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"Forced" out of the fast fashion Smith Barney ME & CITY temporarily unsuccessful
Over the past eight months, Zhou Chengjian, the leader of Smith Barney, has been aggressively expanding by purchasing or leasing 39 commercial properties across 19 provinces and cities, with a total investment of 785 million yuan for the ME & CITY campaign. Surprisingly, even at this rapid pace, it still fell short of expectations. Zhou had hoped to open hundreds of ME & CITY outlets in 2009, but the reality was that only over 70 stores were actually opened. The expansion of ME & CITY was too fast—within just one year, the brand had more than 70 stores across first- and second-tier cities nationwide, with large store areas. For example, in Beijing, the smallest mall exceeded 800 square meters, while two other stores, including a flagship location, reached 3,000 and 10,000 square meters respectively.
“ME & CITY is a big success,†said an anonymous insider. “The boss is really rich.†On August 28, 2008, Smith Barney went public at an issue price of 19.76 yuan per share, issuing 70 million shares. The stock closed at 26.9 yuan on its opening day, causing Zhou Chengjian’s net worth to soar above 160 billion yuan in a single day. In the following weeks, Zhou continued to pour money into ME & CITY, and the insider believed the boss was both powerful and wealthy. However, what the insider didn’t know was that Zhou was now facing serious challenges.
In the third quarter of 2009, Smith Barney's net profit plummeted by nearly 60%. ME & CITY, which had already cost a significant amount of money, was not only losing money but also failing to meet its goal of opening 100 stores within a year. While the company could theoretically run 3,000 stores, it struggled to manage even 100. “In the first 15 years, I’ve never seen negative growth in the third quarter,†Zhou admitted. As financial reports continued to come out, the situation became increasingly worrying.
Despite its peak reputation in the U.S., Smith Barney’s performance in 2009 was far from glorious. According to the third-quarter 2009 earnings report, Smith Barney’s net profit dropped by 57.5% to 68.372 million yuan, while total operating income grew by only 7.88%, much lower than market expectations. As the company faced criticism, many began to look back and question the reasons behind the decline.
Zhou Chengjian had heavily invested in ME & CITY, hiring well-known figures like actor Wentworth Miller from "Prison Break" and supermodel Bruno Tenorio as global brand ambassadors. He also assembled a world-class design team led by Luc Bruno. These high-profile moves led many to believe that Smith Barney’s entire focus was on ME & CITY. However, in reality, ME & CITY was meant to complement and extend the Smith Barney brand, targeting young consumers who had grown up with the brand over the past 13 years.
Unfortunately, ME & CITY, which was supposed to be the second pillar of the company, ended up becoming a burden. It was just the beginning of ME & CITY’s attempt to make a comeback. After launching the brand, the company started buying shops across the country. In the first eight months of 2009, Smith Barney’s “buyers†traveled extensively, acquiring or leasing 39 commercial properties in 19 provinces and cities. Among them, six properties in Zhejiang and Fujian alone covered nearly 30,000 square meters, with an average of 5,000 square meters per property, totaling 785 million yuan in investments.
Smith Barney attributed the delays in store operations to a lack of experience, with each store taking an average of 77 days to open. This caused not only delayed revenue but also increased costs, leading to a loss of 100 million yuan. In the first three quarters of 2009, the company’s sales cost ratio rose to 30.13%, up from 20.94% in the same period in 2008—a 9.19 percentage point increase.
According to Wang Wei, an analyst at Merchants Securities, the rapid expansion of ME & CITY was poorly planned. The cost-benefit timeline did not match, and the construction of new stores fell short of expectations, with delays significantly affecting the project. Additionally, the need for more talent and higher labor costs further increased the company’s expenses.
Since 1994, Smith Barney had steadily grown in the apparel industry, achieving consistent success. By 2006, its system-wide retail sales surpassed 4 billion yuan, creating an industry miracle. In 2008, the figure reached 7 billion yuan, making it the top casual wear brand in China. Zhou Chengjian was once hailed as a genius in the fashion industry.
From first-tier cities to smaller ones, Smith Barney had expanded rapidly, with a strong understanding of the Chinese market. Nearly 100% of its outlets were in first-tier cities, 66% in second-tier, and 33% in third-tier cities—coverage that many international brands could not match. Yet, despite this, ME & CITY, with only a hundred stores, experienced such a dramatic setback. The company’s lack of experience in managing a new brand seemed to be the real problem, and the consequences were far worse than simply failing to open 30 stores.