring commercial real estate across the country, with 39 properties purchased or leased in 19 provinces within just eight months. Some of these were bought in Zhejiang and Fujian, with each site averaging nearly 5,000 square meters, totaling 785 million yuan in investments.
Despite the aggressive expansion, many challenges arose. According to Mebon, lack of experience led to delays in store openings, with an average delay of 77 days per location. This caused costs to rise significantly, with the sales expense ratio increasing from 20.94% in 2008 to 30.13% in the same period in 2009.
Analysts pointed out that the rapid expansion was poorly planned, leading to high costs and mismatched timelines. “Opening 100 stores all at once was not feasible,†said Wang Wei from China Merchants Securities. “There was a lack of management experience, and the company was trying to grow too fast.â€
Smith Barney had a strong history in the apparel industry, with a successful track record in franchising. By 2008, it had over 3,000 stores nationwide, covering 100% of first-tier cities, 66% of second-tier cities, and 33% of third-tier cities—far surpassing many international competitors.
Yet, ME&CITY struggled to keep up. Despite its ambitious goals, it only managed to open 100 stores, facing numerous operational challenges. The brand's lack of experience in managing such a large-scale project was evident, and the results were worse than expected.
ME&CITY had initially aimed to position itself as a high-end brand offering premium fashion at affordable prices. But due to market demands, it shifted toward fast fashion. “It wasn’t our original intention,†said an insider. “We were forced into it.â€
Fast fashion had become a booming trend in China, with brands like ZARA, H&M, and C&A entering the market and dominating the scene. ME&CITY tried to compete, but it struggled to gain traction. Even after opening several stores in Beijing, it still couldn’t match the popularity of other major brands.
“Consumer acceptance is low,†said Swallows. “People aren’t loyal to the brand; they’re loyal to discounts.†Without a strong brand identity, ME&CITY risked repeating the mistakes of other fast-fashion brands that failed to sustain long-term success.
Despite the challenges, some analysts remain optimistic. Guoxin Securities predicts that ME&CITY’s revenue could reach 1 billion yuan in 2010, with growth rates exceeding 50% from 2010 to 2012. Whether this optimism will materialize remains to be seen.