Samsonite sets its sights on acquisitions in China

From his office in Kowloon across the water from Hong Kong island, Tim Parker, chief executive of Samsonite, displays the confidence of a man who has turned round struggling businesses before.

Dressed casually in jeans, the man once dubbed the "Prince of Darkness" for slashing costs and jobs at Clarks in an ultimately successful bid to save the shoe company, has managed to repeat the trick at Samsonite.

He was made chief executive in 2009 by private equity group CVC to save its investment. He has since turned round the 103-year-old luggage manufacturer, which, after listing in Hong Kong in June 2011, has increased its share price by about two-thirds to HK$22.50.

From where he sits, the view of Victoria Harbour is spectacular. But Mr Parker is eyeing something across the border in China that will help the company gain a bigger slice of the Chinese market.

"There are more brands in China and Asia generally which might be interesting," says Mr Parker. "I can well imagine in the next three to four years that the company will make its first acquisition of a Chinese business."

In fact, Samsonite has a potential target in mind. Mr Parker refuses to disclose the name, but makes clear that Samsonite is thinking of moving beyond its traditional stable of products.

Aside from its flagship brand - Samsonite - it owns American Tourister, a mid-priced range that is increasingly popular in China, and Hartmann, an expensive product that was once the valise of choice for US presidents.

"There are definitely companies that could be very interesting from the perspective of additional product categories and could be very interesting from the perspective of distribution, or both," he says.

Asked how much cash Samsonite has for acquisitions, he says jokingly, "bucket loads", before adding that it has between $150m and $200m on its balance sheet, with no debt. "I don't think it's overly ambitious for us to spend a billion dollars plus on acquisitions," he says.

While Samsonite has one company in its sights, Mr Parker suggests that others purchases will follow, and that "it's more likely that we will be spreading that billion across a number of acquisitions".

But will Samsonite consider buying one of its main rivals, such as Tumi or the Indian luggage maker VIP? Mr Parker says no. Tumi has an "extremely high valuation" that would make an acquisition expensive and, while VIP is a feasible target, he hints that Samsonite wants to go elsewhere.

"VIP is the other sort of big player in the Indian luggage market and we compete against each other, and I suspect that's the way it's going to be for some time," he says.

One reason Samsonite is looking so closely at a company in China is that the Chinese market has become its second biggest, delivering 10 per cent of global revenues, after the US.

Even though there has been a slowdown in growth this year, mainly because of President Xi Jinping's austerity campaign, Samsonite expects its sales in China to grow by 12-15 per cent this year.

Ramesh Tainwala, Samsonite's president for Asia, says several factors are driving growth in China, including the rise of e-commerce. He says online sales in China have doubled over the past year, and now contribute about 16 per cent of total revenue in the country.

Illustrating the growth, on Singles Day - a modern Chinese 'holiday' for bachelors that falls on November 11 - Samsonite sold $1.5m in luggage.

Mr Tainwala says young Chinese are also starting to travel more, boosting demand for brands such as American Tourister, which is experiencing double the growth in China of Samsonite's main brand.

The third reason for the strong market is the growing number of consumers in so-called Tier 2 and 3 cities, and increasingly the Tier 4 cities. Tier 2 cities - such as Chengdu and Xian - account for one-third of Samsonite's China sales, up from a quarter a year ago. "The wealth and the buying power is clearly moving to these smaller cities," says Mr Tainwala.

Mr Parker and Mr Tainwala are keen to stress the other parts of Asia where they are increasing market share. Indonesia - which is vying with Russia to be its top growth market - is the fastest-growing market in Asia, expanding annually at 50 per cent.

Mr Parker puts his success down to a couple of factors. When he took over, he decided that Samsonite had to tailor products for consumers in different regions, instead of pursuing the approach taken by many luxury companies which sell the same product in similar stores across the world. Aaron Fischer, an analyst at CLSA, says another "clever strategy" was to buy a brand like American Tourister to help Samsonite capture less wealthy consumers without damaging its main brand.

Samsonite sells about $2bn in suitcases and travel bags every year, or roughly five times more than Tumi, its closest rival. In August, it said net profit for the first six months of 2013 rose 3.4 per cent to $85m.

Mr Parker says empowering its local employees around the world also helps it work out what consumers want. "We don't have a bunch of expats wafting around, you know, trying to pretend that they understand elements of local culture."

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