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Nov. 29 (NBD) -- Italian fashion house Giorgio Armani (Armani) is to strike a deal to purchase inventories and related fixed assets from two of its Chinese distributors Shanghai Oulan and Zhenqiao Fashion, according to an announcement made by the distributors' parent company Shenzhen Hemei Group Co., Ltd (Hemei Group) Tuesday.

Under the agreement, the two distributors will sell combined inventories and fixed assets for no more than 210 million yuan (30.3 million U.S. dollars) to Armani's Shanghai unit. After the deal is closed, they will not distribute Armani products after a transitional period.

It is noticed that the deal is slightly below the net book value as some of the inventories were purchased over a year ago. Added with layoff compensations, the transaction is expected to generate a book loss of approximately 25 million yuan (3.6 million U.S. dollars) for Hemei group.

The group explained that distribution businesses for Armani haven't met expectations since it acquired Shanghai Oulan and Zhenqiao Fashion, which to some degree disrupted the group's running of its international brand portfolio. 

According to the announcement, operating revenue of the two Armani distributors stood at 473 million yuan (68.2 million U.S. dollars) with net profits running at around -18.5 million yuan (-2.7 million U.S. dollars) in the first three quarters of this year.

Luxury goods expert Zhou Ting told NBD that distributing products through a local agent is a common method employed by foreign brands at the initial stage in order to enter a new market in a faster yet safer way.

However, such brands are likely to withdraw distributing rights when they are gradually recognized by local customers and their own distributing channels are taking shape.

Zhou predicted that the distributing model through agents will be totally abandoned in the future and foreign brands will sell products directly through their physical stores, online platforms or third-party platforms.

It is also worth noting that Shanghai Oulan, the first Armani distributor in mainland China, turned to younger Italian brand MSGMSrl (MSGM), Hemei Group announced on the same day of its departure with Armani.

Born in 2008, MSGM is an Italian apparel brand aiming at high-end customers under 35 years old.

Hemi Group said in the announcement that the tie-up with MSGM is a proof of its operating capability for foreign brands and will continue to adjust its portfolio by seeking for affordable luxury brands with high inventory turnover ratio so as to cater to the needs of young customers.

Email: tanyuhan@nbd.com.cn