Although all the media headlines Thursday are focusing on the resolution of Ted Baker’s “hugging” scandal caused by the inappropriate behavior of its former boss Ray Kelvin and the company’s fresh start with its new head, the actual key business news is slipping through the cracks – and that is the company’s new China venture.
Like the recently bailed out House of Fraser and Debenhams, which has slipped into administration this week, Ted Baker is operating in a difficult environment where its shop sales are fighting a fierce battle against online retailers like ASOS and have to cope with general consumer cautiousness caused by Brexit.
Ted Baker shares have been slipping since the beginning of March when the stock was over 1900. This morning Ted Baker shares are at 1478. The stock is dropping again this morning.
Why we like Ted Baker shares
But the reason why Ted Baker will likely be a buy is that the company has just partnered up with Shanghai LongShang Trading which will allow the company to expand into the massive and very lucrative Chinese market.
Chinese clothes sales follow a slightly different pattern than those in the West. Big, recognizable labels carry much more of a cachet than they do in the West and though relatively expensive on the local market they tend to do well overall. Also, Western online retailers can’t really compete in that market against high street sellers because online sales are 80% dominated by the local platform Alibaba.
In addition regulation makes it not only hard for Western sellers but adds to their costs, making them more expensive than local alternatives. For all of those reasons ASOS decided to pull out of the Chinese market where instead of making a massive profit it managed to incur losses.
Last but not least the Chinese economy is growing at around 6% a year. And while this causes panic among economists because it is seen as too low to fuel global economic growth in terms of clothes sales, this is a decent expansion, particularly when compared with the forecast GDP growth in the UK, US and Europe, all around 2% and lower.